- Google is testing paid search listings for apps in its Play Store.
- Google could potentially leverage Android’s global smartphone OS market share.
- Google Play Store ads hold great potential and could drive Google’s revenue growth.
With Google’s ad revenue growth slowing in recent times, the search giant has been under pressure to unveil its next growth driver. With its decision to place ads in its app store, it might have done just that. Google (NASDAQ:GOOG) is now slated to enable a paid search listing within its app store, for app developers who want to run paid promotions for their apps.
As we mentioned in our post covering Google’s acquisition talks with InMobi, the mobile advertising platform, Google seems to be focusing on a two pronged approach to shore up its ad revenue growth. While in-app advertising comes across as one focus area, placing ads within its app store seems to be the other. Do note that news about the InMobi acquisition has been dismissed as a rumor by InMobi. However, Google will still be looking to push forward in in-app advertising, given the potential it holds.
While sponsored search results for apps hold one obvious benefit of boosting ad-revenue for the search giant, it could also help the company compete better with rivals Facebook (NASDAQ:FB) and Apple (NASDAQ:AAPL).
Google Play Store Search Ads Hold Huge Potential
Google’s Play Store search ads could potentially grab the attention of a whole host of app developers, and of the lot, game developers hold special promise.
Game developers are known to spend generously to promote their apps. According to a report on the Wall Street Journal, in 2014, King.com, which owns the popular game Candy Crush Saga, is estimated to have spent close to a fifth of its revenue on advertising. The report suggests that King.com spent over $400 million during the year, of which, a major chunk was gleefully taken home by Facebook.
At the end of Q4 2014, Facebook had close to 1.2 billion monthly active users on mobile, making it a great platform for mobile app promotion. That’s partly why it’s not surprising that Facebook has gained ground on Google. However, Google’s Play Store ads could give Facebook a hard time and possibly help Google sustain its lead.
According to IDC data for smartphone OS market share, over 1 billion Android smartphone units were shipped in 2014 alone. Here’s an interesting excerpt:
“Android pushed past the one billion unit mark in 2014, a significant milestone by itself but also because total Android volumes in 2014 bested total smartphone volumes in 2013.”
Google’s play store ads could end up taking a sizable bite out of app distribution spends by app developers like King.com. After all, Google is better placed to tap users at the source in its Play Store. A user who searches for a particular kind of app and sees a relevant search result is more valuable to app developers than one who sees a whole host of promoted apps on any other app distribution platform.
Google Play Store Ads Could Help Close The Gap On Apple
As we know, Google’s android has really taken over the global smartphones market, running on four times the number of devices, as its closest competitor Apple. Yet, Apple generates more money from its App Store than Google does from its Play Store.
Apple’s app store reportedly generated a revenue of over $10 billion for app developers in 2014. App developers typically keep about 70% of app sales, implying App Store sales of about $14.3 billion, and Apple’s revenue share of about $4.3 billion.
On the other hand, Google reported in Feb 2015, that it paid out over $7 billion to app developers, implying a total sales of about $10 billion, and a revenue of about $3 billion for Google.
However, Google Play Store ads could unlock huge potential and help Google leverage Androids market share among smartphones.
Sponsored search listings for apps in Google’s Play Store could potentially drive revenue from app distribution. However, even if that doesn’t happen, these ads will definitely help Google generate more money from its app store than it did thus far.
Based on these numbers, Google’s revenue from app distribution should account for roughly about 40% of Google’s $6.95 billion ‘other revenue’. Then again, Google’s Play Store also has music, books, movies and more, giving the company more avenues to expand into, with its search ads.
Google’s Play Store ads are still in testing stage, and a full-fledged roll out is yet to be announced. However, a full-fledged launch across play store will aid Google’s slowing growth at a time when the company’s growth has come under considerable scrutiny. You can watch our Google stock analysis video for a quick roundup of Google’s key financials.