Beyond Horizon

Google’s Android Market has close to 400K+ apps with more than 10 billion downloads to date and growing at 1 billion downloads a month. Even though the number of app downloads is exploding on Android Market, monetization has been challenging.  According to a recent Distimo report, iPhone apps generated 4 times the revenue of Android apps and iPad app generated 2 times the revenue of Android apps in November last year. 

Source: The Distimo Report 2011

One big difference in payment mechanism between Apple App Store and Google Android Market is that Apple requires users to have a credit card on file in order to download any apps (even free) in most markets. Apple enforces users to configure their credit card before they start downloading apps from App Store. However, on Android Market users don’t have to configure their credit card to download free apps. They are prompted to enter credit card details only when they buy a paid app. Therefore, buying a paid app is much simpler one-click user experience on Apple as credit card details are already available at the time of purchase.

Another reason for poor monetization on Android Market is low credit card penetration in emerging markets, where Android is dominant player. According to latest Avendus report, India has abysmal 0.2 payment cards per person as compared to 4.5 in US. There are 18 million active credit cards in circulation and an estimated 8 million unique credit card holders.

Source: The Avendus Report - India Goes Digital (November 2011)

Since the credit card penetration is so low, Google should look at altrenate ways to facilitate payment for Android apps. Carrier billing is one solution and Google has tied up with several mobile operators to help make payment for apps directly though mobile prepaid or postpaid accounts.  However, Google’s carrier billing penetration is quite low as it supports carrier billing in Germany, Italy, Japan, Korea, Spain, UK and US only. Google need to tie up more aggressively with carriers to increase the reach.

There are various companies (such as Boku, Zong, InMobi etc) that have started providing carrier billing options to app developers as 3^rd party provider. These companies have much better reach than Google’s carrier billing solution, but apparently Google doesn’t allow developers to integrate 3^rd party payment providers while distributing apps through Android Market. This is quite frustrating and it significantly curtails monetization opportunities for developers.

Time is running out for Google and it needs to solve these ecosystem problems soon. The solution may lie in supporting additional payment channels (such as PayPal or Alipay in China), tying-up with carriers aggressively or acquiring a carrier billing company that already has good reach. Whatever is the solution, Google must act fast.

ComScore’s US digital future in focus report is out and it brings out quite a few interesting trends for smartphones. Look at the chart below about smartphone platform market share:

Source: ComScore

It is interesting to note that while Apple gained 4.6% market share during 2011, Android gained 18.6% to reach to an overall market share of 47.3% in US. Android is growing quite handsomely while Apple’s growth is sort of stagnating. I think Android will grow at even higher pace in 2012 due to new much-improved Ice Cream Sandwich upgrade and many new devices hitting the market. Considering that 58% of mobile users in US are yet to switch to smartphones, there is a huge opportunity in front of Android to acquire many more users. If Android is able to dominate not so price sensitive US market, I think it’ll be in even better position in emerging markets where price sensitivity is high.

Though Apple has better developer ecosystem and iOS is first choice for developing new apps today, I think Android will soon become more important for app developers simply because of its large user base.

Below is a pretty neat infographic of Google revenue distribution. It shows breakdown of Google’s ad revenue by industry. Google’s 2012 revenue was $37.9 billion and 96% of it - $36.5 billion - came from advertising.

© 2012 WordStream, a Provider of AdWords and PPC Management Software.

It is interesting to see that Amazon spent $55.2 million on advertising on Google in 2011. Amazon’s total marketing spend for 2011 was $1.6 billion, which included online advertising, television advertising, PR and payroll and other expenses of entire marketing, business development and sales department. Out of all these expenses, a third is just spent on Google. This is huge.

I couldn’t find how much Amazon spent on Facebook advertising (if at all), but I am guessing this number to be tiny. Given that Facebook already had millions of active users in 2011, why didn’t Amazon spent as much on Facebook advertising as on Google? I think the answer lies in understanding user behavior on Google and Facebook. Users go to Google with intention to purchase. When users are looking for a specific product, they search it on Google. On the other hand, users don’t go to Facebook with intention to purchase. They might discover products through advertisements, but likelihood of making a purchase as a result of advertisements is significantly less than on Google. Facebook is good for building brand awareness and accidental discoveries but probably not as effective in resulting sell.

Facebook is a threat to Google all right. But probably as not a big threat as it being made out to be!!