Wall Street and pundits have been in a tizzy lately over the rise of mobile and how it might decimate the ad-driven business models of Facebook and Google. They’re wrong. Instead of being a threat, mobile is a huge opportunity for both companies to grow their existing bases and expand into new markets. It just won’t happen in a quarter or two.
In Google’s case, analysts looked at the decline in the company’s average cost per click and said “Aha! Mobile is destroying your business.” That’s an overly simplistic analysis. Last year, I pointed out how numbers that looked good in Groupon’s financials could eventually be bad. In Google’s case, numbers that on the surface look bad could actually be good. There are scenarios where a declining CPC is actually a positive for the business, not a negative. We just don’t have the data to say for sure. But based on my experience in the search business, the decline doesn’t worry me.
In Facebook’s case, analysts look at the increasing engagement on mobile devices and said “Aha! You have fewer ads on mobile than on Web. Mobile is destroying your business.” Yes, there are fewer ads on mobile, but it is early days and that might not be a bad thing. Facebook hadn’t really focused on mobile advertising; it’s starting to do so now. When I look at Facebook’s revenues, my view is that they’re making $4 billion in revenue almost by accident. Until recently, revenue wasn’t a huge focus for the company.
Google and Facebook are doing the right thing investing in mobile right now.
Mobile is clearly the future. When Apple releases its fiscal fourth quarter earnings on Thursday, I expect we’ll see that Apple has sold close to $100 billion in mobile devices in the year. As of its third quarter, Apple had $88 billion in revenue from its iPad and iPhone segments for the fiscal year. That’s $88 billion worth of products that didn’t even exist six years ago. The iPad segment is 50% bigger than the Mac segment. iPhone is nearly four times as big as the Mac segment.