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Google Misses But It’s OK
Google released its quarterly earnings yesterday. We were liveblogging them, and they were a miss. But it’s OK, for the following reasons:
- The quarter was solid overall. Paid click growth accelerated to 34% y/y, and margins were strong. Hiring slowed q/q and capex was steady
- There were two big factors in the miss: 1) mobile usage is surging, which drives up clicks but lowers average CPC (cost-per-click), which was down 8% because CPCs are lower on mobile; as Barclays analyst Anthony J. DiClemente put it, it’s a “high class problem where strong volume growth comes at the cost of pricing shorter-term”; 2) global macro factors, notably the slumping dollar and the weak European economy.
- Other businesses were strong. CEO Larry Page announced that display is now a $5 billion annual revenue runrate business, there are now 700,000 Android activations per day, and as noted above mobile usage is surging (Google’s mobile marketshare is estimated to be even higher on mobile than on PCs).
The Truth About Apple’s Textbooks Announcement
Many people, including our own analyst Alex Cocotas, thought Apple’s textbooks announcement was underwhelming. (We covered it here; briefly, Apple introduced a new iBooks where people can download textbooks, and an iBooks Author software that allows people to easily make interactive textbooks). And it was–but with a big caveat.
The big caveat is this: it’s only the beginning. Apple is going after the high school market, which is going to be hardest to crack because districts are cash-strapped and resistant to change. We believe Apple decided to start there to lower expectations and test out its platform. It will later expand to colleges.
More broadly, we believe the real “target” of the initiative is not the textbook market so much as Amazon’s Kindle ecosystem, which today is the only real rival to Apple’s tablet dominance (we expect this to change this year as a Google-owned Motorola introduces cheap tablets, but that’s another story). We view iBooks Author, in particular, as the biggest piece, aimed at sidestepping Kindle, which today is the best platform for electronic publishing, by getting authors to make interactive books optimised for Apple’s platform. We believe this effort is doomed to fail, because outside of trade books what authors like to do and consumers like to read are simple text-based books, not fancy interactive textbooks, but we believe Apple will do everything to attack Amazon’s Kindle ecosystem, starting with the strongest root of that ecosystem, its e-publishing might.
Apple greatly misjudged the potential of Kindle. Steve Jobs famously dismissed it, saying “the whole conception is flawed at the top” because people “don’t read.” But a lot of people do read, and those who do tend to be rabid fans with disposable income, which is exactly the right kind of audience on which to build a broader media and device ecosystem, which is what Amazon is doing. The people at Apple are smart, however, and they’re now realising they’ve been outsmarted and outmaneuvered. And when this happens to Apple, its response is furious–witness the multipronged legal war against Android after Android underpriced and overtook the iPhone.
The textbooks announcement was underwhelming. But it’s only an opening salvo in what promises to be a brutal war for online publishing.
DON’T MISS: Our Primer On Kindle Economics →
In other news…
Microsoft beat street consensus EPS of $0.78 versus expectation of $0.75, but just missed on revenue with $20.89 billion versus expectation of $20.92 billion.
Facebook is in talks with Vevo to replace YouTube as its host, according to a report. The talks were described as preliminary. Vevo is the music label-owned video site which hosts most music videos online and is currently affiliated with YouTube. That would be a big development: Facebook is already a large destination for video, and obviously already has all the audience.
SecondMarket, the private market and alternative investments company, had over half a billion dollars in transactions last year, and the majority of them were in the consumer web and social media industries. The numbers just underscore the fact that funding for tech startups and other companies is changing. See our article about the way that financing for companies is evolving. →
Smartphones are being used less often for video-watching, checking in, and coupons than just a year ago. Other uses (internet browsing, texting, games, etc) either rose in popularity or stayed about the same. The survey shows there’s a lot of room for growth in the mobile content business: less than half of those surveyed regularly use apps on their smartphones, for example.
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