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Monetizing mobile search is the most important opportunity for Google in 2011 according to JP Morgan Internet analyst Imran Khan.The analysis provides clear justification for Google’s spending on Android, which it gives away for free in hopes of driving mobile search traffic.
Khan gave his 2011 outlook for the Internet sector this morning, and highlighted Google’s mobile search business as one of his top 10 areas to watch, for several reasons:
- Although 15% of Google searches come from mobile devices, only 3% of Google’s search advertising revenue comes from mobile.
- Mobile search queries have increased 5x during the last two years, and are growing at an accelerating rate.
- Overall mobile ad spending is predicted to grow from $743 million in 2010 to $2.55 billion in 2014–that’s 3x revenue growth, which is much faster than the predicted rates of growth for Web-based search and display advertising.
Overall, Khan expects worldwide search advertising revenue to be up 20%–about $7.3 billion–in 2011, driven by more mobile and international queries and stabilizing ad budgets. Since Google’s international market share remains stable around 63%, most of that increase will go to Google. Khan estimates that every 1% in net search revenue growth translates to $0.35 in earnings per share.
Display advertising will also be important: Khan predicts it will contribute $1.2 billion in incremental revenue during 2011, as Google continues to take share from other players, particularly AOL. However, Google only has about 11% of the display advertising market, the bulk of which is split between many smaller players.
Google’s biggest vulnerability is the rise of Facebook, which is driving much more traffic to third-party sites than it was a year ago. Google still has more control over the flow of traffic on the Internet than any other company, but its share is slipping while Facebook’s is growing rapidly. The most startling example: in October 2009, 20% of Amazon’s traffic came from Google while less than 2% came from Facebook. A year later, Amazon was still receiving almost 20% of its traffic via Google, but Facebook had grown to 8%.
Whoever controls traffic controls advertising dollars.