Google’s Income From Mobile

Google’s Expenses for Android

Google has spent a lot of money on Android:

Google’s Income from Android

Earlier this year, Gene Munster (of Piper Jaffray) estimated that Google earned $5.90 per user in 2010 from Android-related advertising and predicted an increase to $9.85 per user in 2012.

On July 16, 2011, Horace Dediu wrote an article that included a chart showing Android having a user base of about 130 million users. The same chart shows an iOS user base of about 215 million.

Google’s Expenses for iOS

Google has built a bunch of iPhone apps (11 by my count for iPhone – Google Search, Google+, Google Earth, Google Translate, Google Voice, Google Places, Google Books, Google Latitude, Google Shopper, Google TV Remote, and Google Authenticator).

They have also built mobile-optimized versions for many of their web sites.

The development cost of all of this is small, at least relative to their expenses for Android.

Google’s Income from iOS

Google’s Mobile Ads are available for iOS application developers.

What differences are there in the platforms that would cause Google’s income per iPhone user to be different than their income per Android user?

In spite of these differences, in an eWeek article from January 9, 2011, Clint Boulton claims that Admob (Google) “remains a major provider of Apple iPhone ads”.

If we assume that half of the iPhone ads come from Google, then we can estimate that Google makes between $3 and $5 per iPhone user per year.

Profits

At 130 million users and $9.85 in income per user per year, it would take Google almost 10 years to break even on their documented investment in Android.

At 215 million users and $5 in income per user per year, Google would take in about $1 billion per year from iOS users. This is in far excess of the amount of money they have spent on iOS-related development.

I’m not suggesting that Google should not have invested in Android. I think their interest in Android is ensuring that they have control over a client that will be the next big advertising platform, not short-term profit. If they hadn’t built Android, they would likely be reliant on Apple (or another platform that filled the void) to “allow” them to advertise on their platform. Perhaps Apple wouldn’t have bought Quattro Wireless and built iAd if Android didn’t exist (and Google hadn’t bought AdMob).

I think it’s reasonable to say that as of 2011, Google makes more profit from iOS than Android.

Apple

By way of comparison, Mobile Phone Tracker estimates that Apple earns an average of $368 from each iPhone sold. Keep in mind that this only accounts for parts and assembly costs, not marketing, development, etc. Even so, by these estimates, Apple is making 37 times per phone sold than Google. Maybe this is some incentive for Google enter the hardware market.

So Why is Google Following their Current Strategy?

Google could be making about the same amount of money from mobile as they do now, with none of the costs, without Android. Why android, then?

  1. Defensive – make sure they control the client and can’t be locked out of future advertising sales and that they have access to the valuable customer demographic and behavior data that’s not available to them as easily from iPhones.
  2. Evolve into Apple’s full vertical strategy – hardware seems to be where the real money is currently at in mobile.