There’s a mixed bag of news for Google to confront their new CEO, and it’s mixed in multiple dimensions. Android and the basic business of search are showing a combination of positive and negative signs, and confusion is never a good thing.
On the Android side, there’s excitement over the new Honeycomb version for tablets, and also an indication that Android is gaining at least numerical shipment ascendency. It’s passed Symbian as the most popular phone OS, and there are projections that Android tablets will pass iPads soon too. So it seems all good for Android, except that Google hasn’t been able to monetize Android like Apple has monetized its smartphone and tablet platform iOS. A big part of that is the ruthless discipline Apple has enforced on apps. Apple kicked some Sony apps off because they let you buy ebooks around iTunes, and that suggests that Amazon and Barnes & Noble may also be in for problems. Android has a more fragmented store framework to begin with, and Google has less control and gets less direct money. Thus, success in a market sense doesn’t necessarily translate to something Google can bank.
In the search area, the problem is the competition from Facebook and Twitter. Advertisers have run the numbers a bunch of ways, and what they’re finding is a mixed bag. On the one hand, it’s clear that search ads get more conversions, meaning that people click on them and act on the results more often. That’s likely because people search for products they want to buy, creating a direct link. But social-network ads get more “impressions” meaning that they’re presented to a lot more people. That means that even with very low conversion rates, they might still outperform search. At the very minimum, this kind of mixed news could mean that some ad dollars will flee search for social networking, and if the return is indeed better then it might never come back.
The tide of operators looking at monetizing Internet traffic is a more unambiguous negative for Google. All week, EU operators have been saying that it’s not tolerable for them to invest in additional capacity to support the business goals of OTT players when they don’t get any of the money. In Europe, the focus seems to be on creating an OTT-pays-for-peering model that would provide the access ISPs some revenue. Here in the US, that option seems foreclosed by the FCC’s neutrality order, but just in case there’s proposed legislation that would absolutely close that choice of payment off. If that happens here, it’s likely we’d see what’s already happening in Canada, which is a sharp reduction in the per-month bandwidth allotment and a corresponding increase in what at least some users would then pay for Internet access.
For years, I’ve pointed out that the Internet usage model and business model had a fatal parasitic flaw. OTT giants could develop because they exploited bandwidth that was incrementally free, and thus present the market with a kind of no-cost (or lower-cost) business model while network operators faced a no-revenue model. If that sort of thing is carried far enough, it’s a fatal disease. I think Google under Schmidt realized that they needed a constructive accommodation with the access ISPs, and that’s what prompted the Verizon/Google discussions on “neutrality”. Whether Page sees the same need isn’t known.
The situation in Egypt is another policy thorn. Can the government cut off Internet service? In the US, as a practical matter, the answer is that it could providing that the big access ISPs honored a government request. There’d be no legal compulsion at the moment for them to do that, but I think that if a good case was made they’d likely comply. But the Administration is looking for enhanced cybersecurity, and some of the measures that could be taken might codify an obligation to shut down the Internet or a part of it on request. The Internet community, of course, is inalterably opposed to this sort of thing, but I suspect that at least a slight majority of the population would accept or even welcome the idea. Where we’ll strike the balance here remains to be seen.