Much of Google’s advertising growth in Q1 2017, with the search giant earning $24.7 billion, representing a 22% increase over Q1 last year, was driven by mobile search, the company’s parent Alphabet said in an earnings call with investors. Mobile added “meaningfully to profit dollars” despite the company’s increased focus on traffic acquisition, which adds to costs. YouTube video ads are also leading to an increase in revenue from the site, as the company is spending on acquiring content for its YouTube Red subscription service. Alphabet said there was significant growth in its hardware efforts, like the Pixel phone and Google Home device, and also in Google Cloud.
Advertising revenue sees boost with growth in programmatic
Google’s ad networks raked in $4 billion, which the company said reflected growth in programmatic advertising, in which media buying is significantly automated. There was a slower rate of decline in traditional ad network, but there is little doubt of a shift of advertisers to programmatic. Both Mobile search and programmatic carry a higher traffic acquisition cost (TAC), the company said, and growth in both these segments led to a growth in TAC by 22% year on year. This was partly offset by a shift from the network to Google owned sites, which has lower TAC.
Mobile is causing a shift in behavior, though: shopping queries on mobile increased by 45%, and the retailers are providing Google with their local inventory has doubled year on year.
“We have increased our investment in machine learning in our advertising business, with efforts like Smart Bidding, where our systems predict the performance of an ad and adjust advertisers’ bids in real time to maximize their results,” the company said in the call with investors. Google added that they had driven over 5 billion app installs partly because of their app-install ad program, Universal App Campaigns, which allow developers to promote their apps across search, Google Play, YouTube and the Google Display Network.
Google said that Google Play benefited from direct carrier billing, but did not share specific details about numbers. Remember that Google had introduced Direct Carrier Billing with Idea and Airtel last year, but that rollout was initially impacted when the DoT limited it to post-paid accounts only (a tiny part of India’s total mobile user base). That policy has since changed, but changes in the taxation there will likely hurt Google’s margins, or lead to an added cost for consumers. More on that here.
Boycott YouTube mitigated
These gains came in spite of a campaign to Boycott YouTube, which came as a response to the site showing advertisements alongside controversial videos — of racists and conspiracy theorists — leading many advertisers to pull out. Google says they made “thousands” of phone calls to reassure advertisers of the systems they had now put in place to give advertisers more say in where their ads are shown.
On a more positive note, YouTube VR was Daydream’s number one app by time-spent, and around 50% of time in Daydream was spent on video consumption. The company said that YouTube revenue grew “at a significant rate”, driven primarily by video advertising. Note that YouTube also has display advertising on its website.
YouTube Kids was reported to have gotten over 30 billion video views till date.
While Google’s Pixel phone and Google Home products, along with other forays into hardware design and manufacturing saw “strong growth”, Google did not mention any specific numbers for growth in that part of its business. “Sales continues to be strong, and we are actively working to bring these great devices to more people around the world,” Google CEO Sundar Pichai said. He also pointed out that the Android ecosystem was seeing an upsurge in emerging markets, with 300 billion smartphones with the OS being sold in Brazil and India last year.
Google has had a relatively late entry in making its own hardware, unlike its competitor Apple which prided itself on making both simultaneously. With the Pixel line of phones, tablets and Chromebooks, the company made its first step into manufacturing consumer electronics. Before this, Google’s only foray into consumer manufacturing was its Nexus phones, which it made in partnership with established manufacturers. Its Google Home smart speaker is a competitor to Amazon’s Alexa. Neither of these devices is available globally yet.
The company also hopes to double the number of Android Wear smartwatches released this year. “Thanks to partnerships with major brands like TAG and Fossil, there’ll be more than 20 different Android Wear watches available this year,” Pichai said, adding that LG was releasing two flagship watches with Android Gear 2.0.
Machine learning and AI
“[…] we’re transitioning to an AI-first company,” Pichai said in the call. Google’s voice-enabled Assistant is being rolled out to more devices with the latest Android OSes, and also on Android Wear’s second iteration. It will soon be on Android TV as well.
Google’s AI program DeepMind has been defeating top players in the complicated board game Go, and will compete against the world’s best players in China in May. AI has been a cornerstone of Google’s efforts lately, and it has played a significant role in branches of Google like Waymo, the company’s self-driving car arm. It has also been using AI in its translation service too. The company’s neural network translation was rolled out earlier this month, with improvements in translation quality for Indian languages. Neural translation uses AI and machine learning to throw up better translations based on user feedback and aggregated data.
AI is also driving improvements in long-established products like Google Maps, with features like Parking Prediction introduced from data drawn from aggregated records of user movement data. TensorFlow, Google’s open source library for machine learning projects, has been used in over 6,000 Github projects.
Google’s Search has also benefitted from aggregated learning. “Every single day we see so many new types of queries. When you bring the assistant into the mix, you start getting even more different tips of queries, and queries are more casual, more conversational,” Pichai said. He added that text-to-speech, where on-screen text is read out by a voice assistant, will be improved “tremendously” in the future.
Google Cloud and Enterprise
Cloud remains one of Google’s highest ‘strategic priorities’, and the company has “[continued] to drive sizable growth, with Google Cloud Platform remaining one of the fastest-growing businesses across Alphabet.”
Google has been emphasizing on enterprise clients in this area, along with the G Suite service. “I think everyone really appreciated seeing large customers, very sophisticated customers, like HSBC, eBay, Colgate-Palmolive, et cetera, discussing use of Google Cloud, GCP,” Pichai said. “In general, I think there is a very strong recognition that we are have pivoted to being a deep enterprise company, and our conversations are very strategic. We are engaging at the highest levels within companies.”
Similar to Amazon’s AWS cloud service, Google Cloud Platform is shaping up to be one of Alphabet’s most profitable arms. Since cloud services attract medium and large-sized enterprise clients, like the ones mentioned above, the scale of operations is very profitable.
Pichai said that there was “tremendous momentum” in education, and that Google was leading the industry in that field. “Chromebooks are now used by more than 20 million teachers and students, and more than 70 million people actively use G Suite for Education,” he said.
Waymo is Google’s self-driving car arm that was spun off into its own company as part of Alphabet’s restructuring last year. Waymo is only performing trials in one area in the US right now. CEO Pichai said in the earnings call that they are testing Waymo technology on “enabling ridesharing, personal-use vehicles, logistics, and deliveries”. Pichai added that Waymo is also exploring ways to work with individual cities to address public transport problems.
Waymo’s ridesharing efforts would compete with established players like Uber and Lyft in the US, the former of which introduced a fleet of autonomous cars last year.
Search & Maps
Google Maps has seen strong growth especially in emerging markets, Pichai said. He indicated that Maps would play a role in future Augmented Reality (AR) efforts, in the long term. Maps has also been optimising information based on user location and movement. “If you open Google Maps, you’re traveling or you’re out on a Friday evening, we start surfacing a lot more interesting information about what you can do, places to eat, and so on,” Pichai said.
In Search, the company added tappable shortcuts last month on mobile apps, adding direct icons leading to results on popular topics.