Snap’s business acquisitions fuelling innovation and growth at Snap

Snapchat added Snapchat stories in October 2013 while Instagram added Instagram Stories in August 2016. In a time frame of less than 1 year, Instagram Stories has not only surpassed Snapchat Stories in terms of daily active users but Instagram Stories has also widened its lead over Snapchat Stories with Instagram Stories clocking 250 million daily active users in May 2017, up from 200 million daily active users in April 2107, 150 million DAU in Jnauary 2017 and 100 mn DAU in October 2016. In contrast Snapchat Stories had total 166 mn Daily Active Users in May 2017.

Till now Instagram has very successfully cloned many of Snapchat features such as stories, location filters, custom geofilters, AR stickers, create your own stickers, scisssors. Instagram has been so successful in cloning Snapchat features that it is said that Instagram innovates through Snapchat. At the same time, it is also very true that many of innovations in Snap have come through the acquisitions made by Snapchat over the years. This blog discusses some of acquisitions made by Snapchat and how these acquisitions made an impact over the features rolled out by Snap over the years

1. Zenly

Snapchat bought social map app Zenly for between $250M and $350M in May 2017. Snapchat’s newest feature Snap Map is based on social mapping app Zenly. Snap Map is a location sharing and location based content discovery feature which is quite similar to Zenly’s social Map.

With Snap Map, one can view Snaps of sporting events, celebrations, breaking news and more from around the world by just tapping anywhere on the map to view snaps that were submitted to Our Story. If a user sees something amazing, he or she can add the Snap to Our Story and this snap could appear on the map. Similarly, Stories can be viewed on Snap Map by tapping circular thumbnails on the map. Thus, Snap Map is useful tool to explore the world, see what is happening around one self, find one’s friends and see is happening around one’s friend. Actionmojis representing friend’s location appear on map if one’s friends share their location on the Snap Map.

Snapchat Snap Map can be seen below:

2. Looksery

Snapchat acquired Looksery in April 2015 in $79.4 million total purchase consideration and additional $71.2 million in terms of stock units and cash payments. Looksery powers SnapChat’s most famous augmented reality lenses.

Snapchat Lenses are one of the most popular features on Snapchat, where lenses, real time 3D special effects such as masks, designs and graphics, are digitally superimposed on face when snapping with front faced camera. Snapchat’s Lenses are said to Snap’s attempt to bring augmented reality to users devices though in not real sense. These animated lenses are assumed to increase engagement and retention of the app users.

3. Vergence Labs

Snapchat secretly acquired Google glass competitor Vergence Lab, a Google Glass type startup, by paying $15 million that included $11 million in cash and $4 million in equity.

Snapchat’s Spectacles are based on Vergence Labs, which developed camera glasses called as Epiphany Eyewear. Epiphany wear, like Spectacles could record videos using a button. Spectacles has sun glasses with video camera that snaps 10 second clip for use in Snapchat app and have the ability to record and share HD video directly to the cloud.

Spectacle gives a small glimpse of Snap’s goal to become a camera company and bring augmented reality features to Snapchat users. Snapchat has been discretely working on augmented reality hardware device similar in line to Google Glass and Spectacles is Snap’s second attempt to bring augmented reality to users, first being Snapchat lenses.

4. Seene

Snapchat acquired a R&D driven computer vision software company for $47.0 million in 2016. Seene is a computer vision company, which specializes in 3D scene reconstruction, 3D face capture, SLAM and object tracking and augmented reality. In other words, Seene enables mobile devices to locate themselves in space, map visual environments, and recreate in 3D what is seen through the camera, turning a standard smartphone into a 3D scanner without the use of additional hardware or off-device processing.

Seene has a number of AR use cases like Seene can scan and reconstructs full 3D geometry on one’s mobile device. Further, Seene can scan and recreate 3D objects on the go and allows users make 3D selfies.

3D geometry with virtual experience using Seene:

 

Snapchat can also make good use of Seene’s 3D reconstruction technology in its recently launched Snapchat World Lenses, which paints the world around us into new 3D experiences. Snapchat’s World Lenses take forward Snapchat’s exploration of augmented reality from earlier Snapchat Lenses. User can switch between different lense options (different captions, Bitmoji poses or AR snapchat emojis graphics like happy rainbow, sad cloud, sassy coffee mug) and add captions, color, and Bitmoji to the world around himself. After user puts the selected lense object on the screen, the app behaves as if the lense object exists in the real world.

Snapchat new World Lense can be seen below:

5. Bitstrips

Snapchat acquired Bitstrips, a web and mobile application that allows users to create a personal avatar, in March 2016 in $64.2 million. Snapchat’s Bitmoji Stickers are based on its acquisition Bitstrips. Bitmoji Stickers are SnapChat’s personal avatar stickers. Bitmoji is personal emoji that can be sent to other Snapchat users as a sticker in Chat and on Snaps.

6. Vurb

Snapchat acquired Vurb, a mobile search company, in August 2016 for around $114.5 million. Snapchat’s Search for Stories feature is based on its acquisition Vurb. The search feature allows users find relevant Stories using specific keywords from its curated publicly shared stories shared by users and brands. The search feature identifies what is happening in all the Stories submitted by identifying elements of image or by words included in captions. This will make content discovery on Snapchat users easier.

7. Scan.me

QR snapcodes are based on its acquisition Scan.me. User can create a unique Snapcode for a website, which opens inside Snapchat when a user scan the snapcode with app’s camera. This may help websites, businesses, brands and any Snapchat users promote themselves using Snapcodes instead of URLs.

Snapchat introduced QR code for profiles based on Scan.me technology wherein people could add or follow each other on Snapchat by just scanning their friend’s Snapcode using their Snapchat camera. Concept of Snapcode was pioneered by WeChat and later popularized by Snapchat and Facebook. Later Snapchat allowed people customize their Snapcode with GIFs and download a vector version of Snapcode for printing on posters, apparels etc. Later Snapchat also introduced a feature where people can unlock snapchat filters and lenses by scnning a snapcode.

8. Cimagine

Snapchat acquired augmented reality Isralie startup Cimagine by paying $30 million to $40 million. Cimagine specializes in computer vision, real time image processing and augmented reality. Cimagine’s augmented reality platform lets consumers visualize products and thus it has great potential in e commerce where it can facilitate shopping through Snapchat. This will bring additional revenue opportunities for Snapchat where Snapchat can have partnerships with brands, departmental stores and retialers and tap Cimagine augmented reality technology to real world experience to users making digital purchase and thus boost these brands website and mobile digital sale conversion.

9. Flite

Snapchat acquihired ad tech company Flite that is primarily focused on creating digital content such as 360-degree video ads and vertical video ads for smartphones. Flites other product includes immersive ads with interactive content that scrolls and tilts; social amplification that turns status updates into paid display ads; shoppable ads that shorten the path to purchase; and localization based on geography and weather. Snapchat runs vertical video ads in its app and thus this acquisition will bring additional ad revenue to Snap and help marketers launch, manage, measure and optimize ad campaigns on real time basis.

Key Trends in Google Revenue and how Google makes money

Google is an advertising behemoth, which makes most of its money through search based advertising revenue and advertising revenue from Youtube, Gmail, Google Map, AdSense, AdMob and Double Click Ad Exchange. Google advertising revenue constitutes majority of Google’s total revenue but Google has now started diversifying its revenue so as to reduce its dependence on advertising and more specifically search based advertising.

This blog discusses key trends in Google revenue, non-advertising revenue, segment wise Google’s revenue, Paid Clicks and Cost per Click earned by Google. Paid Clicks and Cost per Click metrics are 2 important metrics to understand the direction in which Google business is going.

Key trends in Google’s overall revenue is as following:

1. Increasing non-advertising revenue

Google parent company Alphabet Inc’s posted $26.064 Billion revenue in Q4, 2016 quarter (quarter ending 31 December 2016 and fiscal year ending December 31, 2016) with $3.665 Billion revenue coming from other bets and Google’s other revenue. Contribution of non advertising revenue increased from 10.5% in Q4, 2015 ($2.251 Billion revenue through other sources out of total revenue of $21.329 Billion revenue) to 14.06% in Q4, 2016.

2. Huge dependence on advertisement for revenue 

Google depends heavily on advertisement to generate its revenue. Google generated 88% of its total revenues from advertising in 2016. This over dependence possesses huge risk for Google’s overall revenue.

3. Mobile search and Youtube driven growth

Google posted 22% YoY growth in Q4 revenue largely driven by strong performance in mobile search and YouTube. Advertising revenue growth was mainly driven by mobile search with ongoing strength in YouTube and programmatic. There was substantial growth in other Revenues from Hardware, Play and Cloud.

4. Increasing paid clicks and decreasing cost per clicks continued

• Paid Clicks – Paid Clicks can be divided into 2 components – Paid clicks on Google properties and Paid Clicks on Google Network Members property. Paid clicks on Google properties include clicks on advertisements on Google.com searches, other owned and operated properties such as Gmail, Maps, and Google Play and YouTube engagement ads like TrueView (counted as an engagement when the user chooses not to skip the ad) and certain trial ad formats. Paid Clicks on Google Network Members property, include clicks on advertisements served on Google’s AdSense for Search, AdSense for Content and AdMob businesses. Number of paid clicks increased in Q4, 2016 with same overall trend being 2016 as well.
• Cost per Click – Cost-per-click is another metrics that helps in understanding Google business. Cost-per-click is equal to total click-driven revenue divided by total number of paid clicks and represents average amount Google charge advertisers for each engagement by users. Any change in Google Cost per Clicks also influences overall digital marketing cost of all the companies that relies on Google for their marketing needs. Cost per click decreased in the Q4, 2016 with same overall trend in 2016 as well.

5. Increase in competition

Google faces increasing competition from players in different industries which include:

1. General purpose search engines and information services
2. Vertical search engines and e-commerce websites
3. Social networks
4. Other forms of advertising and online advertising platforms
5. Companies that design, manufacture, and market consumer electronic products
6. Providers of enterprise cloud services and digital video services
7. Digital assistant providers.

6. Risk faced by Google and its impact on Google’s revenue

Google faces many risks to its business including increased completion and advertiser’s willingness to pay for Google’s ad. These factors are mainly due to following factors:

1. Fees advertisers are willing to pay based on how they manage their advertising costs
2. Termination of contract by Google’s advertisers, companies that distribute Google’s products and services, digital publishers, and content partners if Google fails to provide value for them (such as increased numbers of users or customers, new sales leads, increased brand awareness, or more effective monetization) efficiently and competitively than other alternatives.
3. Cyclical expenditures by advertisers based on overall economic conditions and their budgeting and buying patterns
4. General economic conditions – Adverse macroeconomic conditions also impact user activity and demand for advertising leading to reduced spending by advertisers
5. Advertiser competition for keywords
6. Changes in advertising quality or formats
7. Changes in device mix
8. Query growth rates
9. Challenges in maintaining growth rate as our revenues increase to higher levels
10. Evolution of online advertising market
11. Investments in new business strategies
12. Changes in product mix
13. Shifts in geographic mix of Google revenue
14. Evolving user preferences
15. Acceptance by users of Google products and services as they are delivered on diverse device
16. Our ability to create a seamless experience for users and advertisers
17. Movements in foreign currency exchange rates
18. Seasonality
19. Changes in foreign currency exchange rates
20. Traffic growth in emerging markets and mature markets and across various advertising verticals and channels

7. Alphabet Revenue

Alphabet’s Q4, 2016 revenue increased to $26.1 billion in Q4, 2016 from $21.3-bn revenue in Q4, 2015.

	Q4, 2015	Q4, 2016
Alphabet Revenue	21.329	26.064
Google Revenue	21.179	25.802
Other Bets Revenue	0.150	0.262

Breakup of Alphabet and Google’s revenue, expenses, profit and Net Income can be seen below:

	Q4, 2015	Q4, 2016
Alphabet
Revenue	21.329	26.064
Cost of Revenue	8.188	10.661
Gross Profit	13.141	15.403
Selling/General/Administrative Expense	4.251	5.142
Research & Development	3.510	3.622
Operating Expense	7.761	8.764
Total Operating Expense	15.949	19.425
Operating Income	5.380	6.639
Net Income	4.923	5.333
Google
Revenue	21.179	25.802
Operating Income	6,744	7.883
Other Bets
Revenue	0.150	0.262
Operating Income	-1.213	-1.088

Alphabet’s revenue consists of revenue from 2 segments:

• Google segment – Google segment consists mainly of 3 components –
  • Google properties
  • Google’s Network Member’s Properties
  • Google’s other revenue.
• Other bets – Other bets include all other operating segments other than Google segment.

Alphabet’s segment wise revenue (revenue for Google properties, Google’s Network Member’s Properties and Google’s other revenue along with revenue from Google’s Other Bets for 2015 and 2016 can be seen below:

	Q4, 2015	Q4, 2016	Year ended 2016	Year ended 2015
Google Segment
Google properties	14.936	17.968	63.785	52.357
Google’s Network Member’s Properties	4.142	4.431	15.598	15.033
Google’s Advertising revenues	19.078	22.399	79.383	67.390
Google’s other revenues	2.101	3.403	10.080	7.154
Google segment revenues	21.179	25.802	89.463	74.544
Other Bets
Other Bets Revenue	0.150	0.262	0.809	0.445
Consolidated Revenue	21.329	26.064	90.272	74.989

We will discuss trends in Google Segment revenue and Other bets later.

8. Google Paid Clicks

There was 36% YoY increase in Google aggregate paid clicks in Q4, 2016(with respect to Q4, 2015) and 20% QoQ increase in aggregate paid clicks (with respect to Q3, 2016).

	Q4, 2015	Q4, 2016
Alphabet Revenue	21.329	26.064
Google Revenue	21.179	25.802
Other Bets Revenue	0.150	0.262

9. Google Cost per Click

There was 15% YoY decrease in Google Cost per Click in Q4, 2016 with respect to Q4, 2015 and 9% QoQ decrease in Google Cost per Click with respect to Q3, 2016.

	YoY Change from Q4, 2015 to Q4, 2016	QoQ change from Q3, 2016 to Q3, 2016
Aggregate Cost per Clicks	-15%	-9%
Paid Clicks on Google properties	-16%	-11%
Paid Clicks on Google Network Members’ properties	-19%	0%

There was 16% YoY decrease in Google properties Cost per Clicks and 19% YoY decrease in Cost per Clicks on Google Network Members’ properties. At the same time, there was there was 11% QoQ decrease in Cost per Clicks on Google properties and 1% decrease on Cost per Click on Google Network Members’ properties.

10. Google Properties Revenue

Revenue from Google properties primarily include revenue generated on:

• com searches and searches from distribution partners using Google.com as default search in browsers, toolbars, etc
• Other Google properties like Gmail, Maps and Google Play
• YouTube TrueView and Google Preferred ads

Key trends in Google Properties revenue:

1. Revenue growth – Revenue from Google properties increased by $11.428 bn from 2015 to 2016. Further there revenue from Google properties as percentage of Google segment revenues also increased during this period. Increase in Google properties revenue was driven by:
   • Mobile search ad revenue – Growth in Google properties revenue was primarily led by mobile search, which in turn was driven by improvements in ad formats and delivery launched during 2016.
   • YouTube revenue – Growth in You tube revenue was mainly driven by TrueView video ads and Google preferred ads (Google Preferred aggregates YouTube’s top content into easy-to-buy packages for brand advertisers), growing contribution of ad buying on DoubleClick Bid Manager and improvements in YouTube ad formats and delivery.

2. Paid clicks on Google properties – Number of paid clicks increased 40% YoY from 2015 to 2016 due to:
   • Increased adoption of YouTube engagement ads
   • Improvements in ad formats and delivery
   • Increase in user base across all platforms particularly mobile
   • Global expansion of Google products and advertisers

3. Decrease in CPC – Increase in paid clicks was offset by decrease in CPC paid by advertisers. The main reason for decrease in CPC was:
   • Continued growth in YouTube engagement ads where CPC is lower than CPC on other advertising platforms
   • Changes in device mix, property mix, product mix, geographic mix and ongoing product changes
   • General strengthening of U.S. dollar compared to certain foreign currencies

11. Google’s Network Member’s Properties trends

Revenue from Google’s Network Member’s Properties primarily consist of ad revenues generated from:

1. AdSense (AdSense for Search, AdSense for Content etc.)
2. AdMob
3. DoubleClick AdExchange

Key trends in revenue from Google Network Members’ properties:

1. Revenue growth – Revenue from Google Network Members’ properties increased by $565 million from 2015 to 2016. Main driver for this growth was strength in programmatic advertising buying and strength in AdMob. This growth was offset by a decline in traditional AdSense business and USD strengthening with respect to certain foreign currencies.
2. Increasing Paid Clicks – Paid clicks increased by 3% from 2015 to 2016. This increase was driven by growth in AdMob and at the same time this increase was offset by declines in AdSense.
3. Declining Cost per click – CPC decreased by 13% from 2015 to 2016. This decrease was driven by changes in product mix of Google Network Members advertising revenues, ongoing product and policy changes for AdSense aiming to enrich user experience, changes in property and device mix, geographic mix and strengthening of USD compared to certain foreign currencies

12. Google’s other revenue trends

Revenue from Google’s other revenues consist primarily of revenue from:

1. Apps, in-app purchases, and digital content in Google Play store
2. Hardware
3. Licensing-related revenue
4. Service fees received for our Google Cloud offerings

Key trends in Google other revenues

1. Revenue Growth – Revenue from this segment increased $2.926 bn from 2015 to 2016. Its share as percentage of Google segment revenues also increased to 11.3% in 2016.
2. This increase was due to growth in digital content products in Google Play store, primarily due to increase in revenue from in-app purchases, hardware sales, and service fees from Google Cloud offerings

13. Other Bets revenue trend

 Revenue from Other Bets consists of revenues and sales from:

1. Internet and TV services
2. Licensing and R&D services
3. Nest branded hardware

Key trends in revenue from Other bets:

1. Revenue Growth – Revenue from this segment increased $364 mn from 2015 to 2016. Its share as percentage of Google segment revenues also increased to 0.9% in 2016.
2. This increase was driven by sales of Nest branded hardware and revenues from Fiber internet and TV services. There was also an increase in revenues from Verily licensing and R&D services from 2015 to 2016.

 

 

 

Changing India – Surging Mobile Internet users in India

Mobile internet users in India is expected to increase from 159 million users in 2014 to 314 million mobile internet users by end of 2017. Number of mobile Internet users in India have grown exponentially due to combination of factors like low cost of device, decrease in cost of data and increasing smartphone penetration in India. Huge growth in mobile internet users in India is being led by increasing wireless connections and spectacular mobile phone adoption in India. Further, mobile market in India is characterised by increasing smartphone market and a decreasing feature phone market. I have discussed state of internet in China in my previous blog Chinese Mobile App Market. In this blog, I will be discussing state of internet penetration in India, particularly mobile internet and smartphone penetration in India.

 

 

 

Above image shows a woman in Mumbai watching a movie on her smartphone. For many people in India, mobile phone is only way to access internet.

 

India mobile internet market is one of the leading internet market in the world and it continues to rise higher and higher.  India has third largest Internet user base in the world with more than 50 per cent internet users being mobile only Internet users. But, there are huge chance of improvement in internet usage in India as internet penetration in India (19%) is quite low as compared to other developing and developed countries (Australia – 89.6%, USA – 86.8%, Japan – 86%, Brazil – 54.4%, China – 46%, India – 19.19%).

Growing Internet Users in India: Led by wireless connections

 

Total internet users in India was approximately 278 million by Oct 2014 and this user base is estimated to touch 354 million by 2015 and 503 million by 2017. The growth in mobile devices in India has become a key driver for increasing overall Internet subscriber base in India. Similarly, mobile internet users in India is expected to increase to 314 million by end of 2017 from existing 159 million mobile internet users in 2014 and thus registering a CAGR of 27.8% for period 2013 – 2017. 

Rural India has largely been untapped market and thus has good potential for high mobile internet growth. Rural India had 61 million active users in 2014 and 6.7% of overall rural population (905 million) was active mobile user in 2014. Thus rural mobility is an area yet to be untapped and can be a great drivers of overall mobile internet growth in India. A suitable environment of government led initiatives, good 2G technologies, increased mobile device penetration, decreasing handset price and decreasing data tariffs rural mobility will drive the overall rural mobile internet growth story.

High speed Mobile Internet fuelling to mobile user growth in India

 

India has estimated 114 million, 67 million market and 4million 2G, 3G and 4G users respectively  as on June 2014. 2G user base is expected to decline with commensurate increase in 3G user base. Currently 3G users constitute 36% of overall mobile internet users in India and this user base  is projected to increase with an annual growth rate of 61.3% during 2013-17. The convergence of 3G tariff towards 2G tariff is the main reason for increased 3G user base in India. 4G has only started to set its foot in the market but increase in 3G and 4G LTE based user base augurs well for higher mobile internet adoption in the future.

Mobile Internet market In India

Mobile Internet ecosystem in India includes handset manufacturers, technology providers, content and service providers and telecom operators delivering service to the end consumers with the policy and regulatory environment impacting the entire ecosystem. Further, large of Indian mobile users are still uses feature phone even though feature phone shipments are on a slow but steady decline as can be seen below:

The mobile internet landscape in India is very promising with key main feature being as following:

• Increase in smartphone penetration with rural India still awaiting digital fortunes
• Migration of mobile user base from feature phone to smartphone with easy access to low cost smartphone leading to increased smartphone penetration
• Shift to high speed mobile internet with user base shifting from 2G to 3G and 4G LTE based service
• Large investments in several aspects of mobile internet value chain
• Innovative mobile based content and service offering from national and international players leading to increased demand for Internet based services such as chat, social media, video and music through mobile. This increased content consumption through mobile has also accelerated internet usage through mobile
• Growth in mobile internet ecosystem led by leading OEMs launching low cost, value-for-money and affordable internet based smartphones and tablets at very cutthroat prices. Steady decline in smartphone price is narrowing gap between smartphone and feature phone price and making smartphone affordable to large number of Indian users. Further, arrival of international vendors esp Chinese vendors has also led to increased competition in smartphone market with array of smartphones available to end users at very affordable price
• Premium segment smartphone market in india is led by Samsung but Samsung’s dominance at premium segment is seriously getting challenged by Apple which is leveraging desire for higher-quality devices by Indians. The main reason for Apple’s growth was successive iPhone 5s price cuts, despite its smaller screen and outdated hardware.

Shift from feature phone based user base to smartphone based user based and untapped Rural India, which have not yet reaped any benefit of digital fortunes, hold very promising future for overall mobile internet penetration in India.

How Alibaba makes money and Alibaba’s business model

 

 

Chinese ecommerce giant Alibaba’s business model has 2 main components – ECommerce and ad technology. Alibaba makes money through purchases happening on its ecommerce arm which is world’s largest and advertisement revenue using an ad technology which is among the best in world due to its sophisticated advertising technology and the future marketing potential.  Alibaba as an eCommerce giant has been discussed in detail in my previous blog post Alibaba as eCommerce Giant. Alibaba’s foray into advertising is mainly aimed at increasing product sales for sellers at its market places and ecommerce sites, but its ad business has been also extended to advertisers wishing to push their products. 

In advertisement value chain, role played by participants varies greatly depending on their position in the value chain. For example, Advertisers aim to get their products sold and focus on creating content that resonates well with their target audiences. I have discussed Advertising Value chain in detail my previous blog Digital Advertisement Value Chain. Well targeted content keeps audience engaged and leads to repeat visits and repeat purchase. Publishers like media companies and content creators sell their inventory to the advertisers and aim to fetch maximum money for their inventory. Data Management Platforms helps in providing insights about users and segment these users into audiences based on user’s online behaviour. These segmented audiences can then be sold to appropriate advertisers leading to higher CPMs for publishers and targeted sales for the advertisers. 

Alibaba

Alibaba has large amount of users visiting to its various e-commerce platforms, market places and partner websites, leading to Alibaba getting access to vast trove of consumer and transactional data. Alibaba applies proprietary algorithms on these transactional data to evaluate quality of advertising inventory and based on these data predicts CTRs and conversion rates of marketing messages. This helps Alibaba segment advertising inventories leading better user targeting, increased marketing effectiveness, improved consumer targeting efficiency and enhanced ROI for advertisers.

For example Alibaba knows well in advance a user’s buying history and thus his taste, preferences and recent purchases. Based on this information and its targeting algorithms, Alibaba as a publisher is able to show perfectly targeted product advertisement to users.  This in turn helps Alibaba increase product sales for merchants listed on its e commerce platform. It also helps Alibaba enter and mark its presence in the ever important advertisement business. 

 

Key features of Alibaba’s online ad business are the following:

1. Data Management Platform

DMP helps in creating audience segments by using consumer’s online user behaviour (products people browse and buy) on Alibaba’s e-commerce platforms. Alibaba’s DMP data is further combined with advertiser’s audience data to deliver targeted advertisement to potential customers with similar attributes. This provides better targeting ability for advertisers on its ad exchange and its market place. 

2. Taobao Ad Network and Exchange (TANX)

TANX is one of the earliest and one of the largest real time online advertising exchanges in China. TANX handles and automates third party buying and selling of billions of advertising impressions on a daily basis by on Alibaba market places and non-Alibaba sites through real-time bidding auctions. TANX is powered by its DMP wherein DMP helps participants on TANX leverage its transactional data to evaluate and select online advertising inventory using both behavioural data of users as provided by DMP and browsing behaviour and shopping history as provided by advertisers. Unlike Alimama, TANX allows for transparent pricing of advertising inventory leading to increased ROI for marketers. TANX is not limited to merchants only and any brand advertiser can buy ads on TANX. Participants on TANX include publishers, merchants, Demand Side Platforms and third-party data and technology companies

U.S. rivals: Google’s AdX, Yahoo Exchange (formerly Right Media), Facebook Exchange, Twitter’s Mopub 

3. Taobao Affiliate Network

Taobao Affiliate Network is Alibaba’s network of third party sites like Weibo (China’s Twitter equivalent) wherein Taobao sellers run ads bought through Alimama. Sellers put marketing displays on our affiliates’ websites and mobile apps. Further, sellers pay a performance-based marketing fee primarily based on CPC or CPS basis with a significant portion of marketing fees getting shared with the participating affiliates. 

Taobao marketplace is one of the most prominent Alibaba’s e commerce property with 100 million visitors a day.

Rivals – Google Display Network, Facebook Audience Network, AOL’s Advertising.com

4. Alimama

Online marketing service is primary source of revenue as said by Alibaba in its US SEC filing. Advertiser can choose content-based PPC advertising plan (like adsense) or purchase banner or text link based on CPI or cost per time. Alimama is an online marketing technology platform that provides online marketing services to sellers. These online marketing services include services such as:

1. P4P marketing service: Sellers bid for keywords that appear in search or browser results on a CPC basis based on prices as determined by Alimama’s online auction system. This facilitates market based price discovery based on online bidding system. This is similar to bidding of key words on Google ad words.
2. Display marketing: Seller bids for display positions on areas like landing pages, channel pages and delivery confirmation pages of Taobao Marketplace and Tmall or Alibaba’s third-party marketing affiliates at fixed prices or prices established by a real-time bidding system on a CPM basis. Alimama provides one stop solution to promote product brands Display Marketing helps to promote product brands on Alibaba Market Place (Taobao) and Alibaba’s network of third party sites namely Taobao Affiliate Network. 

US Rivals – Amazon Advertising Platform, eBay Advertising, Google Shopping

Uber teams up with Didi Kuaidi in car hailing space in China

 

Uber’s war with Didi Kuaidi in ride hailing service has reached back to Uber’s home turf as Didi Kuaidi has opened up a new front by backing up Lyft, Uber’s biggest rival in America. Uber’s battle with Didi Kuaidi in Chinese car hailing market has been discussed in detail in my previous blog Uber’s epic battle with Didi Kuaidi in Chinese ride hailing market. Earlier some month back Didi had rejected Uber’s offer to invest in Didi and also said to Uber’s CEO that ““You are earlier than us” globally but there will be a day when we will surpass you.”

Didi Kuaidi along with Alibaba, Tencent holding and billionaire Carl Icahn has recently invested in Lyft’s latest funding round valuing the company at $2.5 Billion. This investment will increase competitive threat for Uber vis a vis Didi Kuaidi as Uber will have to put its focus back on its home turf.  Uber is facing similar thread in Asian market wherein investor’s such as Soft Bank from Japan, Tiger Global have put their money in favour of local players and Didi has also invested in Grab Taxi.

Uber and Didi are involved in a very costly struggle in China and Didi’s investment in Lyft will put Uber’s situation bit worse in that Uber will have to put its focus back on USA rather than focusing on China, which as per Uber’s statements was Uber’s biggest prize.

Along with investment in Lyft, Didi Kuaidi has recently rebranded itself as “Didi Chuxing” and even changed its logo for the same reason.  This move is aimed to showcase itself not only as car hailing service provider but a serious player providing broader commuting services. Earlier Didi used name “kuaidi” which meant quickly while its new name “Chuxing” in Chinese means commute.  For this purpose, Didi has entered into services like taxi hailing, premium driver service, car pooling and bus sharing reinforces its goal of moving into broader commuting services.

The turn of these events had made Didi’s fight with Uber more interesting in car hailing space with both players bleeding due to intense competition. Uber had already pumped $ 2 Billion in China to catch up with Didi Chuxing which already had 2 years of head start in China. Finally long running battle between the two companies got over with Didi Chuxing acquiring and merging Uber China with itself, Didi Chuxing investing $ 1 Billion in Uber global and Uber China investors getting 20% stake in Didi Chuxing.  Quest for profitability was the main reason for leaving China as per Uber CEO Travis Kalanick. Economics and profitability won over Uber’s desire to solve transportation problem for one fifth of humanity. Hope consumers are going to be the ultimate victor in the final battle.

Android Marshmallow: Key Features

Google has recently released Android Marshmallow, which comes up with certain key features aimed at increasing overall user experience of a user. Google had announced 6 key features that are specifically aimed to enhance UX of an android user in the Google I/O on May 28, 2015. The key features announced in the I/O was as follow:

1. Android Pay
In the line of Apple pay and Samsung Pay, Android Pay aims to enter into the mobile payment ecosystem. Android Pay uses a device’s NFC connectivity to enable tap to pay services. User need to only unlock the phone, keep it near an NFC terminal and payment will get completed without opening any app. Android Pay will work with all major card and carriers and also work with all major commercial establishments.

 

2. Privacy (App permissions)

In line of permission options in iOS apps, an app designed for Android M will ask for app permission as and when these permissions will be used by the app. Earlier app used to ask for all app permissions together during installation time. At the same time, users can navigate to setting section to check the list of permissions that app uses and revoke or provide for a permission.

3. Improved Web Experience (Chrome Custom Tab)

Android M providers a new feature named “Chrome Custom Tab” which aims at providing way to harness chrome’s capabilities while keeping look and feel of native experience. Chrome Custom Tab will provide a way to open customized Chrome window on top of the active app, instead of launching the Chrome app separately. This will provide intuitive user experience while a user navigates between app and web.

4. Simplified Security with Native Fingerprint Support
Android M will provide native fingerprint support on devices running on Android Marshmallow in a uniform way. The fingerprint securely unlocks the phone apart from authenticating a user while he signs in and checks out in Android Pay, Play Store and other apps such as e-commerce apps.

5. App links
Android M simplifies web redirection in that a user clicking on a web link in an external app will be automatically redirected to appropriate app corresponding to the web link. Earlier android used to ask a user if he wanted to open the web link in a web browser or the app supporting the web link. For example, earlier a user clicking a YouTube (Facebook or Twitter) link in some other app was asked if he wanted to open the youtube link in YouTube or in Chrome. Now android will automatically open up YouTube link instead of asking a user to choose between YouTube app and Chrome Browser.

6. Smarter Batteries

Android M uses Doze feature to increase battery performance wherein Doze automatically puts an android device into sleep state. Doze uses motion sensors to find the duration in which device is not active and based on this information, Doze reduces the background processes so as to reduce battery drains.

Further, App Standby feature in Android M reduces battery drain from seldom-used apps limiting impact of these apps on battery life leading increased charge in a device. Lastly USB type C support is Android M will help in quickly transfer power and data all through same cable. This will provide fast charging to a user giving hours of power in few minutes.

Apart from these features, Android M provides following features, which were not discussed in Google I/O:

1. Auto Backup and Restore for Apps

Autoback up and restore for apps was one of most interesting feature that was not discussed Google’s I/O keynote speech. This feature has been missing in Android for years and with Android 6.0, users will be able to automatically back up their apps and app settings (with a file size limit of 25 MB or less per app) to Google Drive. The uploaded backup data won’t count against the user’s Google Drive storage quota. These backups happen no more than once a day and run only when the device is idle and is connected to a working Wi-Fi connection to avoid unwanted data charges and battery drain on your device.

2. New app drawer

App drawer is one of the most immediately obvious visual changes in Android M. The new app drawer vertically scrolls instead of horizontally, and is held against a white background. Further, at top of the menu four most recently used apps are also put up to provide ease to a user.

3. Now on Tap (Contextual Assistance)

This feature provides contextual assistance to a user without the user leaving the app he is presently in. Now on tap spreads the concept of Google Now to entire OS so that a user can use this feature on any screen regardless of what he is doing.  User needs to touch and hold home button and Now on Tap will provide relevant contents after carefully analyzing user’s context.

 

Thus, if a user getting an SMS from a friend for going to a XYZ restaurant for dinner then Google’s Now on Tap will automatically recognise context of the text in the SMS (XYZ restaurant) after long press on the home button and thus will show results to the users based on user’s context (in this case XYZ restaurant) and thus will show useful results related to XYZ restaurant as shown below:

4. RAM Manager

Android M introduces a new RAM manager in Android M with memory section now located at front and centre in setting menu. This is aimed at providing more accurate and comprehensible information regarding the maximum and average RAM usage of apps. Based on this information, user will be able to optimize their app usage and remove apps which needs to be removed in order to increase device performance and battery life.

5. Expendable Storage
                                                                                               

Expendable Storage is Google’s new storage feature which takes an external storage source (such as an SD card or USB drive) and formats it like an internal storage space. This allows for using any external storage as encrypted extended storage for apps and games.

6. Direct Share Feature

Android M makes sharing intuitive and quick for users wherein developers will be able to specify sharing targets deeper inside their apps. Thus, a user will be able to directly share content to a specific friend or community in another social network. Thus, for an example an app will be able to directly share a content to an exact contact in a chatting app in a single step. Presently it used to take 2 steps to share content.

Apart from these main features, some of the other new features in Android M include support for improved cut/copy/paste implementation, bluetooth stylus support, improved bluetooth low energy scanning for nearby beacons and accessories, option to remove status bar icons, rotating home screen options etc.

Uber’s epic battle with Didi Kuaidi in Chinese ride hailing market

 

Uber has conquered the world in ride hailing service but it has to still conquer Chinese ride hailing market where it faces stiff competition from its rival Didi Kuaidi. We have already discussed in detail Uber’s car aggregation business and its attempt to set high standards in personal transportation market in my previous blog Uber in tough business of Car Aggregation. Uber has Baidu has its investor while Didi Kuaidi has Alibaba and Tencent as its investor and this make this battle more fierce. The main reason for such a battle is the presence of very large commuter market in China consisting twice the total US population and an anticipated influx of 100 million people in China’s middle class. Recent days have also seen incessant inflow of cash to these two start-ups reinforcing investors readiness to bet on world’s largest transport market and thus spend heavily for subsidising car rides to in gain market share.

In this race, Didi Kuadi seems to racing ahead of Uber due to several factors like Didi’s presence in 80 cities compared to Uber’s presence in 16 cities, Uber’s fund raising of $1.2 Billion for the Chinese market along with Didi Kuadi’s latest $3 Billion fundraising (mainly from Tencent, Alibaba, Temasek Holdings, Coatue Management, Pingan Ventures, Capital International Private Equity Funds’ (CIPEF), China Investment Corporation).  Further Didi is much larger organization with 4000 employees (excluding drivers) compared to only 200 employees of Uber in China. Also, Didi Kuaidi has a near monopoly in China’s car hailing market with a total 80% market share in China’s car hailing market.

Expansion in China was not very smooth for Uber as Uber has there have been some news of Uber’s office being raided by Chinese police. Further, there was some news of Uber’s drivers getting arrested for illegal use of vehicles. Uber is also facing difficulty over their blockage on WeChat, China’s hugely popular mobile messaging platform and run by Tencent. Uber’s accounts on WeChat have all been shut off including its official account and search results in WeChat have started hiding Uber results from users.

Uber has taken many steps to catch up with its rival. Uber has created a totally separate entity named UberChina for its expansion in China. This may help Uber with respect to local Chinese government as creation of local entity will provide a sense of being local and Chinese to the ride hailing service. Uber has also got investment form Baidu and this collaboration with Chinese search and mapping giant will help in more accurate mapping and increased range of services. Further, this collaboration will help Uber in achieving a major goal in terms of building an excellent local partner.

Further, Uber’s recent $1.2 Billion fundraise is expected to continue with some additional funds yet to be raised in days to come. Also, Uber is planning to enter 100 more cities over the next year, doubling a goal set 3 months ago. Uber is also planning to launch major promotional campaign and get more and more drivers into its ambit by offering large bonuses to drivers.

But, Uber is still behind its Chinese competitor in car hailing space and it will be interesting to see if Uber is able to succeed in Chinese market as Chinese government has always a tendency to prefer local players over foreign internet players as has been seen in cases like Google and Baidu, Weibo and Twitter, Alibaba and Amazon. In all of these cases Chinese companies have won over foreign companies. In case of Uber, time will tell if Uber is able to conquer the battle called China.

Uberisation of Grocery Delivery: Instacart a 2 Billion Grocery Delivery app

 

Past few years have seen rise of On-Demand economy ( also called as Sharing Economy or Collaborative Economy or Gig economy) in all segments of life due to increased availability of sources of communication and very low transaction cost associated with On-demand economy. On-Demand economy tries to bring consumers and providers of goods and services to same platform and use highly scalable technologies and platforms to fulfil consumer’s demand by immediate provisioning of goods and services. These companies have achieved massive success by providing information at the finger tip of the consumer and providing instant gratification for the consumer’s need.

 

On Demand economy has found its presence in each and every part of human’s life ranging from Transportation (Uber, Lyft, Sidecar, Blablacar, Hailo), Housing (Airbnb, Homeaway, Wimdu), Clothing (Vinted, Tradesy, Twice), Parking, Home Goods and Food. I have discussed in my previous blog working of On Demand Economy in transportation with Uber as an example in my previous blog Uber in tough business of Car Aggregation. A graphic design of these on demand services along with finding in these companies can be seen in the chart below:

 

Instacart is one of these On-Demand economy based service that has achieved massive success by disrupting the way people purchase groceries. Instacart is an On-Demand same day grocery delivery service that delivers groceries in as little time as 1 hour or 2 hour. Instacart utilises technology to meet consumer demand by immediate provisioning of goods and services.  Instacart connects consumers from personnel shoppers in consumer’s area who pick up and deliver groceries from users favorite stores saving consumers time. 

 

This article explores business model of Instacart and tries to find out the reasons for immense success that Instacart has achieved in a very short span of time. Instacart was funded by Y Combinator in 2012 and has also received 220 million Series C funding valuing company at $ 2 billion. Instacart is located in San Francisco, and well-funded by some of the greatest investors in the world, like Sequoia Capital, Khosla Ventures, Andreesen Horowitz, SV Angel, and Y Combinator. 

 

 

Problem being solved by Instacart

 

Instcart provides solution to people around the world to shop for their groceries. Instacart solves same day on-demand grocery delivery problem wherein it fulfils a customer’s order in one or two hours after he places an order. A user can order his groceries and have these delivered to his door step in one or two hours using his phone or web. 

 

Instacart has partnered with various local stores like Whole Foods, PetcoNow, Kroger, Costco, Breads Bakery, Mollie Stone, Gelson’s, Smart & Final, Super King, Fresh & Easy and Ralphs!, H Mart, Natural Grocer. A user can choose and mix items from variety of these local stores into one order. Currently Instacart delivers in SF Bay Area, San Jose, NYC, Brooklyn, Washington DC, Philly, Boston, Chicago, Austin, Seattle and Los Angeles. 

 

Instacart solves above Order Fulfilment problem (fulfilling orders from local stores) by solving complex optimization problem like vehicle routing algorithm. Further, Instacart uses machine learning to map individual stores, track how long a shopper will take to pick from an item from a store and drive and predict delivery time taking into account weather, traffic pattern, location and other factors like sporting events. This creates an experience for its customers that is nothing short of magical leading to increased user acquisition and user retention for Instacart.

 

Market and Competition

 

US grocery market size is $1 trillion consisting of $700 Billion grocery business and $300 Billion convenience spending market. Further, US grocery industry is very fragmented and it has many players operating in it with very few barriers to entry.  Margin in the industry is very low leading to fierce competition between the players and firms try to increase market share and revenue by offering lower and lower prices. Further, e-commerce has also emerged as an important shopping channel along with other channels like Hypermarkets (like Walmart,Kroger, Safeway, Supervalu), Supermarkets (Aldi, Stater Bros and Superior Grocers), Discount Stores and Convenience Stores etc. 

Instacart is working to bring this fragmented market together by providing consumer an opportunity to order their grocery from some of these stores. It faces competition from other online one day delivery players like Amazon, ebay, taskRabbit, Google Express. It is currently present in 17 cities and contracts around 4000 personnel shopper.

 

Revenue Model

 

Instacart follows sharing economy based model like the model followed by Uber. Earlier, Instacart used to earn revenue through delivery fees and product markup. Instacart charges $3.99 per delivery  for three hour delivery and $14.99 per delivery for one hour delivery. Instacart also earns some money by marking up the prices of grocery items (by one estimate 20%) wherein it charges customers more for individual groceries than their in-store price. Further, shoppers can also earn between $15 and $30 an hour depending on how quickly they deliver the food (using their own cars).

 

Recently, Instacart has made one shift in its revenue model, wherein it allows some grocery store partners to price their own goods on Instacart. In return, these grocery stores pay Instacart a fee to service their locations. It explains why for some grocers the products cost the same on Instacart as they do in store, but for others the price is more or some times less.

 

Operational Model

 

Instacart follows “managed crowdsourcing” model wherein a user orders something on Instacart through an app and Instacart crowdsources labor to serve user’s order in one hour or three hours after an order is made. Instacart is also working to expand its delivery schedules to for later today, for the next day etc. The crowdsourced labor consists of trained shoppers equipped with an Instacart shopper app. This app is extremely intelligent with information like location of shoppers in the store, exact knowledge of the location of items in different shops and other information like department, isle and shelf location of these items. Based on these information, shoppers are routed in the store as well as outside. Further, these app provides minutest update on any order to the consumers. This leads to very large efficiency in overall fulfilment of orders.

 

Instacart is a very lean organisation and this brings efficiency in its operational model. Instacart does not hold any inventory and it does not own any warehouse or fleet of trucks for its operation. This shields Instacart from the risk of variable grocery prices as the it does not keep inventory with itself. It partners with grocery stores and charge grocery stores a fee instead of charging consumers by charging markups on product price. This makes grocery stores more amenable to improving Instacart’s efficiency like offering Instacart company’s its own personal checkout line. 

 

Instacart is also looking to outsourcing its deliveries to third parties providers like postmates, Lyft, Sidecar but at the same time it is not planning to completely outsource its delivery process but keep the last mile portion of delivery business with itself.  In this mechanism, Instacart will maintain control of the end-to-end consumer experience through apps developed for shoppers and delivery people. All delivery directions will still be provided through the app, whether delivery will happen through in-house delivery person or someone contracted through a third-party.

Paradox of Twitter’s stagnant user growth and increasing revenue

Recent stepping down of Dick Costolo as CEO of Twitter and Twitter co founder Jack Dorsey being made interim CEO has again put on front Twitter’s 3 main challenges namely stagnant user growth, user retention and disappointing advertisement revenue. The micro messaging platform has been plagued by slow adoption by users and its user growth has become stagnant in recent years. Further, Twitter is getting stiff competition from its rival such as Facebook, Line, WeChat, Instagram, Snapchat and Pinterest. Twitter user growth chart, its revenue growth over the years and MAU growth chart can be seen as below:

 

1. Stalled user growth – Twitter had 302 MAUs in March 2015 and its growth has become a bit sluggish in recent quarters while its compettitor Facebook had around 1.4 billion MAUs in March 2015 and Facebook is still growing. Further, Twitter is facing stiff competition form its rival messaging and apps Facebook, Whatsapp, Line, Viber, Snapchat etc. Twitter grew from 255 MAUs in March 2014 to 302 MAUs is March 2015 while its rival Facebook increased its monthly active users from 1.276 Billion active users in March 2014 to 1.441 million active user in March 2015. Investors see MAUs as an indicator of growth and potential size of a platform and thus the lacklustre user growth despite continuous efforts from top management is a major cause of concern for Twitter.

 

2. Weak Ad Business – Ad business is continuously under pressure to sale more ads and ad sales are continuously failing to meet the forecast. Twitter’s quarterly revenue fell down from $479 million in Q4, 2014 to $436 million in Q1, 2015. The advertising revenue also fell down from $432 million USD in Q4, 2014 to $ 388 million USD in Q1, 2015. Last quarter, twitter reported weakest quarterly revenue growth and also missed revenue expectation for the market. This raises serious concern about twitter’s ability to generate revenue from sources like advertisements, data licensing etc.

 

3. Improving user experience – Twitter is said to be difficult to use for new users who are not used to short form of communication. Further, flood of content in twitter makes the platform scary for new users leading to very low retention rate. This can seen in that around 1 billion users have tried twitter sometimes but these users did not stuck around to twitter for long. Twitter needs to work on making navigation easier for new and existing users so as to provide compelling user experience to the suers. Thus, the main focus of twitter’s user acquisition strategy should be based on making easier onboarding of new users into twitter and retaining these users who are acquired.

 

Above mentioned challenges haver put immense pressure on Twitter’s product to make twitter more appealing to the users and more monetizable. This has led to accelerated pace of prodcut development in Twitter and thus Twitter has made slew of changes in its product so as to manage key challenges faced by it. Following are some of the key prodcut changes that twitter needs to include or has alsready included in its prodcut line.

1. Genre wise seperation of topic – Twitter may provide users ability to browse topic based on genre, area of interest for ex. News, Business, Sports, Tech, Music etc.

2. Save option to the user – A tweet gets lost in vast ocean of tweets and user sometimes is unbale to get back to tweet or a link he wanted to read/reply in future. User should be provided a save option to save his favourite tweets which he wants to read in future or reply back in future.

3. Search functionality – There should be a search functionality wherein a user should be able to search tweets he or she might have missed or could not have saved to be read in future. The recent twitter google deal will also help users get tweets as result in Google search result. Twitter should provide a funclitonlity to search tweets in Twitter itself instead of asking users to go to Google and search a tweet. Location based search or topic based search are other area where twitter can make search more relevant to users.

 

4. Better experience for New Users – Twitter needs to work upon making twitter better for new users who are not used to short form of communication and the flood of content that they have to face when they use twitter for first time. The main focus of twitter’s user acquisition strategy should be based on making easier onboarding of new users into twitter and providing

 

5. Easier navigation for user – Twitter needs to work on making navigation easier for new user and existing user so as to provide compelling user experience to the suers.

 

6. Video Streaming – Twitter has recently launched live streaming app Periscope in march 2015. Twitter also plans to allow users to shoot and edit videos without leaving the twitter app. It also plans to allow users group direct messages and provide new camera tools.

 

7. Online bullies and Trolls – Online trolls have long been problematic for Twitter leading to serious users leaving the platform. Twitter needs to solve this problem and simplify reporting of these bullies so that serious and loyal users do not leave the platform.

 

8. App Aggregation and monetization through services – Twitter needs to emulate business model being used by Wechat, Snapchat and Facebook wherein these apps offers some specialized apps and services to the their users. For example Snapchat offers Discover sections which consist of stories from different publishers. Similarly Facebook provides apps for messaging, consuming news and sharing photos. WeChat provides services like eCommerce, gaming, mobile payment etc. Periscope is an attempt in this line and Twitter can also follow this in order to monetize its services.

 

9. Make conversations easier to follow – Conversations around a tweet are difficult to follow especially if there are large number of replies in a tweet. Twitter is working on grouping conversations together and highlight most interesting exchange around a tweet just below the tweet.

 

10. Removal of 140 character restriction in Direct Message – Twitter has recently removed 140 character restrictions for Direct messages, which will provide much awaited solutions to users who wanted to get this restriction removed.

 

11. Revamped home page for logged out users – Twitter has revamped its home page to provide a better experience to its logged out users by allowing non logged in users to follow trending tweets. Further, Logged-out users visiting the homepage can now see a feed of tweets from several popular accounts on the topic of their choice, similar to what they’d see if they were logged-in.

 

12. Recap feature – Twitter now provides list of missed tweets to users as and when he opens the app. These missed tweets include some of the best tweets user missed from the accounts he follows while he was away from Twitter.

 

13. Partner ship with Google, Yahoo Japan and Flipboard – Twitter has announced deals with Yahoo Japan and Flipboard that will see Twitter ads start coming as “promoted tweets” pop up on Yahoo Japan and Flipboard. Further, Twitter’s recent deal with Google will start start showing for tweets into Google search results. For Twitter, there is no direct monetization involved from the deal but Twitter stands to gain in terms of increased traffic.

 

14. Highlights for users – This feature brings summary of the best tweets tailored for the user via push notification by letting him quickly catch up with what’s happening in his world.

 

Twitter’s product has been tweeking with various product features and has been conducting series of endless A/B tests but it has to be seen in future whether these product changes will lead to break any logjam in user acquisition. Further, Growing its monthly and daily active users should be only one part of twitter’s plan as Twitter needs to diversify its advertising products and find more ways to monetize syndicated content so as to increase its revenue per user also. Further, Twitter needs to start reengaging with its 1 Billion account holders who tried Twitter in past but did not stuck around with it by providing a compelling user experience to these users and existing users.

Google declining CPC: Is mobile to be blamed for this?

Google posted its first quarter earning for 2015 on April 23, 2015 reporting $17.3 Billion revenue and EPS of $6.57.  Google missed market’s earning expectation of $17.5 Billion by a whisper and market gave Google thumps up for 12% YoY increase in revenue and the reported decrease in its Capital expenditure.

Pricing pressure on online ads led to 7% YoY decrease in Cost Per Click, however Google reported 13% YoY increase in aggregate paid clicks. The increase in aggregate paid clicks could offset the decline in cost per click and based on increased paid clicks Google could increase its YoY advertising revenue despite making less money per ad.  Finally Google ended up with $65.43 Billion cash and cash equivalents in Q1, 2015.

Some of the major highlights of Google’s Q1 earning can be seen as follow:

• Revenue – Google’s Q1, 2015 revenue increased to $17.3 Billion, which is 12% up from $15.4 Billion revenue in first quarter of 2014.
• Paid Clicks – increased by 13% YoY but decreased by 1% with respect to the previous quarter. This includes 12% YoY decline paid clicks from Networks and 25% increase in paid clicks due to Google sites
• Cost Per Clicks – has seen decline for last 11 quarters and this has come up as big area of concern for Google. CPC saw 7% YoY decline.
• Traffic Acquisition Cost – Traffic acquisition cost as a percentage of advertising revenue got down to 21.6% in Q1, 2015 to 23.1% in Q1, 2014.

 

Google’s Historical Revenue Data

Google gets most of its revenue through Advertising with 2 main components, namely advertising revenue from paid clicks on Google websites and advertising revenue on paid clicks on Google Network Members’ websites, contributing 89.5% of its total revenue in 2014.

 

Paid Click vers Cost Per Click mismatch in Google

Google has been grappling with Pricing vers Supply trend mismatch since 2011 wherein volume of paid search has been rising and cost for each click has been decreasing. This can also be seen in the figure as below:

Declining Cost Per Click

 

 

The falling CPC has led to  being interpreted as Google beginning to lag in advertising economy and thus started being left behind by players like Facebook and Twitter. But, can it always be said that falling CPC is the true measure of advertising effectiveness of a firm? We will discuss in detail about the trends in Google’s CPC and its advertising revenue in following section:

1. Shift to mobile

Google has around 90% market share in mobile search and thus dominates the mobile search engine market due to exceptional adoption of  Android OS by smartphone users. Android has 80% OS wise market share in smartphone landscape and google is expected to continue its leadership position in this area. Continuing decline in CPC has been attributed to massive shift to mobile and difficulties in monetising search on mobiles. Further, ads on mobile websites brings in smaller revenue than similar ads on desktop. But this trend may reverse due to innovations like Enhanced campaign.

2. Growth of advertising on you tube

As per Google CFO Pichette, rapid growth of advertising on youtube rather than difficulty in monetisation mobile search is the main reason for decline in CPC. Further youtube ad monetisation is influenced by following factors:

a. Rapid growth of youtube viewership – Youtube has over 1 Billion MAU and youtube has grown very rapid in world more especially in less developed countries. Further, ad rates are less in less developed countries than ad rates in developed countries and this has led to overall decline in CPC.

b.  Growth of True View ads on Youtube – Number of advertisers on youtube has grown substantially by 45% YoY and all the top 100 largest advertising brand on Youtube run True View ads.  True View ads charge advertisers only when an ad is watched for 30 seconds or more by a user and this leads to lower monetisation from True View ads than monetisation from Google.com. This has also led to decline in CPC for Google.

 

3. Multi platform enhanced campaign – Google introduced multi platform Enhanced Campaigns so as to make cross device paid search campaigns easier for advertisers to manage.  Multi platform enhanced campaign tie mobile and desktop bids together and thus ads on tablet can not be separately bid by an advertiser. Further, it was also presumed that CPC price for tablets will be pulled up to desktop levels as there will be same bid for both desktop and tablets. Most AdWords campaigns were converted to Enhanced by the end of July last year.

4. Realignment of advertising revenue in favour of mobile devices

Since large number of web traffic (in range of 50%) has started coming from mobile devices, advertisers have started realigning their ad budgets in favour of mobile devices.  Further, advertisers with less spending on mobile advertisement started putting more money for mobile advertisement and this might have led to decrease in desktop revenue as some money have got diverted from desktop and have been shifted towards mobile. Lack of price discovery arising due to shift in spending pattern of advertisers might have skewed the overall CPC but in longer run CPC for mobile devices and desktop may align to their respective prices.

5. Role of emerging markets
Increased share of emerging market has also led to overall decrease in CPCs as increased number of clicks from emerging market brought overall CPC down.  Most of Google growth is coming outside USA and European market which is a low priced market. Thus although, Google is able to add search volume but this addition is coming at a cheaper rate bringing overall CPC rate down.

6. Increasing CPC but decreasing paid clicks on Google Network Member’s site – For the last 2 quarters, CPC on Google network member’s properties has been increasing YoY and paid clicks on these properties have been decreasing YoY. The increase in CPC might be due to the fact that network ads might have been historically sold at lower price than Google’s site and this increase might be due to catching up by network’s ad CPC.

7.Decreasing CPC but increased paid clicks on Google Site –  But, Google web sites sold more

ads at a decreasing price a scan be seen below:

But as a whole, it can be seen below that Google earns more money form its own sites than network sites as can be seen below:

8. Increased contribution of advertising in Google’s revenue:

Google earned 59 Billion USD revenue through advertising which constituted 89.5% of its revenue. This shows Google’s dependence of advertising for its revenue and any decreasing trend, either in price or volume can have large impact on Google’s competitiveness.

 

Revenues (in millions) by revenue source for the periods as presented:

 

	Year ended December 31
	2012	2013	2014
Advertising Revenue
Google Websites	31,221	37,422	45,085
Google Network Member’s websites	12,465	13,125	13,971
Total Advertising Revenue	43,686	50,547	59,056
Other Revenue	2,353	4,972	6,945
Total Revenue	46,039	55,519	66,001

Percentage of revenues by source as a percentage of total revenues for periods presented:

	Year ended December 31
	2012	2013	2014
Advertising Revenue
Google Websites	67.8%	67.4%	68.3%
Google Network Member’s websites	27.1%	23.6%	21.2%
Total Advertising Revenue	94.9%	91.0%	89.5%
Other Revenue	5.1%	9.0%	10.5%
Total Revenue	100%	100%	100%

Thus, it is difficult to say if average CPC is cause of worry for Google if overall click volume and overall revenue is increases.  and overall revenue is increasing. If Google is able to leverage its presence in desktop, search, youtube, chrome, android etc in a better way and is able to deliver well targeted quality ads for advertiser then falling CPC in short run should not be cause of worry for advertisers as there might be many exogenous factors that may be leading to decrease in overall CPC.

Note:

Google’s revenues from Google Network Members’ websites include revenues generated primarily through advertising programs including AdSense for search, AdSense for content, AdExchange, AdMob, and DoubleClick Bid Manager.

Paid clicks on Google websites include clicks related to ads served on Google owned and operated properties across different geographies and devices, including search, YouTube engagement ads like TrueView, and other owned and operated properties including Maps and Finance.