On February 26th, Google announced a major new initiative for Google Play via its developer blog: the search giant will begin allowing app developers to advertise their apps within search results for certain keywords through a new Google Play search ad unit. Google announced that a pilot program would be rolled out in the next few weeks but didn’t provide specifics around when the new advertising format would be fully launched.
These search results ads could provide a powerful new revenue stream for Google. Although Android is the dominant mobile operating system, with a total install base of around 2BN and having captured more than 75% of worldwide smartphone shipments in Q4 2014 (compared to just under 20% for Apple), Apple took nearly 90% of mobile hardware profits in Q4 2014. Apple also took more money from its App Store in 2014 than Google did, as evidenced by the companies’ payouts to developers (each company takes a 30% cut of in-app purchases): while Google paid out $7BN to developers, Apple paid out $10BN.
There’s no reason for Google to not leverage the size of its Android ecosystem to generate money through ads, especially considering the vast amount of in-house expertise around advertising that it lords over. Besides, Google Play search result ads are a logical progression from the deep-linkable mobile search ads Google announced just a few months ago; both are intent-based and should perform significantly better than the current roster of standard ad formats made available to advertisers, such as the interstitial ad. The Google Play search result ad is a natural step for Google, and it’s likely to be a valuable revenue stream for the company.
It also highlights the fundamental differences in ecosystem management strategies employed by the two companies. With its featuring program and review process, Apple wants to heavily curate the most visible parts of the App Store to yield the greatest degree of control possible over the user journey. Allowing highly-effective ad units to be placed in search results would erode some of that control; the most visible parts of the App Store might no longer be curated but constructed through developer advertising.
Google, for the most part, seems to put more of a priority on the accessibility of its ecosystem, so it might as well make money from its gigantic install base. For this reason, Apple is not likely to follow Google in implementing ad units directly into the App Store. To do so would be to walk back its app ecosystem strategy thus far.
But what this new ad unit is not is a radical disruption of the current app store discovery paradigm. New advertising units cannot change the dynamics of app store discovery; the largest spenders will continue to be the largest spenders and will simply shift budget into this new format (although the transition period could create opportunities for nimble developers to exploit short-term price inefficiencies).
What this new ad unit does is allow Google to make money on ads that are driving traffic to Google Play; it won’t change the fact that money has to be spent to grow an app’s user base. If anything, by monetizing the one place that allowed developers to gain visibility without spending money on marketing — search — this new ad unit reduces the likelihood that an app will be discovered outside of an ad.