Even though Google (goog) owns Android, the world’s most-used mobile operating system, mobile remains a critical risk for the search giant. Google’s web search engine is a money-printing machine, but mobile advertising hasn’t been the same home run for Google or any ad-based company.
Mobile phone usage is dominated by apps (85% of time spent) and users tend to go to the appropriate app to find the information they need, rather than conduct a Google search in a mobile Web browser like they do on a desktop computer. For example, if a person wanted to buy movie tickets, instead of searching for movie times on Google (as they would on a laptop), they'd open the Fandango mobile app. If they needed to make a purchase, they might go straight to their Amazon app. If they wanted some information, they'd open the Wikipedia app.
Shoppers still prefer to make purchases on desktop computers, which hurts any mobile ad platform that only gets paid when shoppers convert. It’s not all Google’s fault: The ad industry hasn’t shifted its budgets to be commensurate with the amount of time people spend on their phones. "We know mobile activities are influencing offline behavior," chief business officer Omid Kordestani said in the company's second quarter earnings call. He noted that Google is working on ways to "close the gap" between online ads and brick-and-mortar sales.
Indeed, Google has been amping up its mobile advertising efforts to address these challenges, touting new products such as a “buy button,” which allows people to shop directly within Google products on mobile, as well as mobile-friendly YouTube ads and elaborate, conversion-friendly search results for things like hotels and cars.
Google CFO Ruth Porat said the company is continuing to narrow the gap between mobile and desktop search. The quarter was Porat’s first-ever earnings report on the job, having recently joined Google from Morgan Stanley.
The company also touted strong performance on YouTube, which has been under increasing pressure as competitors, most notably Facebook, gain traction. “Watch time,” YouTube’s metric for measuring usage, grew 60% over the second quarter of last year, and on mobile, watch time has more than doubled. The company has never announced how much revenue YouTube contributes to its top line, even though, as noted at Fortune's Brainstorm Tech conference in Aspen last week, CEO Susan Wojcicki said she wishes she could.
Google’s overall profitability exceeded Wall Street’s expectations in the quarter, earning $4.8 billion in GAAP operating profit on $17.7 billion in revenue. The operating profit represents a 27% increase over the same last year and quarterly revenue grew 11%. Investors responded positively to the report, trading Google stock up more than 10% in after-hours trading.