Google continues to post high revenue and profit growth and will turn to its strategic growth areas to drive long term revenue growth.
Google will continue growing its revenue and profit by expanding the breadth and depth of its advertising platforms, and the company’s 2Q14 results illustrate how the company’s tinkering with its core services is paying off. Google’s revenue and operating profit climbed 21.7 percent and 22.9 percent year-to-year, respectively, as the company remains the online advertising industry’s juggernaut.
Google will rely on advertising revenue to drive the bulk of its revenue growth in 2H14, yet the company is also increasing investments into smaller verticals. Google’s four key growth strategies are direct response marketing, emerging businesses, helping to improve customer’s brands, and ad tech platforms for agencies. In addition, Google is focusing on unifying its Android platform across devices such as Android TV, Android Wear, and Android Auto to help create a seamless user experience.
A unified Android platform will take time to implement due to current fragmentation, yet will provide a seamless experience across Google’s devices.
At Google’s I/O conference in June, the company announced the Android L update to its Android platform. The new release features much needed enhancements to keep pace with competitors such as new privacy features, a redesigned user interface, and improved application performance.
Google’s long term goal is to build a unified Android platform. This platform will hinge on a user’s mobile device, often a consumer’s computing anchor, and will be supported by devices such as Android TV, Android Wear, and Android Auto. These devices will all be controlled by a user’s Android phone, and tying them together will be a unified user interface for a seamless experience. However this strategy will result in some short term struggles as many Android users have outdated OS versions.
The release of yet another Android version is raising eyebrows around the developer community due to the fragmentation of the platform. Fragmentation stems from the rapid release of new versions of Android, and the sluggish adoption of them by OEMs and users.
TBR approximates 60 percent of Android users currently use Jelly Bean 4.1x, which was released in November 2012, and roughly only 14 percent of users use 2013’s 4.4 Kitkat. Google’s close ties with OEMs providing the hardware is the foundation of the fragmentation problem. Each OEM will tweak Android releases with their own branding and modifications making sweeping updates across all Android phones difficult, unlike Apple with a closed, consistent platform.
Google made a priority of attracting developers and raising the overall quality of apps on its Play store, which drove the other revenue segment growth by 53 percent year-over-year in 2Q14, but the haphazard version control due to fragmentation is causing tepid enthusiasm by the development community.
Currently developers have to support primitive versions of android to reach a wide market, and are not able to harness new features in more recent Android releases. TBR believes that Google will continue to struggle with fragmentation until they are able to create a more consistent update pipeline with the company’s OEM partners.
Google is bolstering its advertising initiatives to remain relevant as technology evolves
During the last two quarters Google made clear its dedication to protecting its IP and brand. Two anti-fraud acquisitions, Spider.IO in February and Adometry in May, demonstrate that Google is allaying the fear of advertisers that they are subject to phony traffic or bots.
Video, mobile and on-demand content is becoming a monumental traffic source and Google will labor to professionalize ads to assist advertisers in realizing the potential of these platforms. Evidence of this strategy is the recent acquisition of mDialog, a group with expertise in advertising solutions for video and on-demand content.
Eric Costa, analyst, Technology Business Research
