What Happens to Google Revenue as Apple Dumps Google Maps?

Most observers would probably guess that if Apple represents about 40 percent of Google mobile search ad revenue, and Apple stops offering Google Maps in favor of its own map application, that Google revenue will suffer.

But Piper Jaffray's Gene Munster predicts that Apple's decision to abandon Google Maps shouldn't have any "material impact" on the revenue Google gets from iOS.


Munster estimates that Google will generate about $4.5 billion in gross mobile revenue in 2012, the lion's share ($4 billion) from search ads and the rest ($500 million) from display. 


He believes that iOS is likely to remain the biggest or close to the biggest source of that revenue, generating roughly $1.6 billion. Assuming Google keeps half (after subtracting acquisition costs), iOS would generate about two percent of Google's total revenue in 2012.

You might wonder how that could possibly be. Munster assumes Google Maps still will be available in the Apple app store, and that iOS device users will be able to figure out how to keep using it. Munster says Apple represents about two percent of Google's net revenue overall.

Google might hope Munster is right, but is acting as though the loss could be more significant. Google's recent addition of 3D features to Google Maps probably indicates Google's belief that Apple will try and use the 3D feature to differentiate from Google Maps.

Mobile ads associated with maps or locations are estimated to account for about 25 percent of the roughly $2.5 billion spent on mobile ads in 2012, according to Opus Research, up from 10 percent in 2010. That is reason enough for a battle over map applications.

The reason maps get so much advertising is that geo-location is a fairly serious indicator of purchase intent when a retailer is searched for, within a map app. That obviously has implications if you believe location-based advertising and offers are a big business opportunity.

Global Mobile Advertising Market: $5.3 Billion in 2011

Mobile advertising reached $5.3 billion (€3.8 billion) in 2011. You might call that a good start, but still quite a smallish business, by tier one mobile service provider standards. The reason is simply that an entity booking scores of billions worth of revenue each year would need a market opportunity far bigger than that to become "really interesting."

But mobile advertising is a new and growing business, so most observers think the market eventually will grow to a size that is truly significant for mobile service providers.

Of current revenue, Europe represents 25.9 percent; North America 31.4 percent; Latin America 3.5 percent; Asia-Pacific 35.9 percent; Middle East and Africa 3.2 percent, according to the Interactive Advertising Bureau.

Obviously, mobile service providers in Europe, North America and parts of Asia are likely to reach a "critical mass" of revenue sooner than other regions.

2011: Mobile ad spend in $million

	Display	Search	Messaging	Total
Europe	367	900	114	1,380
North America	572	811	295	1,677
Latin America	31	74	83	188
Asia-Pacific	491	1,384	41	1,916
Middle East & Africa	44	124	4	172
Global	1,504	3,292	536	5,333

What Will Apple Do After Every Sizable Mobile Service Provider Sells the iPhone?

Apple will face a common supplier issue, namely product saturation, at some point, after every significant (in terms of market share) mobile service provider, in each market, sells the iPhone. Except for T-Mobile, all of the largest four U.S. carriers already sell the iPhone, and regional or prepaid carriers also are starting to get the device.

So Apple will do what any supplier normally does, in such situations. Refresh products so that existing buyers want to buy again. Apple also will continue wooing customers who now buy other devices to buy its own.

As it did with the iPod family of products, Apple will flesh out devices in a range of price segments, to capture more of the addressable market. Apple also will try to get existing and potential buyers to spend for other products Apple makes, such as tablets.

Apple Thinks Mobile Service Providers Will Not Cut iPhone Subsidies

Mobile service providers globally are unhappy about the impact to earnings and cash flow phone subsidies are causing. Most undoubtedly would prefer not to subsidize devices at all. But it is a complicated issue. How many consumers would be so happy to buy an iPhone if it cost $500 to $600?

We might soon find out as prepaid service providers start to offer Apple iPhones in conjunction with prepaid service, with no device subsidies.

Apple's CFO Peter Oppenheimer, and head of Internet services, Eddy Cue, don't believe carriers actually will cut subsidies for iPhones. They argue that iPhones are important reasons why customer churn is lower, among iPhone users, than among users of other devices.

And in a saturated market where gaining a customer essentially means taking that customer away from another mobile service provider, anything that measurably reduces churn is a very-helpful tool indeed.

Apple believes that the iPhone, which has the industry's lowest churn rate of under two percent is in part a result of customer affinity for the device, and also drives higher adoption of family service plans, which further reduces churn.

Though service providers might not agree, the typical iPhone $400 subsidy also is the foundation for service provider data revenues of about $1920 over a two-year period when signing up a customer to a typical $80 monthly plan.

Naturally, Apple argues that any carrier than abandoned subsidies would lose lots of customers to other carriers who do offer subsidies.

But carriers are unlikely to keep experimenting with ways to avoid the subsidies. Vodafone allows users to pay in installments for phone purchases, with zero interest charges, over a period of a year or two.

In fact, service providers now are effectively trying to dissuade consumers from upgrading phones, by adding upgrade fees of perhaps $30 to $35 when existing customers want to buy a new phone. That might seem counter-intuitive, but an existing customer who can be persuaded to continue service with a device that already has been amortized does improve a service provider's lifetime profit margin and revenue from that account.

Citrix Systems Buys Bytemobile to Go "Mobile First"

In yet another example of how cloud computing and mobility are essential parts of the new computing architecture now emerging, Citrix, a leading provider of cloud-based collaboration and virtualization capabilities, is acquiring Bytemobile, a leading provider of data and video optimization solutions for mobile network operators.

This acquisition gives Citrix a key strategic foothold in the core infrastructure of more than 130 mobile operators in 60 countries around the world, Citrix says.

By joining forces, Citrix and Bytemobile will be able to offer mobile service providers, globally, with  combined solutions that deliver a high quality user experience to mobile subscribers, while helping operators manage the growth of mobile network traffic.

The acquisition builds on a strategic partnership announced earlier this year that combined the Bytemobile Smart Capacity technology with the Citrix NetScaler line of cloud networking solutions.

It isn't yet clear what name eventually will be adopted for the next generation of computing, but beyond the "PC" or "Internet" area lies an architecture based on cloud mechanisms and mobile devices. In fact, many would argue that mobile computing and cloud computing are virtually inseparable.

Biggest Consumer Trend is Lower Discretionary Spending, but Video and Communications Products Could Still Gain Value

Among top trends affecting the consumer market, perhaps the most important, for providers of communications and entertainment products, is the reduction in discretionary spending, Gartner analysts say.

In mature markets, many consumers have cut back on discretionary spending in the wake of successive financial crises. But there is potential for service providers, globally.

Even as they generally practice restraint, consumers seem to put a higher value on media and communications products. In fact, that is congruent with traditional thinking within the U.S. cable industry.

The rationale is that, when other alternative forms of entertainment outside the home become relatively less desirable, video entertainment provided by a cable subscription offers quite a lot of value for a reasonable amount of money.

The Gartner survey would seem to confirm that sort of thinking about value and price.

Tough times create "buyer's markets," meaning that service providers might have an opportunity to protect or even gain market share and revenue, but must adjust their operations to accommodate changing consumer expectations.

This involves switching to more recession-friendly marketing messages, a greater range of "affordable" or "value" product options, more-strenuous customer engagement efforts, and improved customer experience, Gartner argues.

That sort of business climate might also provide benefits for application providers and services able to supply entertaining content that consumers deem to have a reasonable value to price relationship.

Executives Expect Economic Downturn in 2012, But Still Invest for Growth

They might be wrong, but global executives think there will be an economic downturn in 2012, and the sentiment is pervasive. Some 85 percent of CEOs surveyed said they believe their enterprises will be affected by an economic downturn in 2012, according to Gartner analysts.

The Gartner CEO and senior business executive survey of more than 220 CEOs in user organizations from more than 25 countries was conducted in November and December of 2011, from organizations  with annual revenue of $500 million or more.

Concerns are less severe in the Asia/Pacific and North America regions than in Europe and Africa, it is the dominant point of view within each of the three geographies. But there is an important qualification.

“Costs are now the second biggest priority area, the highest ranking in our surveys since 2009,” said Mark Raskino, vice president and Gartner fellow. The number one priority remains growth.

That might be why CEOs said they will increase IT investment in 2012, rather than cut it.