| 
With
its first quarter of revenues over $10bn, there's plenty in Google's
earnings details and executives' calls to pick over. Here's a selection
Larry Page's first full quarter as Google
chief executive has gone well, with profits up 36% year-on-year.
Photograph: Justin Sullivan/Getty Images
What did we learn from Google's fourth quarter financial results, released on Thursday night? Quite a lot, though some is very well hidden. If you want, you can read the results, and also the transcript of the earnings call, and of analysts' questions at SeekingAlpha.
• Google passed $10bn for a quarter for a first time. In fact it was knocking on $11bn with its $10.854bn revenues. Profits were slightly lower than the previous quarter, however - $2.70bn against $2.73bn.
• Gmail now has 350m users.
• Google+ has 90m registered users - that is, people and organisations that have gone to the bother of creating a profile on it. That's more than doubled from the 40m announced at the last earnings call. There's some more about Google+, but we'll come to it presently.
• More than 250m Android devices have been activated. Larry Page, the chief executive, said so:
Android is, quite simply, mind-boggling. 700,000 phones are lit up every day. And I'm pleased to announce 250 million Android devices in total, up 50 million since our last announcement just in November. In just two days over the holiday weekend, 3.7 million Androids were activated. And today, we're announcing over 11 billion downloads from Android markets. Wow.
Of course 250m activations in total doesn't mean 250m necessarily in operation; that's a lifetime figure. Most won't be more than three years old though, so it's a good bet that many are still active. Adding 50m since 16 November (the figure was given out at the Google Music event) is a run rate of 50m in 65 days, or nearly 770,000. Unsurprisingly, Christmas has given Android a bounce. Even if you take out those two exceptional days around Christmas, it's still 734,000 per day in that period. But note that these won't be strictly hot-off-the-press numbers. They'll almost certainly have been prepared days earlier, and perhaps tweaked a little (if not by Page on his SEC-monitored phone calls, then at the Google Music event, upwards.)
• Page isn't really clear about how to monetise Android. Here's Benjamin Schachter of Macquarie Research with the question: "On Android, the numbers are obviously very, very strong. But can you talk about the monetization potential that's beyond search? What has to happen with Android for you to actually make money on this? And how are you going to do it?"
Page takes over:
"I think we are in a very -- as I mentioned in my remarks, we're in the early stages of monetization for a number of our new products, and Android is one of those. I think we do make money from Search on apps. We do make -- we mentioned that we have a very strong advertising business on mobile, which we obviously -- a lot of those people are on Android as well. And I think that you also see we announced 11 billion downloads on Android markets. Obviously, a lot of those are free, but we also are having a lot of people buy stuff there, too. We've seen a lot of potential for us to make money on Android, and I think you'll see us increase that a lot over time. It's hard to give you details about that right now, but I'm very, very optimistic."
Odd how in the previous quarter's earnings call he said that mobile was "at a $2.5bn run rate". (Then there were only 190m Android devices.) What's happened? Well, some analysis suggested then that a lot of that revenue - certainly a lot of search, as much as two-thirds - really came from Apple devices. Page didn't elaborate before or since. But monetising Android still seems like one of those "Any time soon, honest" problems.
• Motorola will be run as a separate business, if and when the takeover happens. Nor will it get special favours. Page again:
"on Motorola, obviously we're going to break that out [in the financial results] separately, so you'll be able to track the changes to margins and so on. I think that -- and able to track the business separately. So that should not be an issue. We've been very clear that Motorola's obviously going to remain a licensee of Android, and Android will remain open. And when we announced the deal, we really said our strategy is working with different manufacturers on lead devices is going to continue. And Motorola will bid with - just like any other OEM for those devices. So that process will be unchanged."
That's going to be interesting. Of course, Motorola is going to weigh down Google's profits: it warned earlier this month that it would miss expectations and show only "modest profitability". It's getting hammered in the Android fight.
• Google has been paying Apple and Mozilla (and various others) more than $440m per quarter to be the default search engine on their browsers, including desktop and browser. We learn this from the Traffic Acquisition Costs information. Known as TAC, these are the money that search engines pay to be the default on a browser or system: every time someone uses the Google search box on the iPhone or on Firefox, there's a reward in it for Apple or Mozilla. In the words of the release, "TAC also includes amounts ultimately paid to certain distribution partners and others who direct traffic to our website, which totalled $442 million in the fourth quarter of 2011."
Expect that figure to rise next quarter, because Mozilla renegotiated the deal, and is likely getting rather more. One to keep an eye on.
• Now, those Google+ users. 90m, remember? Here's what Page then said, after announcing that 90m figure: "Engagement on + is also growing tremendously. I have some amazing data to share there for the first time. + users are very engaged with our products. Over 60% of them engage daily and over 80% weekly."
What this doesn't mean is that 60% of people with Google+ profiles use Google+ every day, and 80% in a week. Not at all. It's saying that among people who have created a Google+ profile (a group that includes me), 60% use some Google product - which could be search, Maps, Gmail, YouTube, Docs or any other its dozens of things - while they are signed in using the same email that they have for their Google+ profile.
When you put it like that, it's surprising that more of them aren't signed in all the time - if you're using your own machine, for example, then the cookie on your browser will usually keep you logged in until you specifically log out. One also begins wondering how Google knows this detail: if you aren't signed in, how does it know you have a Google+ profile?
Even so, only 60% of Google+ users being signed in to use a Google desktop product each day, and 1 in 5 not signing in through a week, doesn't sound like a terrifically engaged audience to me. However, Google is very determined that - as one Googler put it to me - Google+ should be the "glue" that links all its products together. So far, a bit of a questionmark on the stickiness. And you'll note that Page said nothing about time spent on Google+.
• Advertising is pretty much Google's only business. Revenues from non-advertising business this quarter (ie from Google Docs to business): $410m, up from $273m a year ago. That's a 50% growth, but it's still less than 4% of revenues. Compare Microsoft's Business division, which had quarterly revenues of $6.3bn and profits of $4bn.
Then again, Microsoft's search division had revenues of $784m, and lost $458m. So the two companies are like each others' obverse.
In the end, then, Google's drive is always going to be to drive any business it's involved in towards something that's free to access online, and advertising-supported - because then it can weigh in with its reach advantage and drive out anyone else trying to serve ads, because its auction model for text ads is more efficient as long as it remains the largest search engine. Quite how Motorola Mobility is going to survive in that environment we'll have to see. Having been an independent company for a year, it hasn't set the world alight - apart from chief executive Sanjay Jha's very clever manoeuvring to make sure Google paid top whack for the company (or more specifically, its patents).
With rival Android maker Sony Ericsson looking ill too, it might be a question of which of the weakest two falls first. Will Google be more determined to keep its Android handset maker open, or will Sony? They both have a lot riding on it - though Sony might have slightly more reason to persist. Google, after all, just wants Motorola Mobility's patents. The handsets are an afterthought. And once that's done, Page can focus on monetising Android.
• Google passed $10bn for a quarter for a first time. In fact it was knocking on $11bn with its $10.854bn revenues. Profits were slightly lower than the previous quarter, however - $2.70bn against $2.73bn.
• Gmail now has 350m users.
• Google+ has 90m registered users - that is, people and organisations that have gone to the bother of creating a profile on it. That's more than doubled from the 40m announced at the last earnings call. There's some more about Google+, but we'll come to it presently.
• More than 250m Android devices have been activated. Larry Page, the chief executive, said so:
Android is, quite simply, mind-boggling. 700,000 phones are lit up every day. And I'm pleased to announce 250 million Android devices in total, up 50 million since our last announcement just in November. In just two days over the holiday weekend, 3.7 million Androids were activated. And today, we're announcing over 11 billion downloads from Android markets. Wow.
Of course 250m activations in total doesn't mean 250m necessarily in operation; that's a lifetime figure. Most won't be more than three years old though, so it's a good bet that many are still active. Adding 50m since 16 November (the figure was given out at the Google Music event) is a run rate of 50m in 65 days, or nearly 770,000. Unsurprisingly, Christmas has given Android a bounce. Even if you take out those two exceptional days around Christmas, it's still 734,000 per day in that period. But note that these won't be strictly hot-off-the-press numbers. They'll almost certainly have been prepared days earlier, and perhaps tweaked a little (if not by Page on his SEC-monitored phone calls, then at the Google Music event, upwards.)
• Page isn't really clear about how to monetise Android. Here's Benjamin Schachter of Macquarie Research with the question: "On Android, the numbers are obviously very, very strong. But can you talk about the monetization potential that's beyond search? What has to happen with Android for you to actually make money on this? And how are you going to do it?"
Page takes over:
"I think we are in a very -- as I mentioned in my remarks, we're in the early stages of monetization for a number of our new products, and Android is one of those. I think we do make money from Search on apps. We do make -- we mentioned that we have a very strong advertising business on mobile, which we obviously -- a lot of those people are on Android as well. And I think that you also see we announced 11 billion downloads on Android markets. Obviously, a lot of those are free, but we also are having a lot of people buy stuff there, too. We've seen a lot of potential for us to make money on Android, and I think you'll see us increase that a lot over time. It's hard to give you details about that right now, but I'm very, very optimistic."
Odd how in the previous quarter's earnings call he said that mobile was "at a $2.5bn run rate". (Then there were only 190m Android devices.) What's happened? Well, some analysis suggested then that a lot of that revenue - certainly a lot of search, as much as two-thirds - really came from Apple devices. Page didn't elaborate before or since. But monetising Android still seems like one of those "Any time soon, honest" problems.
• Motorola will be run as a separate business, if and when the takeover happens. Nor will it get special favours. Page again:
"on Motorola, obviously we're going to break that out [in the financial results] separately, so you'll be able to track the changes to margins and so on. I think that -- and able to track the business separately. So that should not be an issue. We've been very clear that Motorola's obviously going to remain a licensee of Android, and Android will remain open. And when we announced the deal, we really said our strategy is working with different manufacturers on lead devices is going to continue. And Motorola will bid with - just like any other OEM for those devices. So that process will be unchanged."
That's going to be interesting. Of course, Motorola is going to weigh down Google's profits: it warned earlier this month that it would miss expectations and show only "modest profitability". It's getting hammered in the Android fight.
• Google has been paying Apple and Mozilla (and various others) more than $440m per quarter to be the default search engine on their browsers, including desktop and browser. We learn this from the Traffic Acquisition Costs information. Known as TAC, these are the money that search engines pay to be the default on a browser or system: every time someone uses the Google search box on the iPhone or on Firefox, there's a reward in it for Apple or Mozilla. In the words of the release, "TAC also includes amounts ultimately paid to certain distribution partners and others who direct traffic to our website, which totalled $442 million in the fourth quarter of 2011."
Expect that figure to rise next quarter, because Mozilla renegotiated the deal, and is likely getting rather more. One to keep an eye on.
• Now, those Google+ users. 90m, remember? Here's what Page then said, after announcing that 90m figure: "Engagement on + is also growing tremendously. I have some amazing data to share there for the first time. + users are very engaged with our products. Over 60% of them engage daily and over 80% weekly."
What this doesn't mean is that 60% of people with Google+ profiles use Google+ every day, and 80% in a week. Not at all. It's saying that among people who have created a Google+ profile (a group that includes me), 60% use some Google product - which could be search, Maps, Gmail, YouTube, Docs or any other its dozens of things - while they are signed in using the same email that they have for their Google+ profile.
When you put it like that, it's surprising that more of them aren't signed in all the time - if you're using your own machine, for example, then the cookie on your browser will usually keep you logged in until you specifically log out. One also begins wondering how Google knows this detail: if you aren't signed in, how does it know you have a Google+ profile?
Even so, only 60% of Google+ users being signed in to use a Google desktop product each day, and 1 in 5 not signing in through a week, doesn't sound like a terrifically engaged audience to me. However, Google is very determined that - as one Googler put it to me - Google+ should be the "glue" that links all its products together. So far, a bit of a questionmark on the stickiness. And you'll note that Page said nothing about time spent on Google+.
• Advertising is pretty much Google's only business. Revenues from non-advertising business this quarter (ie from Google Docs to business): $410m, up from $273m a year ago. That's a 50% growth, but it's still less than 4% of revenues. Compare Microsoft's Business division, which had quarterly revenues of $6.3bn and profits of $4bn.
Then again, Microsoft's search division had revenues of $784m, and lost $458m. So the two companies are like each others' obverse.
In the end, then, Google's drive is always going to be to drive any business it's involved in towards something that's free to access online, and advertising-supported - because then it can weigh in with its reach advantage and drive out anyone else trying to serve ads, because its auction model for text ads is more efficient as long as it remains the largest search engine. Quite how Motorola Mobility is going to survive in that environment we'll have to see. Having been an independent company for a year, it hasn't set the world alight - apart from chief executive Sanjay Jha's very clever manoeuvring to make sure Google paid top whack for the company (or more specifically, its patents).
With rival Android maker Sony Ericsson looking ill too, it might be a question of which of the weakest two falls first. Will Google be more determined to keep its Android handset maker open, or will Sony? They both have a lot riding on it - though Sony might have slightly more reason to persist. Google, after all, just wants Motorola Mobility's patents. The handsets are an afterthought. And once that's done, Page can focus on monetising Android.
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