The battle between Google and Apple over who will control the smartphone operating system just got real – and the stakes are much higher than hardware and app stores. Recent growth in the growth of voice search and intelligent agents presents us with the first credible threat to Google’s dominance over organic search and search advertising.
Google won the browser wars at a strategic level by positioning their search services above the underlying technology (browser). By establishing Google.com as their connection with the customer and focusing on building mind-share and trust, their offering transcended efforts to bundle search into a particular browser or ISP-specific solution. Once established as the leader in search, they built an advertising empire using first their inside role within the buying funnel (Google Adwords) and rich data assets (AdSense).
It’s no secret that consumer attention has shifted from desktop to mobile devices: the typical US adult now spends more time consuming content on mobile devices than on desktop systems (Mary Meeker’s 2015 Internet Usage Report). Thus far, this is not a meaningful threat to Google’s revenue: ads can be displayed on mobile phones as easily as you can on desktop and Google has invested heavily here. Between their market share with the Android platform and the lack of a credible second search engine, they are safe.
However, Google’s confirmation this afternoon that 20% of searches that were run from mobile devices were triggered via voice command points to an emerging vulnerability in Google’s revenue model and market position. While not a certainty by any means (given Android’s market share), a viable strategic path for disrupting organic search now exists.
The revenue model threat is simple: over 70% of Google’s current revenue (2015 10-K) is from displaying ads next to on-screen search results (aka. Google Adwords). This is currently easy to accomplish since there is plenty of screen space around your main result (top organic search item) that can be stuffed with advertising. How exactly will this work with a pure voice search?
Consumer: “Google, how much does it cost to fight a DUI? I just got arrested..”
Google: “Please pause for a sponsored message from the top 3 DUI lawyers ranked by their willingness to pay me to be first before I share the top search result for your query.”
Sorry, that won’t fly in the real world. Voice UX responses need to be crisp and on point; achieving this will either hopelessly compromise Google’s integrity as a source (letting someone buy the main result) or cost them a $50 ad click. Neither is a good outcome.
There are solutions. One obvious one is to answer the question and follow it up with a context-specific offer of additional help. This may work, in small amounts. But they’ll have to be super strategic about talk time. Managing user experience will be very, very tricky.
But a much larger threat lurks here: the potential loss of Google’s ownership of the customer relationship and thus the ability to run that search to begin with. Recall their strategy of guiding the consumer to google.com vs. their browser’s default search. Obviously, any intelligent agent produced by Google will support their franchise.
But what happens if the consumer deals with someone else’s intelligent assistant, such as (hypothetically) Apple’s Siri? In the current world, not much. Many of the intelligent agents currently point at Google as the preferred search result since the alternatives have gaps. The main threat to Google is losing the relationship to the intelligent agent: I’m not asking Google a question, I’m asking Siri a question. She just happens to pass the question to Google and she strips most of the advertising and Google specific branding out of their response. Within a year or two, the consumer loyalty will transition to their intelligent agent away from the search engine, since that is the entity and brand they are interacting with.
This is where Google’s strategic position becomes vulnerable. Bear in mind, consumers have a default tendency to use applications which are bundled with the hardware. Control over any advertising and user engagement will effectively be ceded to whomever writes the intelligent agent. I don’t see Apple allowing Siri to allow Google to use voice prompts to upsell search traffic without taking a hefty piece of the resulting revenue. And without the customer contact, Google’s role as the technology provider could easily come under threat: if search is sold as part of bundled set of solutions to the consumer delivered by the intelligent agent, you don’t need to have the best search results to win.
And it’s getting easier to build a search engine, particularly one that only needs to deliver a B+ result in terms of search quality. The search engine optimization industry is effectively a semi-public reverse-engineering project focused on Google’s current search algorithm. Several entities (Majestic, Ahrefs, Moz) are already crawling most of the web to analyze page content and map link relationships. Actually, Apple is already doing a version of this in the Spotlight feature in their operating system (credit Jason Calcanis for this insight). They’re easily within striking distance of launching a full-bore search product and have significant advertising and app store experience. New entrants to the space (building off either AI or data science portfolios) could also make a credible play. The value of slicing off even a fraction of Google’s market share (valued at half a trillion dollar market cap) would make the incremental R&D and marketing investments look like a rounding error.
For the company bold enough to try it and lucky enough to succeed, this would be the same flanking maneuver the Web companies pulled on the desktop software (Microsoft). A large share of organic search traffic and associated advertising revenue is up for grabs. Who’s going to make a play for it?