Is this next after Nexus? Will this be GOOG's Telco strategy?

Will Google be as relevant in the mobile phone world as it is on the desktop? That's the challenge it faces...
Written by Tom Foremski, Contributor

Maybe GOOG dosen't need to buy a Telco to ensure its access to mobile users, maybe it can just buy them.

In my recent analysis of Google's Nexus phone launch I pointed out that GOOG needs to own the network rather than the phone. The phone is nothing without the network. The Telco's control the wireless networks and that means that they control the phones - the applications and the services users can access.

Controlling your own wireless cellular network would be far more useful to Google than having its own branded phone.

But acquiring a Telco would be a big deal and a long deal. It would take a long time to complete and integrate. That's a potentially very distracting time for Google management which would provide some breathing room for competitors.

Maybe an easier way for Google to ensure it has access to mobile users is to simply buy access. It could pay Telcos for the best positions on cell phone home pages and to be the featured search option. This would have a benefit for Google in that having the means to pay large fees to the Telcos becomes a competitive barrier and protection for Google's core business.

Would Google pay Telcos for a position on a cell phone home screen or a prominent search box? Why not? it already pays out huge amounts of cash to acquire search users.

In its most recent financial report Google paid out 27 percent of its total revenues, about $1.57 billion, mostly to third party web sites. It is reported as Traffic Acquisition Costs or TAC.

Google also pays Apple for homescreen placement on the iPhone not to mention its inclusion in Apple's Safari browser.

TAC is a closely watched number by Wall Street analysts. TAC costs could rise if Google has to pay the Telcos for traffic. That's because Telcos control a limited market unlike the huge inventory available in online web sites where Google can get away with paying very little for user traffic. Scarcity always raises prices.

Google's challenge would then be to make more money from mobile phone users than it does from desktop/laptop users. That's why it acquired mobile phone ads company Admob late last year for a whopping $750 million.

But it's not clear mobile phone ads will be more valuable, and more profitable than other online ads. Or that search will be as successful on mobile phones as it is on the desktop.

Nic Scevak, writing on Bronte Media spells out the issues with mobile phone ads:

Everyone is so bullish on mobile advertising but nowhere near as bullish on mobile commerce. They are very much inter-linked. If there is no mobile commerce, there will be no mobile advertising.

... [People] use mobile phones in small time increments making meaningful activity (researching purchase decisions/discovery) less likely than other types of behavior (lookup of known information).

... in case anyone hasn’t noticed, search has not become as integral to the mobile web as it has to the desktop web. Sites receive about 10% of their traffic from search referrals in a mobile environment compared to 30% in a desktop web (rough numbers).

Then there is the issue of form. Mobile phones fit in a pocket and offer poor creative formats to advertisers and their agencies. This won’t change in the future.

Google's biggest challenge right now, is to figure out a business strategy that enables it be as relevant in the mobile phone world as it is in the desktop world. There is no guarantee that it will.

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