More than 50 percent of Google’s searches are now coming from mobile phones. So how worried is Google’s new CEO Sundar Pichai about Apple’s decision to make ad blocking extensions available to iPhone users?
Not much at all, if you can believe statements made by Pichai on his company’s Q3 earnings call. “We are used to this, we have seen this for a while,” Pichai sad when asked about ad blocking, adding: “It’s not a new phenomenon.”
Pichai went on to stress that ads fund the vast majority of Google’s services, as well as many media services from publishers and entertainment companies. “Users are okay with that contract, and we need to make sure it works well,” he said. However, Pichai also acknowledged that some ad experiences don’t work all that well for consumers. That’s why Google and other companies need to make sure to improve advertising, he said.
Google rolled out an ad-free service of its own this week with YouTube Red — a new subscription service that lets users view YouTube videos without ads, and with added functionality, for $10 a month. Pichai said that this will be additive to YouTube’s core revenue. “We expect most users to consume YouTube the way it has been,” he said.
Pichai made these statements as part of the first earnings call of Alphabet, the new corporate umbrella for Google. Alphabet beat expectations for Q3, generating $18.7 billion in revenue across all of its businesses during the quarter, compared to $16.52 billion a year ago. Google’s GAAP-adjusted net income was $4 billion for the quarter, compared to $2.74 billion during Q3 of 2014.
Google has long made most of its money with advertising, and mobile ads are a growing part of that equation. “Mobile search revenue is up significantly,” said Alphabet CFO Ruth Porat during the call. However, both executives also acknowledged that mobile advertising still isn’t as profitable as desktop ads. “We continue to believe we are in early innings here,” Porat said.
Still, mobile will remain one of Google’s biggest growth drivers. Pichai said that he expects mobile to reach “the entirety of the human population” within the next five to ten years, and that mobile phones specifically will help to connect the next billion internet users.
The Q3 earnings call was notable in part because it was Google’s first official earnings release under a the new Alphabet operating structure. Google announced this summer that it was going to restructure the company under the Alphabet umbrella. Under this new structure, Google is essentially a subsidiary of Alphabet that operates many of the company’s core businesses, including Android, YouTube, search and Chrome. Google’s Internet-of-Things arm Nest has become a separate subsidiary under Alphabet, as have many moonshot projects like Google’s self-driving car, and its biotech and energy businesses.
Investors have long wondered how much exactly the company is spending on those efforts, as well as how much money Nest and some of the other more esoteric subsidiaries are making. However, Alphabet won’t formally have to answer those questions until the release of its Q4 earnings in early January.