How much does Google make in advertising from mobile? Cowen analyst Jim Friedland estimates that Google is generating $7 per year from each smartphone (and tablet). This includes both search and display advertising in mobile apps on both Android and iOS (iPhones and iPads). Thanks to the rapid growth in active smart mobile devices worldwide from an estimated 509 million last year to an estimated 914 million in 2012, Google’s mobile ad revenues are expected to more than double from an estimated $2.5 billion last year to $5.8 billion in 2012 (see chart).
As a percentage of Google’s total revenues, Friedland estimates that mobile grew from 3 percent in 2010 to 7 percent last year and will almost double again to 13 percent in 2012. By 2016, he expects mobile to be a $20 billion business for Google, and represent 26 percent of its total revenues.
Google doesn’t regularly break out mobile revenues, so estimates are all we have to go by. Friedland’s model is below. He starts with an estimate of total active smartphones and tablets, applies a discount to estimate Google’s penetration, and then builds his model fron there. Friedland’s numbers are in line with other data from the company and elsewhere. Back in October, CEO Larry Page disclosed that Google’s annualized mobile ad revenue run-rate was $2.5 billion, which is what Friedland estimates for 2011. So Freidland might be a little aggressive there, but not by much.
During Google’s latest earnings call last Thursday, Page disclosed that all display ad revenus (which includes mobile) is now at a $5 billion annualized run-rate. So could mobile alone end the year at more than $5 billion as Friedland suggests? That depends on how many smartphones and tablets are sold this year.
If indeed we are going to go from 509 million active smart mobile devices to 914 million, that would be a huge jump and could drive mobile ad revenues sky-high, especially if Google increases the amount it makes from each device. Friedland expects Google to be able to squeeze another dollar out of each smartphone user this year, or $8. For context, Google already makes about $30 a year from each desktop computer out there. Oracle claims that Google already makes $14 from each Android handset, but that number comes from a lawsuit and is likely inflated.