Google, for all its technological prowess and lines of business, still relies on ads to power its bottom line. Its last earnings call again highlighted that its revenues are almost purely ad-based. But the future of computing devastate that business model.
On a call after the fourth-quarter 2016 earnings were announced, Google CEO Sundar Pichai said the company was “comfortable” when asked if voice-enabled devices would put the company at risk, since those devices have no screens to display ads. Currently, Google’s own ad network relies (in part) on scraping your web history and feeding you ads it feels are relevant to you. It’s a data-for-revenue model you opt into by default when you use Google.
That model is why searching for a pocketknife on Amazon might later show you ads for knives when you visit a news website. Whatever your search history, the foundation is the screen you use. But devices that utilize voice interaction, such as Amazon’s Echo and Google Home, don’t have screens.
According to reports, the next-generation Amazon Echo may have, in addition to voice capabilities, a screen that could surface ads. Even so, most use-cases for the Echo don’t involve looking at the device, much less a screen. Any sort of display in this context is a limited-use feature, perhaps most valuable for distilling an opaque search query.
With Google Home, Google built an Echo competitor that basically mimics Amazon’s hardware: it’s a simple table-top microphone and speaker. Google believes its search expertise will make Home a best-in-class experience for consumers.
Voice-only devices have no tolerance for ads. You can easily dismiss an ad that pops up on a screen; with a speaker, you’d be forced to listen… and precious few people would want that.
Pichai correctly identified the tech industry’s foray into voice-only devices as “early days,” and noted it’s only “one mode” of how we’ll interact with the digital world going forward. In Google’s view, we’ll still search on a desktop or phone; voice can’t do it all.
“We think about it from a long-term perspective,” Pichai said. “I see more opportunity than challenge when I think about voice search.”
The monetization question lingers, though. In all other businesses, Google had a screen and found a way to push ads tastefully. But the company hasn’t solved for ‘X’ in the case of voice-only. Voice might have you leaning on Google’s search and services, but the company hasn’t discovered a way to monetize Home outside of direct sales yet.
It’s a different story with some of Google’s competitors in this new space. Amazon has its own marketplace to lean on for monetization, and Echo links directly to it. You can ask Alexa (the OS that powers the Echo) to deliver diapers or granola, and she will. It’s not perfect (you can’t shop around, or use Amazon Smile), but it’s convenient and drives revenue. Google never mastered search-to-commerce in quite the same way.
Google is still a leader in machine learning, voice recognition, and parsing as well as search. It has all the ingredients to make Home world-beating. Voice search will provide more data, which could improve its existing model for selling ad space. For the moment, voice-only devices obviously feed Google info (a recording of each query is sent to Google), but it has no way to directly monetize what it’s learned.
A niche product, Home points to yet another possible problem for Google. It sold exceedingly well in the holiday shopping rush, which means people are already turning to voice search rather than smartphone or computer screens. If the device catches on, Google will still be the best search engine around – but it’ll need a way to monetize that growing corner of its market, as well.
And if you don’t believe there’s a potential problem, click any link in this article. They all have ads from Google’s network. But Home can’t even read you their text.