Silicon Valley has a way with words
Voice technology means no screen — and no clicks for Google to profit from
Technology bosses have a habit of talking about “missions”. Mark Zuckerberg’s is for Facebook to “make the world more open and connected”. Microsoft says it wants to “enable people and businesses throughout the world to realise their full potential”. It’s a rather peculiar trait. Royal Dutch Shell does not go on about using oil to help the world realise its dreams; global alcohol distributor Diageo does not claim to make the world more open and connected (although its wares do plenty to accomplish that at weekends).
Silicon Valley always has a warped view of itself, but its fondness for lofty goals is also a useful distraction fromits decidedly less glamorous business models of targeted online advertising and selling software licences.
In the case of those companies which collect vast amounts of personal information as well as exercising an increasing level of influence over people’s lives, friendly mission statements are a neat way to disarm sceptics.
Take Google. For most of its life the company’s motto was “Don’t be evil”, a useful shield against those who accused it of being a pernicious harvester of data.
In 2015, when Google restructured itself as Alphabet, separating its embryonic “moonshot” businesses (driverless cars, developing the elixir of life, that sort of thing) from the core Google business, “Don’t be evil” was dropped.
Alphabet went with “Do the right thing” while Google itself, which remains a separate company inside the parent, now talks about “organising the world’s information and making it universally accessible and useful”.
Once again, it is different from the Google business model, for which a more accurate mission statement would be the somewhat less catchy “maximising advertising revenue from our various internet properties using complex targeting algorithms”.
The difference between mission and business model has not been much of a problem for Google’s two decades. Its search engine and its adverts, from which it still derives most of its income, can rightly claim to organise the world’s information and maximise revenue.
Alphabet’s fourth-quarter results last week showed just how capable it is of doing that. Revenues grew by 22 per cent to US$26 billion and profits for the quarter alone surpassed $5b.
Despite the massive investments in its “other bets”, 99 per cent of Alphabet’s revenue, and more than 100 per cent of its profit, comes from Google.
Although Google has branched into selling hardware and cloud computing services, 87 per cent of its sales still comes from advertising. 36 per cent more adverts were clicked on than in the same quarter a year ago, helping to offset a decline in “cost per click”, the amount that advertisers are paying for each referral to their own website.
The reasons for that decline, and Google’s resilience in weathering it, are crucial to understanding the company. Until 2011, average cost per click increased reliably as money flowed into online advertising and Google’s ads became more effective. Since then, they have fallen steadily due to Google placing more adverts on less valuable internet real estate such as mobile search results and YouTube videos. This phenomenon has not troubled investors. Even if each slice is shrinking, the overall pie is still growing.
Google dealt with the shift from desktop computers to mobiles really well. But the next phase of computing may be more troubling.
Much of the excitement in technology circles is about voice computing. Software can now parse the spoken word far more accurately than it could just two years ago.
Voice assistants such as Apple’s Siri are improving, while Amazon’s Echo, a home speaker without a screen that responds to voice commands, has been an unexpected hit.
For many queries that were once typed into Google’s search engine, one can now simply ask Siri or Amazon’s Alexa, which will respond instantly.
Google is not blind to this: It is itself a leader in voice computing and has its own voice assistant software. Last year it said a fifth of all Google queries are now made via voice commands.
The problem is in how to monetise this. Google managed the transition from the big screen to the small screen, but the move to no screen is a different beast entirely.
Putting adverts within search results on a phone is one thing, but there is no easy way to shoehorn them into a conversation between person and computer when there is no screen at all.
This is more of a problem for Google than Apple, for whom voice software is a feature on the iPhone, not a threat to the core business model. Google must be in the game for fear of missing out on the next computing platform, but it is tricky to see how it will make money from it.
Its chief executive Sundar Pichai, when asked about this last week, gave few details about how Google would respond, but said people will continue to use different devices. It was an unconvincing answer, and as the medium continues to rise, is unlikely to placate investors.
Being a leader in voice computing may be compatible with Google’s mission to make the world’s information universally useful, but if it starts affecting its bottom line, how much scrutiny will that mission bear?