Mobile Search: How Smartphones Are Disrupting The Internet's Biggest Business Marcelo Ballvé | February 26, 2013

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Mobile Search: How Smartphones Are Disrupting The Internet's Biggest Business

Marcelo Ballvé | February 25, 2013

We have reached a major turning point in mobile's influence.

Search — the very cornerstone of the Web — has begun to show signs of

decline on desktops and laptops.

Meanwhile, search is surging on smartphones and tablets. Mobile

searches are quickly becoming the main way in which consumers find

everything they need — whether it's information, services, or physical

and digital goods.

That means there's a great opportunity, but also that search has more

work to do. There are kinks to figure out in areas ranging from app

discovery to tracking the effectiveness of local search ads.

As we'll explain, mobile consumers are searching more on all sorts of

different apps. That means that search quality is an important issue in

many apps, and that marketers need to gain visibility across multiple

search-driven platforms. Google can't be expected to do all the heavy

lifting on mobile.

This report will look at how different players in the mobile ecosystem can

better take advantage of new mobile-driven search behaviors. Mobile

search will create opportunities for developers, and will help determine

which platforms succeed or fail in coming years (not to mention the

extent to which Google remains the dominant force in mobile as it has

been on the desktop).

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These are the main points we'll cover:

Search fragmentation: Consumers are searching more on

apps vertically focused on specific categories like shopping and

restaurants. That includes location-aware searches, which are

increasing outside of Google's ecosystem.

Mobile search advertising: Despite bumps in the road — such

as the problems with measuring mobile conversions, and

confusion over device-targeting — mobile search has a great

future as a marketing tool. The key is closing the consumer loop

from online search to offline purchases so marketers understand

the value proposition.

Mobile-native search approaches will proliferate as startups

grasp for a search formula geared to mobile consumers. One area

ripe for innovation is app search. It's difficult to find apps beyond

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the blockbuster Top 25 list on Google Play and Apple's App Store,

both cluttered with nearly a million titles.

Click here for the charts and data associated with this report in Excel→

Peak Search?

First, to set the context, let's review the search engine market and

mobile's role.

On all screens, search is a mature business in which a handful of players

are notable, but there's one clear leader: Google.

Google's share of desktop and laptop search volume is 67 percent in the

U.S., according to comScore.

But in mobile, Google enjoys total dominance, taking a 95 percent share

of worldwide search queries, according to StatCounter. (See chart,

below.)

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However, Google and all the other search engines face a major

disruption. It can be summed up in one question: Are mobile devices

driving searches to such a degree that PC-based searches are beginning

to level off, and even decline?

In 2012, analysts who follow search engines saw something they had

never seen before: Search volume originating from laptop and desktop

PCs declined for four months in a row compared to the same months the

prior year.

The year-on-year search declines came to an end in January 2013, when

PC search volumes suddenly shot up compared to January 2012. (See

chart, below.)

According to comScore, the year-over-year January 2013 surge was due

to several unique factors including holiday demand that carried over

from December because of U.S. "fiscal cliff" concerns, an extra weekday

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in January 2013, and a particularly weak January for desktop search in

2012.

It remains to be seen whether desktop/laptop-based searches will really

resume a growth track, or if last month's positive result is just a short-

lived break from the late 2012 slump.

In the long term, with the proliferation of smartphones and tablets

around the world, it's an inevitability that most search growth will come

from mobile and not PCs.

Context-First?

Google and the other search engines can't command the same CPC (cost-

per-click) for mobile as they did for desktop and laptop clicks. The

reason: It's more difficult to track the value of user clicks since

smartphone users often search on-the-go and complete purchases

offline, or on other devices.

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That explains why Google's CPC growth in year-over-year terms has

been negative in every quarter since late 2011, as cheap mobile clicks

create drag on ad prices. Independent studies of mobile search

advertising confirm the CPC deflation:

Performics said in late September that CPCs remain 50 percent

lower on mobile paid search compared to desktop.

Marin Software's study of global paid search advertising in 2012

found that smartphone clicks averaged $0.48 versus $0.75

average on desktops. Tablets were pulling close to desktop with a

$0.62 average CPC.

According to Marin, mobile generates around one-fourth of the

clicks on search ads, but less than one-fifth of the ad spend. (See

chart, below.)

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In order to combat the low CPCs, and the monetization gap, Google

recently overhauled its immensely successful search-focused ad product,

AdWords. The changes are complex (we analyzed them in a recent news

note, "Despite Device Targeting Flap, Mobile Has Plenty To Celebrate In

Google's AdWords Changes").

But to summarize: Google is forcing advertisers to design campaigns

around context rather than specific device types. So, rather than target

smartphone users, search advertisers will weigh their bids on search

terms according to user location, time and whether they're on a

smartphone. A pizza company might bid on nearby users, place a

premium on smartphone users, and target dinnertime hours.

Under the new AdWords, advertisers will not be able to target tablet

owners (they will be lumped together with PC users).

Google says ad performance across PCs and tablets is converging

anyway.

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Google is clearly trying to push marketers toward an integrated multi-

screen approach, hoping that this will bring the value of mobile

consumers into sharper focus.

It's not a sure thing the new approach will work.

Much will depend on Google's attempts to increase adoption of ad

formats optimized for smartphones, and to measure how often

smartphone clicks result in "conversions," including calls to businesses,

in-store visits, and purchases offline or on other devices. Google says it is

working hard to improve reporting of such metrics.

Search fragmentation

Search's future depends on how consumers behave on mobile. Will

browsers and search engines continue to funnel search behavior? Or will

apps tend to mediate search experiences (apps absorb as much as 82

percent of users' time spent on mobile, with the mobile Web left with the

crumbs).

For now, consumers remain attached to their apps. Google may remain

the king of search, but mobile apps are absorbing a fair share of

queries: restaurant searches on Yelp, news searches on Twitter, product

searches on Amazon and eBay, et cetera.

Plus, the language of searches is changing. Mobile searchers are typing in

briefer queries. That means they're more likely to find what they're

looking for in focused apps. For example, if they type in "Mexican" in

Yelp, they're likelier to find a Mexican restaurant than if they type that

single term into Google, where they'll get results for various Wikipedia

pages on Mexico.

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Data confirms that mobile consumers are often performing in-app

searches ahead of purchases.

xAd and Telmetrics asked mobile consumers how they preferred

to research certain purchases, whether directly in travel,

restaurant, or auto-related apps and mobile sites, or by browsing

the mobile Web. A 55 percent majority went directly to apps and

mobile sites, a sign search engines are being

disintermediated. (See chart, above.)

In the same survey, 53 percent of smartphone users said they

used local directory apps like Poynt to search for restaurants (46

percent of tablet users did so).

Meanwhile, "multi-category" restaurant directory apps and

websites (Urbanspoon, etc.) together reached 20 percent of the

mobile restaurant search audience.

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These numbers line up with a study released in early 2012 by

Localeze/15 Miles, which discovered 49 percent of smartphone

and tablet users turned to apps for local search.

These results don't necessarily mean mobile apps will steal all the search

volume away from search engines. It could be that the popularity of apps

is fueling more search volume in general, and that both types of searches

will grow simultaneously.

Yelp already sees 46 percent of its search volume come from mobile

devices (up from 40 percent in the previous quarter). Twitter has made it

easier to search in its mobile apps, which may help it increase advertising

revenue since promoted tweets can be served against search results.

Google's acquisitions of flight information software firm ITA, Zagat

restaurant listings and Frommer's travel guides can each be seen as

defensive moves to shore up its engine against the threat of category-

specific search.

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Closing The Local Loop

One of the most contested battlegrounds in mobile is local business

search.

Smartphone users perform local business searches about as often as PC-

based users, according to the Localeze/15 miles study cited above. Tablet

users, meanwhile, perform considerably more local searches. In the same

study, 65 percent of tablet owners said they performed a search for a

local business at least once a week. (See chart below.)

The challenge of local business search is that it is a tough market to

serve. That's because it's dominated by small and medium-sized

businesses (SMBs). By definition, these are not businesses with huge

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marketing budgets. They need assurances that any investments in mobile

search will pay off.

Right now, SMBs remain lukewarm to mobile, unsure about how it will

benefit them. A Borrell Survey released in September 2012 found that

only 49 percent of the 1,300 small and medium-sized businesses polled

said they would incorporate mobile into advertising and marketing

efforts in 2013.

The survey also picked up an underlying dissatisfaction with mobile. Half

the businesses who were in mobile said they would increase their

spending if they saw a better return on investments.

This skepticism again points to a central challenge for mobile search.

How to track the value of a click?

How can mobile search close the so-called "purchase cycle loop"? How

can small businesses know if mobile clicks — whether on Google, or

other search-driven platforms — are driving sales leads, foot traffic, and

purchases offline and on other devices?

Local directory apps like Yelp already go head-to-head with Google's

search engine in offering smartphone-oriented features like click-to-call,

which can be tracked to measure the effectiveness of paid listings and ad

placements.

The "Angie's List" app — which helps mobile users connect with local

services, like plumbers and exterminators — took an innovative route to

closing the loop: It recently integrated with payment app Square, so that

users can pay local contractors directly via their phone.

(Square itself also offers a location-powered directory of merchants that

accept it, which means the payments service doubles as a local shopping

app.)

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Privacy worries loom as a potential stumbling block for location-based

search. As we noted in our recent location-based services report, many

mobile consumers still block location sharing due to privacy concerns.

Mobile Natives

Buzz about mobile-first search engines tends to generate excitement,

since the label of "possible Google killer" is always sure to get attention

from the tech press and general interest newspapers and magazines.

But it's still the early days for mobile-native search. The experiments

cited below aren't going to topple Google, or even threaten Yahoo or

Bing. But in their mix of features and innovations there's sure to be some

ingredients of a formula for a new-and-improved mobile search.

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App search: App searches are a mess. As mentioned above, App

stores like Google Play and Apple's App Store make it difficult to

find apps beyond the blockbuster "Top 25" list. And mobile and

desktop search engines don't always understand when consumers

want to browse or are searching for an app to download. We've

suggested that paid app store search ads could help solve the

needle-in-a-haystack app problem. Specialized mobile app

search and app discovery engines, some with a social tack, have

begun to emerge.

Visual rather than text-based tablet search: Bing has

innovated in this area, but Izik (by search engine company

Blekko) is optimized for tablet searches so that results are more

visually rich, and easily swipeable and tappable.

Privacy-sensitive: DuckDuckGo promises not to track its users'

search history. But DuckDuckGo has limited functionality. Image

searches, for example, are referred to Bing or Google.

Voice-activated: Siri, Apple's voice-powered mobile concierge,

is an early example of how voice commands could power future

mobile searches. Android's less widely-discussed voice-activated

search is very advanced and arguably better integrated with the

search engine and maps than Siri.

Data-based: WolframAlpha, which has an Android app,

specializes in sourcing data scattered across the Internet to

answer plain-English queries.

Human-assisted/social: There are a few different services that

might be lumped into this space. Quora is a curated peer-to-peer

question and answer service, with Android and iPhone

apps. The ChaCha search app uses human researchers who are

paid one or two cents for each question they answer. A

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recent study of search result quality on mobile ranked ChaCha's

answers as being better than Google or Bing's on mobile, but the

study focused on accuracy (not speed, for example), and was

sponsored by ChaCha.

THE BOTTOM LINE

Mobile search will splinter across apps in different categories,

particularly location-aware search. One-stop-shop search engines won't

own the game any longer, and marketers will need to become adept at

leveraging other search platforms.

Additionally, local search is becoming more important than

ever. That means bricks-and-mortar businesses of all sizes, from

national chains to mom-and-pops, will need to formulate strategies for

being visible to mobile consumers, on apps and the big mobile search

engines.

Google, with its tremendous market power, is trying to nudge marketers

toward a new approach in which they will target users across screens

based on context — such as time and location, and whether they are on a

smartphone — rather than rely on device targeting. If the experiment

works, the entire mobile ecosystem may begin to drift away

from hardware-centric paradigms and toward a default multi-

screen approach.

Mobile-native search engines are overhyped and won't take on

the legacy search engines any time soon. But they signal features — such

as voice-activated searches and more visually appealing searches on

tablets — that might catch hold.

Click here for the charts and data associated with this report in Excel→

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