Google Attacks Its Own App Store With Its Newest Acquisition

By Markets Fool.com

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Source: Google

Let's face it... America is crazy for apps. According to ratings company Nielsen, the average U.S. smartphone user spends 37.5 hours every month playing games, browsing social media, or consuming news through apps.

Not only is that a significant amount of time, it's quickly increasing. Overall, the company found that time spent on apps more than doubled from 18.3 hours a month in Q4 2011 to the aforementioned 37.5 in Q4 2014, which is good for an annualized growth figure of 27%.

On the surface, this sounds like good news for both major operating systems --Google's Android and Apple's iOS -- as it portends growing importance for app gatekeepers and ecosystems. Look more deeply into the data, however, and the proliferation of apps is decidedly better for one company than the other... and it isn't the company that makes the majority of its revenue from search.

Even with the majority of the mobile OS market, Google is a search company
Google commanded a massive 1.6 billion smartphone installed base as of year-end 2014, good for 76% market share and leading Apple's total of 410 million smartphones. But that's not how Google makes the majority of its money. Looking at the last fiscal year, the company reported $66 billion in total revenue, with $59 billion of that coming from advertising and search. The remainder -- roughly $7 billion -- is reported in a catch-all "other revenues" figure, which includes revenue from apps and content from the Google Play store.

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Here's the conundrum: While Google has the largest app store by sheer subscriber numbers, the company receives the majority of its money from advertising and search-based revenues. For an interesting corollary, investment firm Goldman Sachs estimated that in 2014, Google made more in mobile search revenue from Apple's iOS than it made from its own app store and mobile search, combined.

As a matter of fact, eMarketer (via Business Insider) estimates that $38 billion of Google's total revenue -- nearly 60% -- comes directly from search. And considering that very few apps utilize any search features at all, the migration toward an apps-based Internet experience, and away from web browsing, presents a headwind of sorts for Big G.

Google's attempt to lessen app dependence
According to Amir Efrati from the website The Information, Google's not taking this threat lightly. The search giant quietly acquired Agawi last year. This company's technology allows smartphone users to access an app on the web via streaming without having to download the actual app. And while there are a few other reasons to buy the technology -- most notably, to save internal phone storage -- the most plausible reason for the purchase is to keep smartphone users from downloading apps.

Is this technology a game changer? Who knows; but the fact that the technology was purchased last year, and is just now being reported, points to the fact that more development or integration is needed. In addition, it now appears that Google is working more closely with app developers to improve its mobile search experience.

The key here is that Google is working on reducing the growing dependence on apps, while also working harder to monetize app-based browsing -- all good news for long-term investors.

The article Google Attacks Its Own App Store With Its Newest Acquisition originally appeared on Fool.com.

Jamal Carnette owns shares of Apple. The Motley Fool recommends Apple, Google (A shares), and Google (C shares). The Motley Fool owns shares of Apple, Google (A shares), and Google (C shares). Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.