Can Alphabet Use Google Maps to Accelerate Revenue Growth?

By Markets Fool.com


Continue Reading Below

Source: Google.com

Alphabet will soon start using its popular Google Maps platform to generate top-line growth.

It will also start showing ads inside Google image searches. The moves -- announced just days apart -- should allow Alphabet to use these popular existing products to put ads in front of mobile web users at a time when the mobile ad market is heating up.

No company is as dominant as Google in the word of desktop computing. The company still owns nearly two-thirds of the desktop search market.

On the small screen, by contrast, Facebook has emerged as a legitimate contender, and smaller players such as Pinterest and Snapchat are on the rise.

Continue Reading Below

The mobile advertising market is expected to more than double between 2015 and 2019, with an increase of some $35 billion in the U.S. alone. (The U.S. generally makes up about a third of global ad spending.)

Step away from the desk

The desktop ad market is expected to stay largely flat in the coming years, growing only 3% between now and 2019. Since Alphabet already dominates desktop, it can grow only so much by taking share in that area.

To grow materially, it needs to begin amassing more share in the mobile ad space.

This is where ads on its Google Maps platform come in. More than a billion people use Google Maps every month, and it's a product that while originally developed for desktop has been a natural fit for mobile, as we're more often looking for directions when we're already out and about and not sitting at a desk.

In fact, Google executives say that more than a third of mobile searches are related to a user's physical location, and they see that number growing in the future.

The Maps ads will let companies place a logo image over their physical locations on Google Maps, something similar to what Google had previously offered through navigation app Waze. The ads will also allow retailers to display specials and discounts or an inventory of products at a nearby store when users search relevant terms within Maps.

The company does not yet plan to incorporate ads into spoken navigation through the app, but executives say they haven't ruled out doing so in the future.

Monetizing image search

Around the same time it unveiled the Maps ads, the company announced it started incorporating shopping ads into its image search results.

Alphabet isn't alone in the image search arena. Pinterest, the photo-sharing social site, is a rising competitor that's counting on image search to fuel growth in the coming years. That growth could come at the expense of Alphabet.

But Alphabet steps into the image-search advertising arena with two advantages: a wider user base and a larger pool of advertisers that are already familiar with its ad products. Most importantly, marketing surveys have shown that advertisers are happy with the return they get from Google products.

Defending the top position

It's not that things haven't been going well for Alphabet. Revenue was up 17% in the first quarter compared to the year-ago period, outpacing the growth in expenses. That's impressive for a company of Alphabet's size, especially when you consider the competitive advertising landscape it operates in.

But it's crucial for Alphabet to make the transition from desktop king to a company that shows the same kind of resilient success in the mobile ad market. And to do so, it will need to move beyond the keyword search that has served as its bread-and-butter advertising vehicle on desktop.

Google remains the biggest player in mobile ads, owning nearly a third of the U.S. market, according to industry research firm eMarketer. But it has seen its market share slip over the past few years.

Alphabet doesn't need to gain share against Facebook in mobile ads to continue delivering investors market-beating results -- eMarketer sees Alphabet's mobile ad revenue growing by 40% this year, even as it loses share to Facebook. That level of growth in mobile should help offset a cooling desktop market, and products like Maps -- even though they've been around for a while -- could be key in getting there.

The article Can Alphabet Use Google Maps to Accelerate Revenue Growth? originally appeared on Fool.com.

Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. John-Erik Koslosky owns shares of Alphabet (A shares) and Facebook. The Motley Fool owns shares of and recommends Alphabet (A shares), Alphabet (C shares), and Facebook. 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.