As one of the most innovative companies in the world, change is one of the few constants at sprawling technology giant Alphabet , a fact only reinforced by its recent corporate reorganization.
And although its abrupt transformation into Alphabet has garnered the bulk of recent headlines, it's not the only important storyline for the company. Just the past several weeks have brought a number of important product launches. And as we recently learned, Alphabet's Google search engine passed a significant milestone earlier this year.
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Changing of the guard at Google At an appearance at the Re/code Mobile conference, Alphabet's new SVP of Google search, Amit Singhal, announced that total Google mobile searches surpassed total desktop searches for the first time ever over the summer. This news has been a long time in the making. Since its 2008 release, Android has become the de facto standard for smartphone operating systems, although Apple's closed ecosystem ensures that iOS remains an astoundingly profitable franchise as well. According to research firm IDC, Android's installed base surpassed 1 billion active users at the end of last year, and Alphabet's mobile OS now commands a market share of north of 80% among smartphone users worldwide. In late spring, the company formerly known as Google announced that mobile searches had overtaken desktop in 10 countries, including the United States and Japan. For context, here's how mobile devices compare to desktop.
Source: Andreessen Horowitz.
It was only a matter of time until mobile search eclipsed desktop search. However, this does represent a changing of the guard of sorts for the company that popularized search, while also creating one of the most formidable business models in all of modern technology. And while the historic nature of this news alone makes it worth mentioning, investors should consider what it might mean for Google's financial performance as well.
What does this mean for investors?Especially coming so close to its surprise rebranding, this key shift at Alphabet's most critical unit represents a historic inflection point for a business still struggling to adapt to the business realities of our increasingly mobile world.
Thanks to the overwhelming success of Alphabet's Android operating system, Google's total search volume has exploded in recent years. However, not all advertising mediums are created equal, and the smaller screen sizes that come with tablets and especially smartphones have created an observable drag on Google's cost-per-click and profit margins.
Source: Alphabet/Google investor relations.
Google has struggled to develop mobile advertising formats that monetize anywhere near those on desktop. This dynamic is further compounded by a growing number of Google mobile searches that occur today without having a user type an entry into Google's search box -- such as those occurring through Android Auto. As with smartphone growth, this trend represents the new normal for Google and its shareholders. If there has been an overhang for Google's share-price performance in recent quarters, the declining margins on its mobile search business have been a primary culprit.
There is, however, a possible light at the end of the tunnel. For one thing, Google has introduced a number of new search-ad formats geared toward overcoming some of the problems the company has faced with its mobile advertising business. These new mobile advertisements rely on data such as images, prices, and other product information, rather than text-based keywords, to match consumers with relevant ads. Google has reportedly launched these new data-driven mobile ad formats in at least four industries, including car dealerships, auto insurance, and the like. It isn't immediately clear whether these ads perform better than Google's normal mobile search ads, but it makes sense that these new ads could help solve Google's mobile monetization struggles. If that proves to be the case, the results could be impressive. Either way, Google remains a business in transition, and this historic moment deserves commemoration.
The article A Historic Moment for Alphabet Inc.'s Google originally appeared on Fool.com.
Andrew Tonner owns shares of Apple. The Motley Fool owns shares of and recommends Alphabet (A shares), Alphabet (C shares), and Apple. 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.
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