TECHNOLOGY SPECTATOR: A turbulent 2013 for the internet giants

Google takes on mobile adverting, Facebook aspires to make a comeback and LinkedIn may be poised for an acquisition. This year is set to be a rough ride for the web's largest companies.

Technology Spectator

While last year was something of a bumpy ride for all the usual stars of the digital age and there are signs that 2013 will be bumpier yet.

It’s time to fasten your seatbelts and enjoy the ride – it’s going to be fast and furious.

Google’s path to mobile

Advertising is going mobile, yet mobile advertising is less profitable so far.

As Google’s stock price continues to slide, analysts are predicting grim times ahead. Google of course relies heavily on search for its primary earnings growth. Yet while there’s a huge volume of searches being made from mobile devices – mobile search now represents Google’s largest single revenue stream, the search giant makes considerably less money on mobile ads than it does on PC ads.

The cost per click on ads has been in decline for the last four consecutive quarters. Users are only half as likely to purchase a product after clicking on a mobile ad, as opposed to a PC ad, which further pushes down the cost that advertiser will pay per click.

Right before our eyes, Google’s less profitable business is cannibalising its more profitable sibling.  So the big question for Google in 2013 is can they replace PC search with mobile search and remain profitable?

Facebook’s comeback

Facebook of course was one of the most highly anticipated initial public offerings in history. On the day of its IPO Google’s market capitalisation equalled more than $100 billion.

At the time, Facebook shares were priced at $US38, but finished the first day of heavy trading barely above its initial public offering price, at $US38.23. From then on, the share price plummeted. By September, shares hit a low of $US17.55 – as investors grew concerned over Google’s lack of a business plan to monetise its 1 billion members as well as its lack of a mobile presence.  

However while initial investors are currently looking at a loss - there’s now improved visibility on the company's mobile transition, and its move to become a true mobile company, as well as opportunities from new products which weren’t available at the time of the IPO.

For example, Facebook is promoting Photo Sync, a new feature for its mobile app that allows people to automatically upload every picture taken with their mobile phones to a private Facebook album. They then choose which photos to share on Facebook, but the automatic upload makes that process much faster and easier.

Turning Facebook into your photo repository is a consummate business move. Just think about getting your hands on the new glut of information from the geo-location data attached to the photos. This information will surely become increasingly valuable as Facebook sharpens its ad targeting capabilities.

Facebook is also planning to grow its user base—and mobile revenue—by expanding the reach of its mobile messenger app. Anyone with a mobile phone can sign up for Facebook Messenger, using just a name and phone number and is ideal for users in countries where email or computer access is not so pervasive.

While Facebook doesn't currently make money from its messenger app, which includes free texting, group chat, and photo-sharing, and it works across devices—so users can message from mobile devices to the desktop, and vice versa. The more people that message on any Facebook platform, the higher the level of engagement, and the more potential ad revenue for the social network.

In addition, Facebook’s ad exchange, FBX is now serving a staggering 7 billion ad impressions daily, and has the potential to become a highly lucrative revenue channel for Facebook.  Meanwhile, the beta rollout of Graph Search promises to change the way you find things on the social network and potentially beyond.

With this recent spate of announcements, Facebook’s future looks bright. While its share price still has some way to go to regain its initial valuation, of late the stock has been rallying. While the share price closed at $US26.63 at the end of the year, by January 24 the share price had hit $US31.49 which is considerably higher than its all-time low.

Instagram’s cash grab

Facebook’s acquisition of Instagram for a whopping $US1 billion last year took everyone’s breath away. While Instagram has a massive number of users uploading a massive amount of data, the company wasn’t (and still isn’t) making any money.

So we’ve all been expecting something to change.  And this came in December with the announcement of new terms of service that allows Instagram to sell your photos. Now you can’t begrudge a start-up from wanting to make money – but the way Instagram went about it has drawn ire. For hooked users, withdrawing from Instagram will be painful – for some it won’t even be an option. But as of January 16 all your precious content is now available for exploitation. It’s a simple matter of Instagram making money off your content without paying you.

How hooked users are remains to be seen. Will they remove their content? Or will they be happy to use the service and have their images exploited? I think the lesson for us all is to beware of start-ups that have lots of users, no business models and sky-high valuations.

LinkedIn poised for an acquisition?

And finally, LinkedIn: the quiet achiever. With more than 200 million members, the professional social network has enjoyed phenomenal success. Since LinkedIn went public in May 2011 with an opening day price of $US45, its shares have almost tripled in value and are now trading at more than $US122.

LinkedIn has of course been busy during 2012, successfully introducing an influencer network, and redesigned profiles and company pages.  The company also launched its much anticipated iPad app for its highly active mobile users. The app features a clean, simple interface and just three options: updates, profile, and inbox.

As to where the company goes this year is up for debate. Almost everyone agrees that the company is poised to make a huge acquisition and there are a multitude of potential candidates to choose from. According to Forbes, LinkedIn has tremendous opportunity to expand in the job postings market though its fast growth may be slowed down by potential competition from Facebook and Google.

Simon van Wyk is the founder of digital agency HotHouse. The company is currently celebrating 18 years of working in digital marketing. 

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