As growth slows for Google Inc, the search giant has changed gears to increase sales and bring in more profit. Google will start displaying adds in its online store for mobile apps and entertainment to increase the revenue through smartphones and tablets.
On Thursday, the company announced it will let software developers pay to promote their apps in the Playstore for the first time. Until now, Google has relied on human curators and algorithm to choose the apps and other content featured on the store’s virtual shelves. It described the program as ‘pilot’ involving a limited number of users.
Google Inc. gives away Android to device makers with built-in features designed to drive more traffic to its search engine and other services, such as its Google Play store for downloading apps. Ads will begin appearing in the Google Play Store the next few weeks as part of a test program Google makes most of its money from the ads shown in its search results, Gmail and YouTube video library.
“There is a very large and established market for mobile app marketing that Google has not had an attractive ad product for—up until now,” said Citigroup analyst Mark May. He estimates that Google could generate up to $3 billion in new, “high-margin” revenue by 2016 from Play Store ads, though he cautions that will depend on a number of factors including how fast Google scales up the new ad program.
The ads shown in the Google Play store will similar to the marketing links that the Mountain View, California, company has been displaying alongside its search results for more than a decade.
Although major smartphones running on Android software, the shift to smartphone has created many financial challenges to Google. One of the main reason is the marketer’s unwillingness to pay as much for mobile ads as they do on personal computers because of the smaller screens on phones. This is the reason behind the decline in the Google’s average ad rates in the past three years. Google has offset the pricing downturn by attracting more clicks on ads.
Also, Despite Android’s dominant market share, Apple’s App Store still generates more revenue, because iPhone users tend to be wealthier, and spend more. Apple said App Store sales increased 50% in 2014 compared with its 2013 total of $10 billion, implying roughly $15 billion of total sales for the year.
The makers of Android apps and games keep most of the revenue from the sales made in the Google Play store. Google disclosed Thursday that it distributed more than $7 billion in commissions from sales made in the Play store last year. By comparison, Apple Inc. said its app store for the iPhone and iPad generated more than $10 billion in commissions for app and game developers last year.