Mobile app search company Quixey announced last week that its search results will be integrated into Ask.com. The Quixey search results are now mixed within Ask's main search results page and in a new, dedicated mobile apps bar. Why, you might ask, would a search company turn to another search company to provide its mobile search results? The answer is that mobile search is an entirely different animal from web search.
Web search is based on hyperlinks (links in and out of a page) which are used to create relevance to a topic searched on. Mobile search doesn't have hyperlinks so relevance is created purely through the use of algorithms. Ask.com is turning to Quixey because it desperately needs expertise in mobile search and Quixey can provide it. Search is not easy and mobile search is especially difficult. For instance the Quixey service for Ask.com doesn't simply index the app stores and ratings, it factors in hundreds of signals including articles, reviews, rankings, ratings on iOS and Android and elsewhere, the amount of ratings an app has and many other factors.
At first glance, Google seems to have a very robust mobile app search business going indeed. It clearly leads mobile search and the Android operating system commands more than 70% of the smartphone market. However, in a 80 page report (that is available only to GS clients) Goldman Sachs (NYSE:GS) says Google is "challenged" in the mobile market for several reasons. Here are some of them: While Google had 70% of smartphone shipments last quarter, Apple had 60% of mobile internet traffic. Goldman estimates that Google pays a traffic acquisition cost of over 75% to be the default search engine. Smartphone cost per click is only 30-50% of those on the desktop. Google doesn't have a highly popular tablet. As more people choose an iPad there's a risk that they will buy an iPhone to accompany it rather than an Android phone. The Goldman reports goes on to suggest that Apple will control "61% of tablet sales volume come 2014, up from 56% today, compared to 23% for Google's Android, while Microsoft will come from almost nothing to 16% by 2014, and will keep growing at Google's expense thereafter." So while the picture initially look rather rosy, it gets a bit more grey the closer one looks. Although Google currently bosses the smartphone marketplace it is not monetizing mobile search the way it has desktop search. However as Tweedy Browne recently described, "with market shares in the search business that range from 65% to 85% in most countries throughout the world, it is reasonable to conclude that Google has a strong competitive position. Google's revenue is roughly 15 times higher than its nearest competitor, which has enabled them to put significantly more money into R&D, distribution, and the development of products and eco-systems that further promote and protect the use of Google's search. Moreover, as Microsoft's investment in search can attest, the search business is expensive to enter."
Apple estimates that 25 billion apps will be downloaded from its App Store this year. That statistic makes it seem like all things are hunky dory in terms of searching for apps on the iOS platform. However this is far from the truth. Apple stated at the launch of the iPhone 5 that there are now more than 700,000 apps on the App Store. Finding apps is not an easy matter. Apple's $50 million acquisition of Chomp in February was intended to improve app search, recommendation and discovery on the App Store but it hasn't yet yielded the type of results Apple would've liked. There are thousands upon thousands of so-called "zombie" apps that never get seen and developers are desperate to promote their apps. Getting an app into the Top 25 is obviously a huge deal and beyond the wildest dream of most developers as it stands now. However it is not the end all and be all. Flurry (a leading app development service) recently reported that apps outside the Top 100 will account for a whopping 68 percent of app revenue in 2012. App developers' promotional options are currently limited - they can either do paid campaigns on external networks or in-app advertising. Neither option delivers effective results at the moment.
Mobile search will be a key component of monetizing the non-hardware side of the mobile sector. Both of the leaders in the field, Apple and Google, face key challenges to achieving significant revenue from their mobile search services. Keeping developers happy with your platform's app search engine - be it the App Store or Google Play - will be a key factor. Expect both Apple and Google to do much more in this area. Mobile app search advertising is one option, giving developers a powerful promotional channel that would drive conversions and engagement with apps. For investors, both companies' endeavors in this key sector are encouraging. Neither Apple nor Google is likely to give up on mobile search without a supreme effort that might include further acquisitions and redoubled development efforts.
As Tweedy Browne notes, "However, like every investment we make, Google is not without risks. Vertical search, uncertainty regarding future growth rates, and risks related to Apple's strong share in smartphones and tablets all need to be monitored closely. Nevertheless, we feel that Google is well positioned to protect its interests."
I would recommend both Apple and Google as good value buys at this time. However, that is not to say that they don't both face competition from Amazon's (NASDAQ:AMZN) app store and its increasingly popular Kindle Fire and, going forward, from Microsoft's (NASDAQ:MSFT) Windows Phone 8 and its app store.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.