Citigroup Analyst Bearish on Google Mobile Opportunity

Citigroup's Mark Mahaney apparently thinks that Google is crazy to bid on the 700MHz spectrum and that the effort will consume all the company's cash and resources. Here's the summary of Mahaney's comments (from Silicon Alley Insider):

Spectrum Auction / Plans: Near-term Risk for Stock

  • Winning the spectrum auction would cost Google an estimated $6.6 billion
  • Building a national network would cost an additional $5.5 billion to $7 billion
  • Together, these would consume all cash on balance sheet.
  • Results of spectrum auction won't be known until March.
  • Fear that Google will go insane, spend all cash, and become capital-hog telco may scare bejesus out of investors until then. (No, Mark didn't put it quite that way)

Apparently, Mahaney feels also that the near-term mobile opportunity is overblown, while the longer-term opportunity is underrated:

  • Near-term Google mobile opportunity overrated. Crappy mobile experience, limited consumer use, etc. Hopefully (but not definitely) this changes with 3G/4G and iPhone-like phones...
  • Long-term Google mobile opportunity underrated. Mobile search could be major catalyst for local search, which has been a disappointment for a decade.
  • Mobile search market could eventually be as big as PC search market: Mark puts global PC Search Market at $21B in '07, driven by 35 monthly searches per PC. Just one monthly search per each 2010-estimated 4 billion mobile phones would generate mobile search revenue of $2.3B.

We partly agree and partly disagree with this analysis.

In our 2012 mobile ad revenues forecast we assume an average of 18 searches per user per month (by 2012), which is perhaps slightly aggressive. But data (from the MMA) already show "the average mobile search user conducts roughly nine searches per month." In addition, an informal online survey (n=75) we recently conducted showed that roughly 47% of users performed mobile searches "more than once a week," with just over 25% saying that the searched "more than once a day."

These numbers have to be taken with some caution because the sample isn't representative of the population at large. But they are interesting and instructive. That same survey showed the following mobile search engine distribution:

Which of the following mobile search engines/sites do you use (multiple answers permitted)?

  • Google -- 90.0%
  • Yahoo -- 20.0%
  • Ask-- 8.0%
  • AOL -- 0.0%
  • Microsoft Live Search/MSN -- 8.0%

n=75

By comparison, iCrossing found the following distribution for the same question (4/07)

  • Google -- 90.0%
  • Yahoo -- 46.0%
  • Microsoft Live Search/MSN -- 19%
  • Others – 16%

n=156

Again, these numbers have to be taken with caution of course but they're indicative of Google's strength and opportunity if the mobile Internet can be accelerated.