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The world’s smartest and richest tech companies posted their quarterly earnings this week, and if you had to draw one lesson from the results, it’s this: mobile matters—more than anything.
The companies seeing the strongest growth—Apple and Facebook—are the ones with the most successful mobile strategies. The companies seeing declines, missing expectations, or falling short of their former glories—Google, Alibaba, and Microsoft—are the ones that can’t quite make mobile work for them. And in that faltering, opportunity opens up for the next great business idea—an idea not weighed down by the legacy of the desktop.
Yes, these are all huge companies with many moving parts that make the math behind their business successes and failures complex. But sometimes, applying Occam’s razor can be instructive.
Apple and Facebook On Top
Take Apple. It pretty much invented the current iteration of mobile as a category—as a business all these other companies had to bother to figure out in the first place. It makes the hardware that people want to always have with them. And on Tuesday, it posted the biggest quarterly profit by a public company in corporate history.
While Apple invented the modern-day mobile device, Facebook invented the thing people most want to do on them. The same day Facebook posted record revenues of $3.85 billion—including more than $2 billion in mobile ad revenue—app analytics firm App Annie released a report that found the top four mobile downloads of 2014 were all apps owned by Facebook.
Facebook Messenger, Instagram, and WhatsApp joined the original Facebook app itself at the top of the chart. Of those four, Facebook has only really figured out how to make money off of one: Facebook proper. But by investing deeply in teaching machines to understand how well those ads are working, Facebook seems poised to make the rest of its app roster pay off.
Google’s Search
Of all the companies that reported earnings this week, Google’s relationship to mobile is the most paradoxical. Its Android mobile operating system dominates smartphones the world over. But Android installs are not in themselves an important source of revenue.
The company makes money when people click on ads. And in the last quarter, the number of people clicking on those ads increased by 14 percent. But the cost of those ads to advertisers keeps falling.
Google doesn’t break out its mobile versus desktop ad revenue. But the continuing drop in the value of its ads—a longtime trend that has paralleled the rise in mobile device use—suggests that years into the shift away from PCs as the primary connected device, Google still hasn’t figured out how to make mobile pay.
Giants Misstep
Though Alibaba is most often contrasted to Amazon, the more apt comparison is Google. Alibaba doesn’t sell its own inventory like Amazon. Instead, it makes much of its money from merchants paying for ads that show up in the product search results on its Taobao marketplace.
Alibaba was one of last year’s most successful IPOs, but shareholders punished the company severely Thursday as its revenue missed expectations. The number of mobile users of Alibaba’s services surged, but as with Google, the price Alibaba can charge for those ads appears to be lower than on the desktop.
As for Amazon, it’s always a strange outlier in the conversation around mobile. It doesn’t make most of its money selling hardware or software but stuff. Its own effort to make a smartphone was a big flop. But one-click shopping in its mobile apps, instant video for Prime members, and its e-book business all show ways Amazon has leveraged the mobile migration well.
Microsoft is far less complicated to explain. In the context of its own dismal record, the last three months were a banner quarter for Microsoft’s mobile strategy. Its Surface tablet finally topped $1 billion in sales. Microsoft-owned Nokia shipped 10.5 million Lumia smartphones—a record. But Windows phones only own a pittance of the worldwide market share in mobile. And Microsoft’s $26.4 billion in revenue sounds nice—until you consider that Apple made a significant fraction of that in profit alone ($18 billion).
The Future Is Wide Open
If the smartest, richest companies in the world can’t figure out how to make mobile work, who can? Well, maybe anyone. Optimism seems like a totally rational response to the tumult tech companies are enduring as mobile devices become the primary computing platform.
After all, the global economy is in the earliest days of the mobile shift. The iPhone debuted less than a decade ago. And all of these companies, the heaviest of tech heavyweights, first rose to prominence before mobile mattered as anything beyond a way to make a phone call and maybe send a text or an email.
In other words, the first great mobile-native tech company has yet to rise. At its current massive valuation, Uber may be poised to take that crown. After all, its business doesn’t make sense except on mobile. But while Uber still has billions of other people’s money to play with, we won’t know if that value proves out.
Whether it does or not, the future is wide open to the best new ideas for turning mobile devices into money-makers. As the upstarts become the incumbents, the innovator’s dilemma inexorably slows them down. Revenue becomes a hindrance as well as a help. And the future opens up to what’s next in your pocket.
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