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by jldugger 2373 days ago
> One would have to spend almost as much as Google, if not more, on user-acquisition.

Why is that a problem? Wouldn't decreased profitability be the sign of increased competition?

2 comments

That's not a problem per se, it's just unlikely to happen because of the insane amount of the bill, and the roi is not that good anyway.

For instance, Google pays Apple 9 billion/year to be the default search engine (incredible but True). On the account of 20-30% to user acquisition that means that Apple users can be monetized by Google at around 30B/year (9B/0.30). Google is extremely good at monetizing people, right, a competitor might not be as efficient, let's say half. That gives you 15B addressable revenue.

Now the question. Would you pay Apple 10B to gain, at best, 15B? No one that crazy has this kind of money :-) On top of that, who prevents Google to pay 16B next year?

> Would you pay Apple 10B to gain, at best, 15B?

30% APY Seems like a good deal to me!

EDIT: more seriously, you don't start with iPhone. You start outbidding Google on the margins where your budget constraint less a factor.

> On top of that, who prevents Google to pay 16B next year?

Profit margins. Google's budget is not unlimited, after all.

On the margins are also where the less attractive customers are from an advertising perspective. How much are customers worth who are buying a Blu R1 HD phone for $70?
Well then it's even cheaper to get started =)
Google is paying to Apple around 12 billion for being default search, this is only to Apple, but they pay to Firefox and others too. So if you want to get those users you need to pay more, you also need top talent and the most important thing that you need is data. Data is the king and Google controls the kingdom. So to start competing with Google for real market share you need XX billions for start and you still will have small chance to win because you don't have Chrome, Youtube, Maps, Gmail, Google Analytics, Android and many other data sources. This endeavour is a huge risk with small percentage of succeeding. This is probably the reason there is no real competition. Market will not solve this on its own.