With Facebook’s recent IPO, the company confessed that as its mobile audience grew, its revenue shrank. It’s been difficult to serve ads on mobile devices, and it’s been a struggle to find other methods to make money from this channel. “Growth in use of Facebook through our mobile products, where our ability to monetize is unproven, as a substitute for use on personal computers may negatively affect our revenue and financial results,” Facebook mentioned in its IPO filing. But Facebook isn’t the only one worried. So are the webmail giants Yahoo, Gmail and Hotmail.
In some ways, this is nothing new. Companies like Microsoft, Google and Yahoo have always had difficulty making money out of this free service. First, they started offering users the option to pay for premium email services, such as more storage. Then Google rolled out nearly unlimited storage, which turned the game on its head and made revenue by scanning inboxes and pushing out highly targeted ads. Yahoo and Microsoft followed suit quickly thereafter.
Today, they are all faced with this monetization challenge again. Site traffic to these sites has been trending downward for the past year. The cause? More and more people are checking their email from their mobile devices. Email, a staple of everyone’s life, saw an 82 percent growth year-over-year from March 2011 to March 2012. In fact, research from Return Path shows that people reading email on mobile devices is about to overtake the number who read it on PCs this year. Will this make webmail irrelevant?
There are probably a number of directions that Microsoft, Yahoo and Google can go with monetizing their webmail users. All three make money off of search, so it would seem highly probable that using information scanned from emails received can help improve search results by displaying queries that mirror what’s in their inboxes. Revenue from search is no doubt higher than webmail, so it makes sense that they go down this route.
Another possibility is for Yahoo, Hotmail and Gmail to offer their own controlled experiences. Yahoo and Gmail offer their own apps for checking email and could use these to push their own ads since that ability isn’t available in the native iPhone and Android mail apps. However, people love the native smartphone email apps because they can check their email from one inbox, as opposed to multiple apps. It seems unlikely that Google and Yahoo could convince their mail users to switch and exclusively use their apps, unless they could truly offer a differentiated experience.
Could what’s old become new again? The other possible scenario is that the webmail providers start charging for premium services again. While storage isn’t an issue, it’s possible that they start offering paid services around inbox management. As more and more retailers are offering digital receipts via email, it seems natural for ISPs to offer a digital wallet to keep track of purchases so people aren’t fumbling through their inbox when they return purchases. Webmail providers could also start bundling email with their cloud service offerings for additional inbox storage — similar to what Google Drive is doing now — and increase the ability to locate and search documents embedded in email. It’s also possible they start charging for access outside of webmail, something Microsoft did with Hotmail and Outlook years ago.
It’s no doubt they will solve the problem. Email is too important in our lives today, and the information the giants glean from us by peeking into our inboxes is too important. But as with Facebook, the road to mobile monetization may be bumpy.
Tom Sather is senior director of email research at Return Path.
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