Practically everything is a billboard to Google, but there’s one thing that shouldn’t be: Your Nest.
A December letter to the Securities and Exchange Commission, released today, fueled fears that Google might be soon be serving you ads on your home’s smart thermostat—imagine turning down your temperature via your Nest, and getting an advertisement for ice cream, or a vacation to Antarctica.
“A few years from now, we and other companies could be serving ads and other content on refrigerators, car dashboards, thermostats, glasses, and watches, to name just a few possibilities,” Amie Thuener, Google’s director of finance, said in the letter.
After a story in the Wall Street Journal inflamed customers, Google released a statement this week denying plans for future Nest ads:
“We are in contact with the SEC to clarify the language in this 2013 filing, which does not reflect Google’s product roadmap. Nest, which we acquired after this filing was made, does not have an ads-based model and has never had any such plans.”
That’s good, because reaction to the news was not positive.
The brouhaha came about because the SEC wanted to know why Google’s pay-per-click advertisers were paying less—6% on average. Google doesn’t want to give details on its mobile advertising revenue like Facebook and Twitter do, so the SEC asked Google why “quantification of mobile activity would not be meaningful.” Thuener explained that Google’s definition of mobile is evolving, and that’s when she made the statement that Google is now trying to amend. You can read Thuener’s explanation in its entirety below.
Here’s Google’s response to the SEC that caused the uproar.
In a short period of time, the meaning of “mobile” at Google has shifted dramatically to “handset” from “tablet + handset”. We expect the definition of “mobile” to continue to evolve as more and more “smart” devices gain traction in the market. disclosing or quantifying the impact of only one factor, such as platform mix, could be misleading and confusing to investors. In the case of Q412, disclosure of mobile CPC growth and mobile paid click growth could potentially have led investors to incorrectly attribute the impact of a product change (and subsequent property mix shift) to platform mix shift.
To prevent these kinds of misinterpretations, we disclose only the aggregate data for CPCs and clicks and continually remind investors of the multiple factors that impact CPCs and paid clicks each quarter. We also continually stress the importance of considering the two metrics in relation to each other, versus focusing on CPCs alone or paid clicks alone. Taken together, these pricing and volume metrics tell a robust story about our ads business.
We would also like to highlight the significant difficulties we see with the practice of breaking out CPCs and paid clicks — or any performance metric — by device platform. It is increasingly challenging to define what exactly a “mobile” platform is from period to period — and what it will be going forward. For example, initially, most industry observers would have included tablets (in addition to handsets) in their definition of “mobile”. This was consistent with our internal view, as evidenced by the fact that the mobile revenue run-rates we released in the third quarters of 2011 and 2012 included both handset and tablet revenue. However, as tablets gained momentum in the market, it became clear to us that their usage had much more in common with desktops than with handsets. Accordingly, our campaign management tool, Enhanced Campaigns, launched in 2013, now requires a single bid for desktop and tablet ad campaigns. In a short period of time, the meaning of “mobile” at Google has shifted dramatically to “handset” from “tablet + handset”. We expect the definition of “mobile” to continue to evolve as more and more “smart” devices gain traction in the market. For example, a few years from now, we and other companies could be serving ads and other content on refrigerators, car dashboards, thermostats, glasses, and watches, to name just a few possibilities.
Our expectation is that users will be using our services and viewing our ads on an increasingly wide diversity of devices in the future, and thus our advertising systems are becoming increasingly device-agnostic. Enhanced Campaigns was specifically designed to help advertisers become more efficient in a multi-device future; rather than writing unique desktop campaigns, handset campaigns, and tablet campaigns, etc., Enhanced Campaigns allows our advertisers to write one ad campaign, which we serve dynamically to the right user at the right time on whatever device makes the most sense. Because users will increasingly view ads and make purchase decisions on and across multiple devices, our view of revenue is similarly device-agnostic.
As Google’s business continues to evolve, further disclosures of our business will be important to our investors. Google increasingly generates revenues from hardware and digital content/apps, in addition to its core advertising business. While we do not believe that telling investors about a sub-category of multi-device ad revenue (i.e., handset revenue) is meaningful, we do believe that the eventual disclosure of revenues generated from digital content/apps, and/or hardware will likely be meaningful, when they reach material levels.
Lead image courtesy of Nest