Project Glass Has More Than Just ‘Cool’ Factor For Google

Google’s (NASDAQ:GOOG) Project Glass initiative is was one that garnered the most attention during the company’s Google I/O conference earlier this year. ^[1] While the project is still in its early stages, we think that it is worth examining Google’s motivating factor behind such a project. We think that the company, with Google Glass, is aiming to capture a bigger share of the mobile local advertising market, which is slated to reach $22 billion by 2016. Additionally, we think that Google aims to gather more high quality data on its users which it can then use to enter and improve a variety of products across its platform.

See our complete analysis of Google here

Local Opportunity

We think that one of the key motivating factors for Project Glass is the opportunity that Google would have in the local advertising market. According to a research firm BIA/Kelsey, total local ad spending was around $130 billion in 2011, and is expected to reach $150 billion by 2016. ^[2] While this isn’t a large growth rate in its totality, the opportunity that Google has is in mobile local ad spending, which is expected to double from $11 billion in 2011 to $22 billion in 2016.

A product like Glass will give Google a big opportunity to take an outsized chunk of local mobile advertising growth. Google can directly deliver location based ads to a person visually, instead of having to rely on a person using their mobile phones. Advertisements such as this are likely to garner higher RPM’s because they could lead to higher conversion-to-sale rates. For example, if a user is at a shopping mall and searches for a restaurant, Google can use the opportunity to provide locally targeted ads which can directly sway user decisions.

Additionally, we think that there is a real possibility that mobile local advertising will be more than $22 billion market by 2016. We think that the impact of delivering video ads through glasses can’t readily be quantified, and is likely to create upside to BIA/Kelsey’s forecasts. If, for example, $30 billion is spent on local mobile/glass advertising in 2016, and Google is able to capture 50% of the market, it would be a $15 billion revenue stream for the company by 2016.

Visual Data On User Preferences

Another key impact of Google’s Glass initiative is the visual data that the company will get on its users. The impact of this data is harder to measure since it would impact many Google products, and will likely be used to drive advertising revenues by improving ad targeting for customers.

For example, if a user spends a day wearing Google glasses, the company will have data on what he or she saw and where they were. With this data, the company can narrow down into what the user focused on; such as if a user looks at an Italian restaurant for an extended period of time but doesn’t go it, it is highly likely that the user is interested in the cuisine. Google would then be able to use this data to provide the user with a daily deal (to use one example) for an Italian restaurant in the future. This logic can also apply to shopping and traveling, giving Google an opportunity to directly sell products based on a users interests.

In another example, online travel spending is expected to hit $523 billion by 2016 and if Google is able to even get 1% market share in this segment it would add $5 billion in revenues by 2016. ^[3]

We currently have a $679 price estimate for Google, which is marginally above the current market price.

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1. Google I/O: Google Glass detailed, Washington Post [↩]
2. Local Ad Spending Moving More to Mobile and Online; BIA/Kelsey’s   Media Ad View Reports Reveal Where Local Ad Dollars Are Flowing, BIA/Kelsey [↩]
3. Online Travel Market, NewMedia TrendWatch [↩]