Research firm Piper Jaffray predicts that Android could generate more than $1 billion in mobile advertising revenue for Google in 2012.

Android generated $5.90 per user in mobile advertising in 2010 and the research firm predicts that number will increase to $9.85 by 2012. Comparatively speaking, Google search generated $18.85 per user and Google advertising in total generated $25.77.

?We expect Google's revamped Android Market will enable users to download apps on Android more easily and could increase monetization per user from in-app advertising over the next two years,? said Gene Munster, senior research analyst at Piper Jaffray, New York, in a research note. 

Billions served
According to Mr. Munster?s research note, Google's former CEO Eric Schmidt once said that Android could potentially be a $10 billion business if it had 1 billion users paying $10 per year.

?We believe Google is well on its way to having users pay $10 a year via advertising on Android,? Mr. Munster said.

Google generated $850 million in total on mobile in 2010. Android comprised 16 percent of the total, or $130 million, according to Piper Jaffray.

The research firm predicts that Google could have an average of 133 million Android users by 2012 each generating $9.85 per year on advertising, which would suggest a $1.3 billion revenue contribution from Android.

In-app ads to fuel growth
Mr. Munster?s research note claims that in-app ads will help fuel Android?s growth, driven by an overhauled market.

Google?s launch of Android gave Apple?s iPhone what industry experts believe was much-needed competition. Now, with the iPhone coming to Verizon?s network Feb. 10, Google has launched initiatives meant to help it compete with Apple and the App Store.

Last week Google launched the Android Market Web site, which makes it easy to discover new apps through a bigger interface.

Users can send applications directly to their Android device and share favorites with friends.

The move is undoubtedly part of Google?s strategy to increase distribution and discoverability of its apps right when the App Store is about to get a big push with the flood of Verizon subscribers who will start downloading soon (see story).

?One reason we are confident in Google's ability to increase ARPU on Android from $5.90 last year to $9.85 in 2012 is that the company has refocused on the Android Market,? Mr. Munster said in his research note.

?Last week, Google announced a number of changes to Android market that we believe could accelerate application downloads on Android devices,? he said. ?The reason we believe this is important is that more downloaded apps means more time spent on apps where Google can reach users via mobile advertising.

?Prior to being acquired by Google, we believe AdMob was the largest provider of in-app advertising to developers.?