Google: The search party is over
Yes, the company is still growing at rates that would be the envy of the rest of the Fortune 500. But its core business is slowing, its stock is down, its Android mobile platform generates scant revenue, and competition (hello, Facebook) is fierce. Can Google find its footing in this brave new world?
By Michael V. Copeland with Seth Weintraub
Google founders Larry Page (left) and Sergey Brin invented the algorithm that drives nearly all of Google's revenue.
Stroll across the Googleplex in Mountain View, Calif., and you are confronted by a world that sparkles a bit more than whatever slightly dreary one you just left. Massive stone busts of ocean explorers like Jacques Cousteau fix their gaze on the cobbled paths that flow into the main Google buildings. At sunny tables outside, Google employees -- the coolest, most confident techies you'll meet -- eat their free food and chat animatedly about who-knows-what arcane computer algorithms, or the latest must-do pastime of the young and affluent Silicon Valley set, like kite-boarding or indoor skydiving.
It looks a lot like the midday break at some elite college campus. But almost 12 years after it was launched by precocious Stanford grad students Larry Page and Sergey Brin, Google and its founders are grappling with a very grownup set of problems. Google's core business, online search, is slowing. That is partly due to Google's own success; it's hard to keep posting record growth rates when you dominate a business so thoroughly -- Google sites lead the U.S. market with 64% of all searches conducted. But more crucially, the web has changed significantly since Google became a verb. There is (at long last) fresh competition from Microsoft's Bing, and also a new wave of sites and services that offer alternatives for consumers' time and attention -- and the advertisers that follow them.
The Googlers certainly know this, but in classic Innovator's Dilemma fashion, the company seems unsure about how to move beyond the core search business that has brought it such massive success. Google has placed expensive bets on acquisitions, chief among them its $1.6 billion purchase of YouTube, a $3.1 billion wager on ad network DoubleClick, and more recently its $750 million purchase of mobile advertising platform AdMob. But none of those deals have yet significantly diversified Google's $23-billion-a-year revenue stream: Google's main focus continues to be driving people back to the search box and the ad dollars that Google collects for helping marketers reach highly targeted consumers. Even Google's most successful new product, the Android operating system for smartphones, generates scant revenue for the company: Google gives the licenses free to mobile-phone operators to facilitate, you guessed it, searches and use of other Google services on mobile phones. And while it lets its whip-smart engineers dedicate a portion of their workdays to dreaming up the coolest products for the web, all that Googley experimentation hasn't had a huge impact on the bottom line.
That was fine when the search business was expanding at 30% or 40% a year, and Google's revenue was growing at twice that. Long-term projections for growth in the search business are more in the 15% to 17% range. Yet analysts estimate that 91% of Google's revenue still comes from the AdWords and AdSense 
business model that Google built around Page and Brin's breakthrough PageRank algorithm. Even more telling, an estimated 99% of its profit does too. This year's projected earnings growth of 18% is a third of what Google averaged over the past five years. A lot of companies would kill for that growth, but for technology companies, and Google in particular, those numbers don't impress. Google is rounding a corner that all the fruit smoothies at its Silicon Valley campus make it hard to pull back from. This year Google (GOOG) has joined the ranks of just about every great technology company before it, including IBM (IBM), eBay (EBAY), Cisco (CSCO), Microsoft (MSFT), and Oracle (ORCL). Google, against its will, and defying its massive cash hoard, is transitioning from a growth company to -- and there is no kind way to put it -- a cash cow. That ranks right up there with being a former supermodel, but it is a taint Google can't seem to shake right now, at least not on Wall Street. It's a big part of the reason that Google shares are down 21% since Jan. 4, underperforming the Nasdaq (up 1%).
Up against the ever-changing web
Some investors also worry about Google's ability to keep pace with consumers' evolving use of the web. Say you want to buy running shoes to train for a marathon. Five years ago you would have simply Googled it, looked at the list of results, weighed your options, and made the purchase, perhaps by clicking on one of the sponsored links that accompanied your search. Today you might still do that, but increasingly you might pose the question "What running shoes should I buy?" to your friends on Facebook, or maybe write "Who knows about training for marathons?" on Twitter. By the time shopping service Groupon sends you (and 25 of your friends) an offer for the perfect shoes and registration for a race, you'll probably just pounce on it.
And what if you don't even have a question to pose? What if you just need help? Consider the case of American graduate student James Buck. Egyptian police detained Buck for taking photographs of a protest in a city outside Cairo. Using his cellphone and his Twitter account, Buck broadcast a single word, "arrested." Buck's network alerted officials at the University of California at Berkeley, who ultimately got the U.S. State Department and a local lawyer involved. Buck was out of jail in 24 hours. Try that with a keyword search.
This is the phenomenon Google is up against. In the decade-plus since Page and Brin came up with PageRank, the web and the way we use it have changed dramatically. As Buck's example shows, the web experience is increasingly mobile and social. We take it everywhere, and are connected almost all the time. Google needs to find real success in this new world -- or invent the next major evolution of the web. It isn't easy to create new multibillion-dollar businesses, but the rewards are great for the companies that do: Consider former Google ally Apple (AAPL), which has dominated add-on businesses (music players, retail) that are more profitable than the one that brought it prominence (computers). Apple is just killing it, and it is now the most valuable technology company in the world, with a market cap of $236 billion vs. Google's $156 billion. Thus far Google has been tight-lipped about plans for a world beyond search. Marissa Mayer, head of search at Google, says the company doesn't provide financial guidance, but contends that Google doesn't need a huge second act, a collection of smaller businesses will suffice. The original search business will always dwarf any subsequent new units. And Page, Brin, and Google CEO Eric Schmidt simply haven't articulated a vision for Google's future. "That is what is scaring investors," says Sameet Sinha, a senior analyst with JMP Securities in San Francisco. "There is no clear path toward what Google is doing, or wants to do."
There are good reasons why companies, and tech companies in particular, want to maintain the mantle of Growth Enterprise. For starters, Wall Street values you differently. A growth company stock commands a premium price/earnings multiple based on its future potential that, in turn, helps it lure employees with stock options. Just as important, being a growth company affords employees and founders (and even shareholders) a huge psychological boost: You're driving the economy, you're changing the world. Facebook and Twitter are packed with engineers who've left formerly hot tech companies. As soon as early adopters smell a whiff of last year's technology, they are on to something new.
That particular odor has never attached itself to Google since it launched in 1998, crushing all comers. You may recall AltaVista, Infoseek, Lycos, and HotBot. Google's edge was better technology (see "smart engineers," above), so it must be somewhat worrisome in Mountain View that Bing is gaining in popularity -- Microsoft sites had about a 12.7% share of searches in June, according to comScore, up from 12.1% in May -- partly due to its interface and other features. Indeed, Google has dispatched Ben Ling, a former YouTube wizard, to help improve the quality of its mainstay business.
"Google is not the hot company anymore," says Marc Benioff, CEO of Salesforce.com (CRM). "Their stock has been mostly flat for five or six years now. How can you claim to be a leader with equity performance like that? That's starting to look like Microsoft or Yahoo (YHOO). They have to get into some other place, and quickly."
Microsoft is an apt comparison, except the software company found a second engine of growth to supplement its Windows computer operating system business eight years after MS-DOS hit the market. That business would become Office, the world's most profitable application software, which today accounts for roughly 40% of Microsoft's earnings. Of course, Microsoft has been struggling since to find its next big winner. Its server business chugs along. Its gaming console, Xbox, could still be an engine of growth, but it hasn't moved the needle yet. Once Office saturated the workplace and then some, Microsoft lost its growth-company status.
So what is Google's best shot? It won't be international growth. Google dominates search in developed countries, and it will be a long slog in other parts of the world, such as Russia and China. (In China, where Google recently renewed its license despite strained relations with the government, Google's 30% share trails China's homegrown search king, Baidu (BIDU).) Google has plenty of real estate on the web to which it can attach more advertising, such as Google Maps and Google Images. And indeed, during the recession Google boosted its ad revenues by opening up inventory on its sites to marketers. But those are incremental gains, not a big new source of revenue.
Searching for Google's next big thing
The company's recent acquisitions and product launches fall into four main avenues of business: the mobile Internet (Android, AdMob), display advertising (splashier, graphics-heavy ads with DoubleClick), YouTube and video, and applications. A fifth area, social networking, is likely to be a big push for Google and holds the most potential. The company is widely rumored to be pursuing a "Google Me" project to do battle with Facebook.
Google does not report specific financials of businesses outside of search, but Sandeep Aggarwal, an Internet and software analyst with Caris & Co., estimates that mobile, display, YouTube, and apps generated about $1.5 billion in revenue in 2009, and this year should bring in about $2.1 billion in sales. On a bottom-line basis, that translates to about $1.44 in earnings per share this year. That's peanuts today -- Google is expected to earn $27 per share in 2010 -- but those are areas that are already outpacing traditional search in their rates of growth.
Amazingly, Google's biggest and most promising opportunity to date, its successful Android operating platform for mobile phones, doesn't produce much revenue or profit for Google -- by design. The company in 2007 made the technology available to all comers in a bid to make the web more accessible on smartphones and in turn to encourage consumers to do more Google searches on their mobile devices. The strategy worked. Encouraged by this easy access to Android, handset makers began churning out multimedia phones, and the Android platform has been a consumer success: Google says some 160,000 new Android devices are activated each day, and device makers from Motorola (MOT) to HTC have all released popular phones on the Android platform. But Google doesn't make gobs of money on those devices. (Google dabbled in phones but discontinued its Nexus One after only six months.) Apple, on the other hand, also stoked the smartphone market with its iOS, but with very different financial results: Last year the company posted an estimated $15 billion in iPhone sales, a benefit of making the hardware and the software.
So where will Google's next $20 billion come from? It may not come from one blockbuster new business but rather from a handful of smaller opportunities. Google insiders are optimistic about YouTube, which accounts for 10% of all the time spent online worldwide, according to comScore. (The only greater time-suck on the web is Facebook, at 17%. We'll get back to social networking.) Four years after buying the money-losing video site for $1.6 billion, Google seems to have figured out a way to eke out operating profits by selling video and display ads against a growing pool of professionally produced programming, including infomercials and other content created by marketers. Likewise, Google's $3.1 billion acquisition of DoubleClick, the ad exchange that's been folded into Google's display network, will help expand Google's ability to place multimedia and display ads on websites, including its own properties: It essentially hopes to do for online display what it has done with text ads. But few analysts see those businesses, in the short term at least, becoming Google's next huge follow-on business -- its Office equivalent, to use the Microsoft analogy.
Could its Office equivalent be, well, an Office equivalent? It's a long shot, but one of the more profitable efforts at Google, and one that doesn't have a thing to do with advertising, is its nascent business-software operation, Google Apps. For an annual licensing fee of $50 per head, Google provides corporate customers with Gmail, collaboration tools, and other services that are delivered via the Internet. Some companies have started ditching traditional software vendors (including Microsoft) for the Google Apps' cheapness and flexibility (adding or dropping a new account takes just a few clicks). In June, Google announced that more than 2 million businesses were using Google Apps for Enterprise. That sounds like a big number, but analysts peg revenue from Apps this year at about $350 million, or just $175 per business. Nikesh Arora, Google's president of global sales operations and business development, told analysts at a technology conference in June that he expects the number of apps customers to double in the next few years.
The net effect of all these efforts? Analyst Aggarwal pegs revenue from Google's nonsearch businesses at $5 billion to $8 billion in 2013. For any other company, that might be enough, but Aggarwal estimates that the company's search revenue will be about $40 billion three years down the road. In that context, nonsearch revenue still isn't enough to make a huge difference in how Google is valued. For the foreseeable future Google will remain a search company.
The real shift going on within the Internet
Mike McCue has had a front-row seat watching the web grow up, and as far as he is concerned, the search box is all about the past. McCue was an early Netscape guy, and he recently launched tablet software company Flipboard, which takes all your Facebook updates, your Twitter feeds, all the news sites you like and subscribe to, and in a very elegant way publishes a constantly updated magazine of text, photos, and video. "There is no need to do a search," McCue says. "We almost view it as a bug if we have the user search for something."
At Google, where every problem is waiting to be solved by some form of search query, that is tantamount to blasphemy. But Flipboard sums up the shift going on within the Internet, one that is arguably the biggest change to the web and the way we use it since Google came on the scene. Your network simply provides you with answers, stories to read, bargains to buy -- and you often don't even need to ask a question.
In this new phase of the web, one of the largest threats to Google and its core search business is the expanding Facebook footprint around the world. Not only because social networks (and those used for work like LinkedIn fall into that same category) offer a substitute for search for consumers, but also because they offer a substitute for advertisers as well. In display advertising, for example, Facebook has a 16% share of the roughly $9 billion market, according to comScore (Google sites have 2.4% of the market), and advertisers say they're looking for more ways to plug into Facebook.
"Facebook has got Google in its sights," says Debra Aho Williamson, a senior analyst with eMarketer. "Advertisers get the best of both worlds -- a mass audience but also the ability to target more than anyone else. Who are the advertisers? In a lot of cases, they're Google's advertisers."
Most alarming to Google is that much of this new social and real-time world is closed off to Google's core search business, and its index of the world's information. Facebook, LinkedIn, and Twitter are essentially "closed" platforms. "It's a growing chink in their armor," says a former Googler now working at a popular social network. "They know that. The question is, What can they do about it?"
Google's Mayer believes the answer lies in delivering better-quality -- almost intuitive -- search results. Mayer calls this implicit or passive search. It's the sort of thing that makes connections between, say, a friend who is an amateur expert on travel in Australia and your upcoming trip Down Under. A keyword search could not only flag hotels and tourist hot spots but also find blog posts, e-mails, messages, and even pose questions to your friend about where to go shopping or dining in Sydney -- without bothering the rest of your network. "Who you are, your context, what you are doing, who your friends are -- if all of that comes in as the search input," she says, "what is the right output?" (The key word in her quote? "Friends.")
Mayer won't say what Google is building (perhaps the rumored "Google Me" service?), but clearly she is pushing the company in a more social direction, which means changing users' perceptions of Google. "You need to create a place where it's okay to be social," Mayer says. Google doesn't have that yet, and in fact, its efforts so far have been widely panned: Remember Google Buzz, which drew the ire of consumers for automatically sharing Gmail users' lists of friends? If would-be rivals are worried, they aren't letting on. "Google is smart to figure out how to make its stuff social," says Chris Cox, head of product at Facebook.
But critics question whether Google can make the leap. "They are just not that good at it," says Tom Coates, until recently the head of product at Yahoo's defunct Brickhouse lab. "Google is very good at building these utility-type products -- search, e-mail, and messaging. They are sort of like the power company of the Internet. But what they lack is a sense of how people share and collaborate."
Coates's point is that you don't have friends on Google, you have contacts and tasks. These services reflect an engineering culture that's all about utility, but one that makes it hard for the company to create something that's friendly and social. But if Google can change its utilitarian ways, the company stands a real chance of tapping into that next growth engine. Imagine if it added that social layer to its core search business and to Android, and blew it out on YouTube, giving people a reason to hang out on Google sites for long periods. Advertisers would come flocking. If it can get that right, as the former Googler now working in social media sees it, "Google would be unstoppable." Just like it used to be.
I should read the now-52 other comments first, but just want to quickly make sure we're starting to realize that the more we're multiplying the existing three growth factors of (1) social netting, (2) personalized info-feeding( search), and (3) video audio format, with just another two of all possible major factors, (4) (interpersonal collaboration made much easier by) more automatic generation of more of the info we work on ( e.g. auto-fed from chips in everything used in the work, a la XML; e.g. auto-generation of options & auto-calculation of their probabilities of truth or feasibilty ), &, (5) the "One picture is worth 1,000 words" effect, i.e. communicating via dynamic graphs (especially if animated and if quickly shiftable from one set of axes{related units} to another), the more we're getting all five of just these factors compounding together, then, the more we might begin to really flourish, so well and hugely, into the oceans & across the planets, that our progress by now will by then seem to have been feeble & timid. By 2500, say, might not our descendants number a hundred billion or more, all billionaires & even some of them trillionaires, ever growing within domed and floating cities sparkling throughout this whole arm of the galaxy, trading & researching in peace & plenty, and always reaching for ever more awakening? ... Let's give them a _real_ boost, starting now!
market is moving so fast .... journalists are forced to write about things they don't understand fully ...
Here's my scant bit of understanding:
http://techcrunch.com/2010/07/29/google-mobile-search-market-share/
I search more on mobile than on desktop, simply because when i'm on my feet i interact with things and people more. If I'm ahead of the curve, means people will follow me in 2 years' time.
and that's where google rules with 98+% market share.
Morons. They separate google's mobile business with the other things? Why? The mobile internet cannot be separated from the other internet. What other internet? Laptop internet? Desktop internet? Normal internet? What's normal internet?
Harping on `no profit for android'? WTF? Android gives google mobile internet dominance. Everybody with an Android phone becomes Google's bitch, or Android. Gmail on Android is the best experience of email ever. Maps on Android is magical. And yet they say "Google doesn't make gobs of money on those devices" LOL!
I don't even think it will be Google's next 20 billion bucks anymore. Google has no limit, with Android so far outstripping ANY competitor, only the US Government is the threat and I guess Google has alternative plans for that too. Maybe stake out in an aircraft carrier it can easily buy.
WTF. Such a terrible article.
It's ok to have no vision of the future, but to put it out there in plain sight? Are you trying to kill the company?
Oh, I'm talking about Fortune, not Google.
You think that Android is about phones? Hint: It's about advertising. This has only barely begun to emerge as a revenue center so if you only look backwards at the financials you'll remain clueless. Instead, look forward at the uptake. Note the correlation between Android devices activated is followed by a subsequent bump in the AdMob data.
Fortune better start looking forward a bit more and begin practicing some critical thinking skills.
Bing.com is a pretty good search engine and having potential to kill google..
Microsoft need to have Brand Ambasodder to promote Bing.com what i feel.
The "Party" might be just getting started.
Google has so much cash and so much good technology that they have lots of options.
Wonder if Google became a Facebook User, how many Friends it might have. Wonder if they create one or more Facebook Apps, what they might add to the "Party".
Google is over their top, no doubt about that! -their core business is still search engine, and their algo can't improve much more.
They already used user information -behavior - general statistics and every little piece of info to squeeze out the relevancy to the max.
no more juice left and the competition, this time- will get them.
Facebook counts 500M ACTIVE (not dormant) users.
http://www.facebook.com/press/info.php?statistics
[to the previous poster]
Google E-commerce is where they will open up a new marketplace. Once they sort out google checkout and tie that into their search results across the board in every country just like paypal they will greatly increase the revenue stream
Google is over?
Let's review:
Music videos will kill radio
VHS will kill movie theaters
New thing x will kill established leader y, ad nauseum.
These didn't happen because they serve different functions. Social is big and evolving but it's not the same thing as search. Google is dead? Thffffpt.
The future of Google growth is... TV
Google should secure distribution rights to television networks and offer free streaming TV and TV On Demand. With resources in advertising and video, it would be a natural progression into the broadcast market. And like what Google did to the internet, it would make tv more efficient.
A hardware box called the GoogTube to allow streaming video from PC to the television box would transcend tv as we know it today.
Search marketing market reaches maturity, no more explosive growth but still enough money to keep Google as top internet company. Youtube, Google Analytics, Google News, Google Map, Google Mail are irreplaceable in the internet scene and belong all to the same company (compared with them, Facebook has just a disreputable site). Google Document & Android are programmed success, and Google Apps will be a cash cow pushed by Chrome OS cheap cloud computers.
Most of all, Google data technology, embebded in data centers dispatched other the world, gives big G significant advantage to launch any SAS service with killer response time and disponibility.
Social Media won't replace search, because it's not the same use. Talking is not searching, SMO will replace email or chat or forum threads.
Social Media drives more people to the Internet where search is the means of transport.
Yes, Google is over. Google's days are numbered for a couple of reasons. They have lost webmaster support (the people that put them where they are) and they have violated people's privacy by stealing information. People don't trust Google anymore and with good reason.
Twitter is the one to watch now.
About time for their arrogance to catch up to them. Probably the worst customer service I have ever received from an ad platform.
Have had many friends banned from Adwords with no reason given - 'we don't want your money' - really?
They're taking over the world. Businesses rely soul on Google for communication and all their amazing apps. How can android fall to Facebook?
The problem with Google is that is beginning to think, and act, like a typical "Corporate American Company" and is walking away from the great "Internet Technology Companies" americans built over the last 15 or so years.
Organic search is growing while paid search is declining. Five years ago paid searches accounted for 30% of the market, today is roughly aroud 5%. Ok, Google's income continues to grow from ads searches but it is only because is getting more expensive and more big companies are willing to bid for 5, 10 dollars or more per click. What about small internet marketers? They are simply walking away from the PPC market and getting into the organic search. What is Google doing about this? Nothing. True internet marketers are not stupid. Why pay more than a buck per click when they could get listed on top of the search listings for free? 95% of the search listings are free!!!
Who is going to buy a computer, a pair of tennis, or software thru a cell phone? The real business is in the search engines.
Francisco Acosta,
we need to search rather than browse in most of the e-applications. Definitely google is going to rule the world in the next era for sure, unless otherwise an alternative to search is found.
Search is ubiquitous and no doubt that google will dominate it for a long time to come. Finding a new domain as successful as search is difficult and it is normal that google is taking time for doing so. No worries here....
Search is ubiquitous and no doubt that google will dominate it for a long time to come. Finding a new domain as successful as search is difficult and it is normal that google is taking time for doing so. No worries here....
http;//www.priceofmobiles.com/
agree, they made the way, but in the recent years Google is mainly a follower, no new Ideas, just following others. Present day innovation comes from Facebook, Apple (to name a few). Google just realizes there's potential in mobile or social or music just after someone else has paved the way imo
In this article you did not notice another big problem of Google.
Many brilliant engineers and marketers are leaving Google. Whole departments in Facebook - infrastructure and data science team are stuffed by former Google engineers. Leading Android engineers and marketers left Google to join Facebook. Many Google engineers left Google to join other big companies and startups. The main leader of ChromeOS development team left Google. Many search engineers left Google. It might not be an immediate problem and will not affect release of Google products in a short term, but it will certainly hurt ability of Google to innovate.
Using a social network to get information, find things to buy or services to use (and thus generate ad revenue for that social network from sellers and service providers) only works in you are on a social network to begin with. True, FaceBook as a purported 500 million users, MySpace a reported 70 million, etc. which means most people are NOT on a social network. Not to mention, that some people have no interest being on a social network. Furthermore, there are some of us who are on a social network, but rarely go there regularly. I have an FaceBook account, but I only access it once or twice a month; I didn't get the account to socialize, my work forced me to get the account to keep track of management postings via a FB group they set up. And while I have used it to contact college friends and relatives, using it to socialize doesn't interest me. However, this does not mean that others feel this way; most of my friends love FB and spend lots of time on the site, especially my female friends. But perhaps that is how they are socialized.
I liked the article. All that Google needs to do is ask themselves what business they are against the market place in which they serve and come up with products that adapt to the change. Also the notion that Google and Facebook are competitors is interesting. I would think they would want to have a symbiotic relationship.
This article tried to be insightful about technology and business and failed at both. Many people who know the tech business reject the day traders' view that a company without significant quarter-over-quarter earnings growth is "toast". Google doesn't have to have a blockbuster product release every quarter when they have the *massive* war chests they do OR the huge collection of incredibly bright people they do. Unlike most tech firms that have dropped the "D" from "R&D", Google does real research in areas that many Wall Street darlings simply cannot - especially in the realm of playing connect the dots with ginormous collections of data and content. Probably their only real rival in that skill sits in Fort Meade. There is plenty of 'promise' left in Google.
Besides, what is the author's intent here ? Is it just a little self-aggrandizing schadenfreude ? What's Mr. Copeland's share price these days ?
Makes me wonder, however, that while Google's best and brightest are conducting their soul searching, should broadband access consumers have to pay extra for Google's failure to launch?
Google is a leader of that motley crew of open Internet proponents. They, it appears, would rather end users pay increased fees to broadband providers in exchange for the equal treatment of the traffic they transmit over a broadband provider's network.
It seems that in addition to so-called nondiscriminatory treatment of their traffic, Google and other content providers who have yet to wise up to adopting a Facebook/Linkedin business model, would like to see net neutrality implemented as a bandage to stop the potential hemorrhaging.
What's really unnerving is that our government, led by the Obama administration and the Federal Communications Commission, are being complicit in this charade. Rather than codify a bunch of net neutrality policies that will only prop up an Internet business model that is apparently becoming less significant, the FCC should allow the ebbs and tides of commerce to take its course and allow Google to figure out the next big thing on its own.
American consumers should not have to bailout Google and other less than dynamic content providers because the brightest minds in the room went on holiday.
Subject:Â Google...
Michael, your post, "Google, The search party is over," was very informative -- it confirms many of my suspicions. Thank you.
Microsoft's success is dependent upon their domination of the desktop software business -- Google's success is dependent upon their domination of the database business (search being a misnomer for database).
Microsoft is losing it's dominance to Apple -- others will join the fray as time progresses -- HP possibly?? Steve Ballmer better wake up soon or it will be too late.
Google will lose it's dominance when the media wake up. All Rupert Murdoch needs do is establish a publishing protocol and his own database, and sell the idea to the rest of the MSM. After all, there are all kinds of people building databases of various types -- who needs Google??
The ultimate answer lies with empowering the user with their own database programs -- it is impossible to build and program a computer and it's associated database that will meet every bodies needs -- means that we will need to develop the ability to build a computer to spec or provide some sort of kit for user assembly plus more programmers to help all the users or easily
programmed computers.
BTW, Best Buy is now advertising "Buy a Laptop and get a Geek." I'm anxious to see how that works out.
Thanks
Doug Skoglund
larry page and Serge Brin have invented the page rank and better search, but they borrowed the Adwords concept from Goto.com.
They are good in maths and stats but not at creating new business concepts.
Please note: the party for Facebook might be over too as Teens are leaving Facebook.
What's next ?
Hey TV! The party is over! Video games are growing faster than you so you're done!
That should be your next article.
Google can increase revenues by partnering with SearchFoecast to become a marketplace to buy/sell the millions of publishers that they send checks to each month. The engine room of Google is their AdSense Publishers who contributed 30+% of their revenues. This global ecosystem of publishers is the long tail which helped built Google's dominance in the past 6 years and is a strategic asset. They need to leverage these publishers. This is why my firm launched http://marketplace.searchforecast.com/ - where AdSense Publishers can sell their website. It's not just Google who need a future vision, it's the publishers who need new management. To do this, many need to sell their websites and online businesses and have new people embrace their online business with new vigor and ideas.
Kleenex was before Puffs which was a big thing with high-tech tissue users. Google is the Kleenex of search. Facebook and Twitter are fair contenders but not search specialist.
It's no surprise that Google's search would go down while LinkedIN, and Facebook grow - People are looking for Jobs and Google is not a job placement co.
When you ask someone for a Kleenex, so to you use Google to get the job done because of the however-short heritage is nearly inherent to the world.
Facebook users/fans are too slow for finding what you need when you need it and Twitter only sends your followers to Google to find your answer.
If you don't know, you Google it! Doh!
Looking for "the best marketing consultants in the world" ask Google.
Gibron T. Williams
Head Honcho
Oevae Marketing Consultants
Hoorah Google!
"Some investors also worry about Google's ability to keep pace with consumers' evolving use of the web."
Careful here. Despite an ungodly amount of hype, social media is still largely irrelevant in the online shopping process. comScore just found that 30% of online shoppers use search as the 1st or 2nd step in their research process. Only 4% use social networking as the 1st or 2nd step.
http://searchengineland.com/search-dominates-social-when-shopping-online-47470
Cite data, not hype.
Google is using Android to move into a lot of markets. People focused on Apple vs. Google this year aren't thinking big enough. They are trying to make it the global mobile OS. Think India's $35 internet-capable tablet for starters. I have tried and failed to figure out how Microsoft and Apple can compete in those markets.
As for the concerns raised in the article... a new revenue stream they just rolled out is location-based advertising when someone does a search. Going to get a lot of local stores to sign up for that, assuming Android wins big.
Second, Google is aiming at TV. They envision Android phone/Tablet as a wireless streaming source for TV, and uber remote control. They will eventually try to take over channel delivery; cable will be forced into the same dumb pipe bargain as the carriers as wireless speed become competitive. They will also sell premium services for cloud storage of, say, your entire music collection.
If Google establishes TV control a big use will be for Google Games, which if they are smart will turn into a cloud-based competitor to the PS3, XBOX360, and PC. Google's games will get an added push from their OS dominance - they can integrate video chat, for example, with cooperative and competitive games.
All of this adds up to an ecosystem that might encourage people to create a Facebook-style account for ease of moving between the social (video chat) and other (gaming, TV, etc.) features.
And from there, well... we'll see. All I'll say is big things are afoot these days, and whether or not Google wins the consumer will benefit. Web 3.0 is just around the corner.
The final statement 'Just like it used to be' best describes Google's shareprice but unfrotunately it's myopic at best, in describing Google's market dominance.
Google still is unstoppable and Adwords still is unrivalled. It's just good at doing what it does best, benefitting hoards of buyers and sellers, within an unstoppable gigantic market.
This article illustrates one of the core problems with tech business - the investor-driven idea that profits should be more important than mission. Google was started as a search company and it is wildly successful at that. Those who bought in, bought on based on that search success.
Also theyre sitting on a huge payout from the sale of the in-copywrite out of print books theyve scanned by the millions. (Pending final approval by courts and commission given to authors and publishers.)
Hair raises on my back every time I hear the 500M Facebook users mentioned.
First off lets introduce a delete option on the accounts so that dormant users don't get counted - not sure whether we'd still be hitting 500M.
Secondly define how tangible and marketable these so called friends are.
I don't have a Facebook or a Twitter. I wouldn't consult my social network to find information or products I am looking for. When I use the Internet, in one sitting I read dozens of news stories, product reviews, learn about math and science... I don't want to waste my time blabbing to other people about one thing. I will always be a search box person, this social networking phenomenon brings the mind melting power of 300 cable tv channels to the computer screen.
While Android is a great platform for consumers, it's still uncertain at this stage how Google can profit from it. I dare say we might even look back in future years and say Google made a mistake similar to IBM with its PC in the early 80s - it was a great hit in the market but they lost control of the platform.
Let's see:
Android OS is free, so there's no license revenue. While there's no doubt that the OS has (and will continue to have) plenty of hooks to Google products (search, map), how long will it take before competitors like Microsoft sign up deals with Motorola etc. to be the default search engine - see the news about Baidu's potential to replace Google on android phones in China? Let's not forget Motorola / HTC's interests are not as well aligned with Google as Google would hope - they are separate companies after all, and the openness of the platform just makes it that much easier for competitors like Microsoft to leverage it to their advantage.
And on top of that, you have carriers like Verizon pushing their value-added services like V Cast etc on Android, which again is just competing with Google for the consumers' spending. In this regard Apple's current deal with AT&T is indeed ground-breaking, as the consumer is not faced with any of the carrier VAS, and you can say Apple is a lot more successful than Google currently in pushing the carrier into the "dumb pipe" role.
As to the app store, even for Apple it's only a breakeven business, despite the 30% cut. The boom of the app store is really to make the product more attractive to end-consumers, which Apple monetizes through the selling of the hardware (and the OS, if you will). In this sense, Google giving Android OS away for free may really be the critical mistake. And with regards to the app market, we're talking about market sizes in the low single-digit billions currently, that's clearly not the "$20Bn opportunity" Google is looking for.
Of course, Android will fuel lots and lots of google searches etc., but then the question becomes, 1) you don't necessarily need to own the OS to do it, since people come to Google anyway; 2) and even with Android you haven't locked users into Google, since competitors can strike deals with the handset manufacturers etc. 3) fundamentally this is again just search revenue, it's not revenue diversification, which was the whole point of the article...
Two thoughts. One, Facebook is incredibly well-positioned to outflank Google Search and Search Advertising, given their combo of:
1) 500M users;
2) A platform effort that is minimally resulting in virtually every web site being
hardwired with 'Like' and Facebook Connect single sign-on functions;
3) A culture of mining the hell out of this data so as to push contextual content and ads that you actually will WANT to click on.
Given the tightly integrated approaches of both Facebook and Apple, if those two were ever to unify in an assault against Google's loosely-coupled approach, now that would be a battle-royal, something that I blogged about here:
Facebook Mountain ("AKA, Facebook, I wish I knew how to quit you")
http://oreil.ly/aX3ORe
Check it out, if interested.
Mark
I think the key is think as they did at the beginig. They didn't worried about "competition", "trends" etc...
A good proposal was good enough, and now they have the resources ($)... They were good because they make the way, not followed it.
A pretty good article with some decent analysis, but it ignores several points. One is that Google is a cash generating machine, with over $30 billion on it's balance sheet, and the cash generating will continue far into the future. At some point that cash will be returned to investors via stock buy-bakcs, a possible dividend, and future strategic acquisitions. The article also ignores several new growth and revenue ventures scheduled or rumored to occur before the end of 2010. Those include, but are not limited to, Google TV, Google Music, and the rumored social networking platform Google ME and social gaming. Any of these could result in huge growth, revenue, and earnings in the near future. With over $30 billion dollars in cash on the books, there could be many more positive developments coming. Stay tuned!
I'd like the correct the author's misconception that google's core business is search. Search may have been their first business, however the money is made in adverisement and analytics. Google's core business is data mining for targeting advertisement, search just feeds that business.
I think Google's stock is dropping partly because they're over 90% in worldwide search market share, and over 98% in mobile search. (According to another story on your home page.) Investors were a little wary of Apple when it was thought that iPod was nearing saturation levels too...
A bunch of speculation with no backup. Facebook is NOT a viable replacement for Google. Look at real-world behavior, and you'll find that people turn to search engines to find things. The idea that they're going out and polling Facebook friends or Twitter is bunk. They might do that as a secondary search or if they know one of their friends is knowledgeable about the topic.
Twitter is already on the wane, and hopefully Facebook will go the way of MySpace. The aggregation of information from all sources, however, will never become outmoded.
The growth rate of a company supports the price/earnings multiple of the stock. Your P/E shouldn't be higher than your growth rate so Google's 20.99 P/E has come down from 40 and may go to 16 or such.
It's clear to me that what they're not able to compete in at the moment is 'social search'. The very simple addition of adding a Facebook 'like' button could transform search behaviour, and Bing are in the best place to do this with 2% ownership of Facebook under their belt.
I've written about the implications of this shift in search behaviour here:
http://www.digitalprolixity.com/2010/07/how-microsoft-could-win-the-search-wars/
They have a good path to success with their Android platform.
The platform is quickly becoming the biggest rival for Apple in the phone market and will shortly make a big impact in Tablet PCs.
Developers are quickly moving to develop apps because of much lower barrier to entry for hobbyists (ie the creators of the next big thing).
Biggest problem they will have is they need to upgrade the Android market:
1. Need to drive sales by helping advertise Apps. If there is one thing Google knows it's advertising.
2. Make payments easier. Spend some money to get acceptantace in more countries. Allow alternate forms of payment - ex. Pay pal, Credit cards, etc.
3. Help developers get additional revenue through ads inserted into free apps - again while taking a portion of the revenue for providing the platform.
After that it's just a matter of time. The potential market for portable tablets and smart phone apps is huge - more than a billion new users in the next few year. You can drive massive revenue through a platform that places ads in front of a billion users, and takes a small service fee from each purchase of an App (assuming you win the war of the best app store platform).
This can be bigger than their search business because you have revenue both from app sales & targeted advertising with a potential audience several times larger than the number of PC users. Furthermore, the advertising is targeted not just by what the user is doing, but where they are located.
This will also allow a MUCH larger pool of potential advertisers to participate as more local businesses will be able to purchase cheaper, more effective ads for example if it only appears for users within a certain distance from their business etc.
This article is focused on stock investors, Google should go private so articles like this no longer exist. Not having an "explosive" % based growth year after year when you have a massive money printing machine, is not a big deal, should they just have explosive growth until they own the earth?
A completely disingenuous statistic about growth. When a company gets huge like Google it can't possibly grow at the fantastic earlier rates. The rate MUST slow down. Yet the ABSOLUTE growth in real $ and revenues may actually be greater per year than ever. Thus Google can have explosive increase in revenues far surpassing in absolute terms what it did in the past, yet the % growth can be reduced. This is never mentioned in the Stock Market focused articles (and society!) that is unable to perceive the truth of things. Google is exploding in ABSOLUTE revenues, profits, hiring of people, expansion, new products that make previous years where there was great % growth seem like nothing.
good article. one thing to be clear about android though is that google does control the API's used to develop for it. This means that mobile application on android will remain almost 100% focused on using the google products referenced by the API's, for example google maps for mapping, google search (for the API has a search function) etc
Thanks for this article. It delves into a number of issues that have been bothering me about Google for the last year or so.
McMcue and Flipboard seem to be giving web users what they want...data pushed at them based upon their stated preferences. Which is awesome for those who prefer to go with the flow.
What happens when a person decides to ignore the "they says" and follow the beat of their own drum? How will they break free of the Flipboard model and move on to bigger or better things?
Live with Intention,
DrBillToth.com/blog
fascinating.
something i feel but wld love to see more data to support.
and i see it as a cultural clash.
the engineers who thoughts computers cld find answers more accurately, vs the social guys who know that people know best.
googlers never got the arts i don't think.
Google is not a search engine anymore