Wednesday, July 1, 2009

Modern Quill

Modern Quill

Selling Google

Posted: 01 Jul 2009 08:01 AM PDT

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Scott Moritz at theStreet.com wrote “Five Reasons to Sell Google.” Now, I’m not saying sell Google or buy Google. I don’t own any Google. But there was just something about the article’s logic that didn’t make sense to me:

The recession stalled the Internet search industry and handed Google its first ever sequential sales declinelast quarter. The cool-down ended a long, prosperous run for the search shop, and it may mark the end of the era of Google’s ever-expanding dominance.

That could be a problem, as any loss of sales is trouble for anyone (last time I checked). But the article seems to confuse “end of Google’s ever-expanding dominance” and “end of Google’s dominance.”

  • Search volume has slumped. For years, the number of searches has grown dramatically. Now, it’s flat.
  • New users are drying up. Now that everyone “Googles,” where are the new searchers coming from?
  • Market share is flat. Google has 65% of the search business, says comScore, but that hasn’t varied much in the past three quarters.
  • The recession has curbed international growth.
  • Ad pricing has stopped increasing.

    • So, are searches slumping or are searches flat? I can’t tell.

    If everyone Googles, Google doesn’t need to increase users. This is because Google is an advertising company. If an advertising company reaches “everyone,” it’s difficult to expect growth. This is like saying we should sell Luxury Brands because every woman age 13+ gets a Victoria Secret catalogue mailed to their house.

    I don’t doubt that market share is flat if you tell me that everyone already uses Google. But for more than 2 out of 3 searches, we use Google. This isn’t a battle of Coke v Pepsi. It’s more like Microsoft v. every *nix distro. Also note that this is market share, not searches. Now that US broadband adoption rate has trickled up to 63%, I presume Americans are searching more, and continue to search with Google as they do.

    The recession has curbed international grown: check. Doesn’t that sort of explain why a phenominal company could still experience all the above said?

    Search ads are a wonderful trick, but it’s still only one trick, and Google has not had any breakthrough success in other areas beyond search. YouTube, for example, continues to be a popular service and Google still hasn’t found a way to make money from it. By some estimates, Google loses between $200 million to $500 million a year on the video site.

    That’s not just one trick. It’s THE trick. This is like saying antenna television’s commercials are just one trick. Google had revenue of ~21.1 billion off of searches last year, with a revenue of 21.8 (according to Mortiz). The fact that Google gets dinged 2% of revenue for one of the Internet’s most popular websites doesn’t seem to leave anyone else awake at night.

    Surprisingly, Moritz discusses the measures that Yahoo (which Google bailed out) is taking that could possibly threaten Google. A new home page tailored to your interests. So, like iGoogle? There’s also some mention about Bing.com which has drawn “curious” searchers. Here’s the Thing with Bing: if you’re crossing over from Google, Bing looks like nothing but Google with a more cluttered screen. I only discovered the page preview on accident. I admit, there are some slick things about Bing—more than meet the eye. But I think Bing loses where Google has always won: the relevance battle. I ran three queries through each: “is racism illegal?” “places to eat lunch in montpelier vt” and “Jamie Gorton.” Bing won the first one, but only because it brought the only useful site (Wikipedia) up closer to the head of the page. Google easily won the other two.

    Le sigh. Finally the article dings efforts like Google Voice and Google Shows for not really taking off. But remember, Google is an advertizing company. I don’t know anyone who uses Google Chat. But I know that I can connect to my AIM account through Google Chat, and that means I’m not looking at the ads in the AOL client – I’m looking at the ads on Gmail.

    Aside from that, I have two theories about why Google has so many fingers in so many different ponds.

    • Familiarity with competitor’s technology. Remember Google Video? You used it if you had to, if YouTube didn’t have what you needed. And then Google buys YouTube. Huh. If Google gets to know the technology behind VoIP, and then one day Skype goes up for sale . . .
    • It costs their competitors money. Google Docs exists not because Writely was going to emerge as a major threat, but because it costs MSFT money. If you look at Google service X, and think, “Does this cost a competitor money?” then there’s the rationale. It inhibits someone else from taking that traffic away. Of course, there are no ads in Google Docs. There aren’t any ads on the editorial page of a newspaper either.
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