Last week, Google received an ultimatum from the European Commission’s antitrust head. Simultaneously it re-introduced its vertical shopping search site as a pay-to-play program for merchants. Regardless of whether you think it is “evil” or not, Google has shown a lot of me-too products with lagging innovation. While it’s a mistake to characterize Google as a one-trick pony, it’s worth examining just how vulnerable Google may be in its core businesses.
There is no predicting how government regulations and lawsuits will turn out, but there’s no question Google faces a mess of them. Gigaom Pro analyst Greg Sterling thinks the EC may be bluffing a little, as it is offering Google a chance to accommodate or settle early, even as it threatens massive fines. Google has already made some changes to its controversial “Search and Your World” results page re-design that appeared to favor Google services in the name of personalization. There’s likely some more room for give and take, though Sterling’s probably right that Google will have to go to court over search neutrality. Meanwhile, Google probably won’t have much luck making Microsoft and Nokia look anti-competitive to European regulators. But at least Google appears to be winning its expensive battle with Oracle over Java copyrights and patents.
Google used to deride “paid inclusion,” whereby sites pay search engines to guarantee their content is indexed speedily. It denies that its revamped Shopping program constitutes paid inclusion, but Google is arguing semantics here. It is charging for listings, and it will show some of these listings on its mainstream search results page. Initial reactions from merchants and retailers are mixed. Some think the new program will offer better control and analytics, but no one knows what will happen to between Google Shopping and SEM, or how conversion rates might be affected.
Signs of desperation?
Is Google franticly searching for new revenues? Is that why it is replacing a free service with a paid one for the first time, and why it seems vulnerable to antitrust charges? Its core businesses seem safe, with spots of accelerating growth:
- Search. Google’s market share in search is dominant and stable at around 65 percent. Although Microsoft has some fancy new social features, there is little or no chance of social media replacing search for directed shopping queries – the kind that actually generate paid search revenues. Yes, user and friends’ recommendations can be effective influencers, but they are additive to coverage breadth, accuracy, price comparisons and availability – features at which traditional and vertical search excel.
- Advertising. Google claims it has a $5 billion business in display advertising, mostly resulting from its ad networks. Market researchers say that Google and Facebook have taken the lead from the portals in this market. Both companies are vulnerable to low CPMs and currently weak in brand advertising. Facebook keeps a higher share of spending because the ads run on its own property, but Google’s network approach is more profitable. Google is well-positioned to capture online video ad dollars and re-targeting spending because of its data mining of user-expressed interest from search. Google has solid growth opportunities in online advertising.
- Communications. Google is competitive but not dominant in email and real-time communications; it has budding opportunities in video communications and social media. To-date, Google is using these technologies for their data and usage frequency, rather than direct revenues. These markets, along with the potential set standards in identity management, are too competitive for Google to risk with nickel-and-dime consumer fees. Google hasn’t had much success with charging for enterprise services outside of advertising.
Google is trying to charge for some platform services – but API fees for Maps may chase developers to alternative suppliers. Likewise, much of Google’s Android success is based on its open source model. There’s pressure on search click-through volumes and pricing coming from mobile. Google says web search is increasing, but is cagey about sharing actual numbers. While it’s safe to assume mobile activity is additive to web activity now, that’s a condition that could change in 24 to 36 months. And mobile’s where the growth is. Google’s core businesses are pretty secure, but it needs to tap into new budgets to accelerate growth: brand advertisers are a better fit for its sales force than enterprise IT departments.