Or at least that is what many are thinking with other search engines gaining market share like Bing. We however see opportunity and we are not the only ones. Getting Educated, Amused & Enriched as always here is an excerpt from a recent DiPietro commentary:
Jordan DiPietro: First things first. Michael Copeland notes that Microsoft‘s (Nasdaq: MSFT) Bing has gained search engine market share this year (now at 12.7%). Is Bing’s potentially rising popularity anything Google should be nervous about?
Joe Magyer: Bing has gained share, but I’d keep in mind that Google still boasts 62.6% of the U.S. search market. Even when you bundle Yahoo!‘s (Nasdaq: YHOO) 18.9% share, Google is still processing a vastly larger number of searches than its soon-to-be-connected rivals. The more searches that flow through Google, the sharper its search results become. And with Google already owning the sharper saw and processing more searches than a combined Bing and Yahoo venture, that means the quality gap between Google and Bing should only widen.
Overcoming that performance gap is no small feat. If you think I’m just whistlin’ Dixie on that, need I remind you that Google, despite years of efforts by Microsoft, still has five times Microsoft’s search share here in the States? I’ll also add that while Bing has picked up a little bit of share recently, Microsoft isn’t positioned anywhere near as well as Google in the fast-growing world of mobile search, of which Google controls a dominant 98% of the market.
That’s all to say, yes, Bing is a competitive threat that should keep Google on its toes, but Google is still the biggest dog in this fight and well-positioned to stay that way.
DiPietro: Copeland explains in his op-ed that Google generates about 91% of its revenue and about 99% of its profit from the search business. In essence, he asserts that Google is becoming a “former supermodel” because the growth of the search business is slowing and the company’s paltry performance this year can be partially attributed to that fact. Is Google actually becoming a slow-grower, and if so, do you think that’s why shares are down so much this year?
Magyer: I’d love to see Google rake in more cash via non-search businesses such as Google Checkout, but I’m not unsettled by the company’s reliance on search. In fact, don’t even think of Google as a search engine. Think of it as a company with a host of business units (search, Gmail, YouTube, Chrome, Android, etc.) that all happen to derive value from an advanced underlying advertising platform.
As far as growth goes, sure, Google’s ga-ga growth days are in the rearview. You can only double your revenues so many times, right? But that doesn’t mean Google doesn’t still have a growth runway ahead or that its shares aren’t attractively priced. The number of searches that flow through Google should rise as more users come online, and its pricing power should rise over time as more and more marketers come to appreciate the targeted, high-ROI value of Web-based advertising.
DiPietro: A significant portion of Copeland’s article described the peripheral threats to Google — the fact that people can obtain information utilizing social options such as Facebook and Twitter. How big of a threat is this to Google’s core business?
Magyer: I agree that Facebook is a future major rival of Google’s, if for no other reason than it consumes so much user mindshare. It could easily become a rival for advertising dollars, though, should it start better leveraging its vast network and knowledge of its users. Social networking is here to stay, and Google hasn’t cracked that code just yet. I’ll be closely watching its upcoming forays, though, along with Facebook’s creep into advertising.
DiPietro: As you mentioned, Android OS is arguably one of Google’s most successful innovations thanks to the help of big-time telco players like Verizon (NYSE: VZ) and Sprint (NYSE: S) and handset manufacturers HTC and Motorola (NYSE: MOT). That said, it contributes little in terms of profits. Considering the outstanding growth in mobile devices and Google’s limited success in the smartphone market, where will Google go next in mobile? Does it want to compete with players like Apple (Nasdaq: AAPL), or does it just focus on advertising?
Magyer: Android is deceptively valuable, quietly growing like wildfire and guaranteeing Google a seat at the OS table for the high-growth mobile market. Thanks to its rapid adoption among consumers and cost-conscious handset manufacturers, the quality of the OS, and the ecosystem developing around it, it isn’t difficult to picture Android effectively becoming to handsets what Windows is to PCs. Google is activating about 200,000 Android-powered handsets daily — more than twice the number from only two months ago.
Like I said earlier, Google wins as more users come online and perform searches on its network. The creation of Android has helped ramp up the smartphone adoption among consumers, driving additive new searches in Google’s direction. Mobile search could prove a huge growth driver for Google in the years ahead, not to mention any number of creative ways Google can monetize a large installed base of operating systems. As CEO Eric Schmidt recently put it, “If we have a billion people using Android, you think we can’t make money from that?”
Google is off $100 since April’s high and has bounced nicely off the bottom of $430. While we may see a short term down turn we remain very bullish for the 2nd half.
