Google has a problem. Google’s problem is that for all their variety of products, their only revenue stream of consequence is advertising. And for all of the fancy ideas and products they throw at the market, it appears that unless they can take back the mobile handset market with their Motorola purchase (which they do not appear to be positioning themselves to do), advertising is going to be the primary revenue stream for Google for a long time to come.
Google has a business model problem, and the cornerstone of this problem is the fact that while Google is in the advertising market, it has outgrown the market. In the early years, their growth was fueled by the rapid growth in electronic commerce, and the fact that traditional advertising was not able to drive electronic commerce. Since then the market has stabilized and Google is the established leader in electronic advertising, with the traditional channels still maintaining print, outdoor, television and other media channels. If it can be reasonably assumed that the largest growth in electronic commerce is behind us and that the current landscape will be increasingly more mobile where Google has lower market share, Google has limited potential for continued growth in advertising.
For all its searching (and finding) adjacent markets, it appears they only make halfhearted attempts at monetizing these markets. Take for example the ability to perform mathematics and graphing functions through their search engine. Before Google entered, WolframAlpha provided this capability through free trials followed by premium memberships which have additional flexibility and capabilities. However, Google appears to have entered only for the purpose of limiting the revenue potential of a minor competitor, if WolframAlpha can even be called this.
Meanwhile, Apple and Amazon have established themselves with business models that, while very different from Google, flank and de-position the Google business model. Apple has built a successful model of obtaining revenue from software, hardware, services, as well as content which Google has not been able to replicate quickly enough. Not only this, but Apple has clearly been moving away from Google in all elements of their operations, recently even taking Google Maps from their mobile devices – clearly in an effort to eliminate the potential for advertising revenue through popular Apple devices. Likewise, Amazon has built a successful model entirely based on selling products and online content; if Amazon is the premier internet source for products and content, they also control the advertising of the content and Google is again left out of the picture.
Google needs a 2.0 strategy in order to continue their growth. This strategy must appreciate, but not limit itself to their advertising market strengths. This strategy must not simply copy the strategy of Apple, but must provide differentiated value in order to become a significant source of revenue.
3 thoughts on “The Google Ceiling”
I think you missed the mark here a bit…The only way Google can make money is through advertising. In fact, the only way Google wants to make money through advertising. And you better believe that Google knows that fact. Outside of Ads, Google doesn’t have anything to sell. Everything they do, all the technology they invent and create is eventually redesigned to drive internet ads. They don’t need to find something new to sell, ads work great! Their growth has stalled out because they ran out of new internet users, not because they have a bad product.
These days Google is trying to grow their ad-share by introducing new users to the internet. Android phones, Google Maps, “Google Fiber” and Cable TV (in Kansas), all driver users to Google’s websites which in turn drive users through Google’s AdSense making Google more money.
And really, that is my point. Google’s only path to revenue is advertising, and that worked well for a while but there is a discrete limit to the total amount of advertising dollars available globally, and that is their ceiling. As long as they are only in the advertising market – and specifically in the internet segment of the advertising market – their revenue potential is limited. This is especially the case as closed exchanges such as itunes and Amazon.com eliminate the opportunity for advertising revenue for Google. Forgive the buzzword, but what Google needs is a paradigm shift in their revenue model.
This post actually made me think about Yahoo!. Yahoo was essentially the Google of the mid 1990s. They were the first widely used web portal of it’s time. Now, however, it doesn’t seem like anyone even remembers them. They have increasingly struggled to keep up with Google and in 2012 they were forced to cut 2,000 jobs. Is it possible that Google could have the same fate that Yahoo had sometime in the near future? More than likely, no. Google and Yahoo have used very different strategies. The reason Google is so successful is because they have satisfied the demand for information as well as entertainment. They haven’t created new content, but they have delivered this content in a way that is mobile and that attracts social networking services. This in turn is what attracts advertisers. Yahoo on the other hand was caught up in their old strategies of ugly and distracting display banners. The bottom line is that Google will continue to be successful as long as they satisfy social media sites and mobile users. When these 2 forms are in place, advertisers will be all over them.
“What advertisers want is an innovator, a partner that is going to help them know the next best place to reach their customers,” said Ms. VanBoskirk of Forrester. “Yahoo’s problem is they look like a legacy player that’s not thinking about the next thing.”