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Thursday, May 27th, 2004

Google Losing IT's Cool?

 

Since November 2003, the good folk at Google have found themselves on a public relations roller coaster. As the biggest and most popular search tool ever, one would think that Google had nothing to prove. Realistically though, the Internet is a participatory medium built on the experiences of live-users as well as a business medium build upon the bottom line. Two important facts about the Internet:

1/ Aside from paid-entry content and personal ISP costs, use of the Internet is for the most part free, and, 2/ it can be extremely expensive to run a large website.

As the world’s greatest search appliance, the vast majority of Google visitors, the Searchers, use the site for free. As far as this group is concerned, if they can find the information they are looking for quickly and easily, Google has performed well. If not, there are always three or four other search tools they can use but their initial preference tends to default to Google. There is another group of Google users that are often overlooked in the mainstream media and in the business press, the Advertisers. In most respects, both groups want the same thing from Google, albeit for different reasons. In other, less obvious respects however, the needs and wants of these two groups directly contradict each other. Add to this mixture a third group of Google users, the Investors. This group may be much smaller than the other two groups however their influence, at times, seems to be greater than the first two.

Advertisers want a search engine that gives them as many options as possible for the smallest investment possible. With the growth of the search engine optimization sector, online advertisers have access to technicians who make their websites as search-friendly as possible in the bid to achieve first page rankings. Now that both Google and Overture have fine-tuned their paid-advertising offerings through AdWords and Content Match, many smaller search tools such as Lycos are jumping on the paid-placement/contextual distribution model. This makes a strong environment for advertisers but also serves to drive advertising costs up quickly. Paid-search listings have created an odd situation for search engine users though in that the majority of users will implicitly trust organic (non-paid) results before trusting paid-results. Nevertheless, paid-search and contextual distribution is likely the way of the future.

The third group, Investors, has vastly different wants and needs from Google. They want a return on their investments and, like most investors, they will want a regular and relatively unchallenged return on their investment. I believe this group is driving a lot of decisions at Google over the past few months and will be driving decisions for several quarters to come. Due in part to their willingness to invest however, Google has become one of the most written about companies in the world.

Google has been receiving a great deal of press recently, most of it tied to the coming IPO. While this has increased the already high level of scrutiny Google faces from the webmaster community, much of it has been negative, finally reflecting a growing discontent among webmasters that has been brewing for almost a year. When looking at the “big picture”, it seems obvious that a lot of the dissent targeted at Google is, in reality, anger over the often bitterly hard rules of business. Much of the environment driving thinking and decision making at the Googleplex over the past year stems from elements that are entirely out of Google’s control. Google did not create the crash of 2000 but decisions made around Google are directly effected by the crash. While Google may be somewhat responsible for Microsoft’s sudden interest in search technologies, it is the success of Google that has caught the attention of the great-eye of Redmond. Google did not even create the conditions for the ultimate monetization of search but it is forced to live with and evolve within a situation that started years before Larry and Sergey entered Stanford University.

Recent History

To look at the recent history of Google, we need to look back four years to the Dot-Bomb crash. Before the floor fell out of the market, money was flowing in every conceivable way including into the search market. Back then, Excite teamed up with broadband access provider @Home and AOL purchased the media giant Time Warner. Yahoo was, at that time, the certified king of search tools but there were literally dozens of other search tools, any one of which could have captured the market share Google enjoyed at its height last year. Back then, Google was a very small concern that was growing rapidly through an unorganized, grassroots word of mouth promotion. When the market crashed, most of the larger players in the search world were hurt badly, and in some cases absolutely destroyed. As Google was so small then, they survived relatively unscathed and emerged from the 18-month downturn stronger than their competition, and in many ways, wiser. The four years following the Dot-Bomb crash has emerged as one of the most interesting periods in business history with mergers, acquisitions and the development of a new business model based on making actual money by providing quantifiable services. This is the point where Overture (then known as GoTo.Com) entered the market and the monetization of search began. Overture (GoTo) entered the market with a simple but revolutionary business strategy based on treating business listings as advertisers as opposed to thinking of them as content providers. The revenue generator for Overture (GoTo) was the auctioning of placements based on bids for keyword phrases. The higher your bid, the higher your placements. The most powerful feature of Overture’s (GoTo) business model was in the distribution of paid-search results to some of the largest players in the industry, including Yahoo and MSN. From that point on, search suddenly had quantifiable monetary values attached to it. Before the auction format was introduced, search engine businesses based their revenues heavily on delivering banner advertising along with search results. Within months, Google was working on its major revenue generator, AdWords.

Significant Challenges

2003 marked the next great watershed year in the business of search. Yahoo, Google and MSN went on buying sprees, snatching up as many innovators, competitors, and more importantly, as many patents as they possibly could. Yahoo even purchased the original search moneymaker, Overture. Last year was the year that the business of search became a mainstream concern and also the year that the industry matured from providing listings to becoming an advertising medium. There is a lot of money to be made helping people find information on the Internet and the big three spent the past 18-months preparing to fight for the lion’s share of the market. As the most popular information tool of all time, Google is thought to be the front-runner but Yahoo’s growing market numbers and MSN’s anticipated introduction of its own algorithmic search tool pose significant challenges to Google’s current dominance. Ask Jeeves and Lycos also pose lesser but still very real challenges to Google in the long run.

Google’s New Business Model

Google has a new business model that seems to stray away from their original intent of building the best information retrieval system ever. With the upswing in Internet marketing, Google is clearly focused on delivering contextual based advertising through the AdWords program. This model has expanded in the past year to cover images and larger ads, including what were once described as banner ads. While they continue to support algorithmic search and continue to offer free-placement (or organic) listings, the real revenue generator is paid-search traffic through AdWords. This has been seen by many in the SEO industry as a betrayal of Google’s original intent however, it appears to me to be a realistic plan for survival in the coming years. Like Microsoft before it, Google sees profitable revenue streams and is aggressively perusing them. As Internet advertising has become a popular tool for corporate marketing departments, covering as many bases in the field simply makes sense for Google. That is why Google risks alienating traditional banner advertising companies by offering banners at very low cost via AdWords. Having one of the largest online distribution networks though AdSense and soon through GMail makes Google’s advertising offerings the most attractive paid-listing services. MSN and Yahoo will most certainly strive to compete but, even with Yahoo’s control of Overture, both remain fairly far behind Google.

The Future of Google

Google seems to be following the same path Microsoft did in the late 80′s and early 90′s. (Sorry folks but I think it’s true). While not as overtly aggressive as Microsoft, Google is slowly knocking off or buying competitors and innovators who can challenge their markets. Google is not large enough to scare MSN or even Yahoo but they are obviously trying to lock-down loose ends and prevent others from entering an arena already overpopulated with Yahoo/Overture, Lycos and MSN. The future of Google is in paid advertising. It would be folly to predict an end to organic listings as these are the greatest lossleader ever devised but, in reality, FREE is a four-letter “F” word in the minds of many investors. AdWords, on the other hand is a program that makes a lot of money. Google is also about to face its stiffest competition yet as MSN is almost ready to enter the market with its own algorithmic search engine. Having sat on the sidelines for the past seven years, the engineers at Microsoft have learned a great deal about what works and what does not work in the business of search. Google users should expect the introduction of several new features such as the recent introduction of GMail, to try to dominate in localized searches, and to make attempts at personalization of search results. We should also expect an expanded set of toolbars and desktop search applications as Google readies itself for Microsoft’s new search-focused operating system Longhorn, scheduled to be released in early 2006.

Webmasters, SEOs and other search industry players should not let up on Google as the client is always the best critic of any business but I have decided to try to take a more philosophical look at the business of search. Like many older characters in this industry, I am somewhat concerned with directions the business end of the business is taking us, but like any intelligent species, I think evolution should trump emotion. The Internet is changing rapidly as it increasingly becomes an essential tool in everyday life and the industry around Internet marketing is changing almost as rapidly. I can’t really blame Google for taking a proactive evolutionary stance but, having helped dozens survive the Florida surprise just before Christmas last year, I do hope their timing is kinder in the future.


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