Shares in Google took a tumble yesterday, falling 7%. As of last night the share price stood at $362, compared to over $470 at the beginning of this year. It was all down to Google’s chief financial officer, George Reyes, appearing to do something that the company says it doesn’t do. He apparently issued a profits warning. Or to be precise a growth warning. Mr Reyes said “Growth is slowing and now largely organic,” and “The search monetisation gains have now been largely realised.”
According to comScore Google currently controls 41.4% of the US search engine market, from 35.4% a year ago. And with that level of market penetration it would appear the company has now at last reached the point when it can only grow at the same pace as the industry. In short, Google is fast approaching the point where it has squeezed as much juice as it can out of search engine sponsorship.
It’s once of those ironies that while dot com companies receive much higher valuations to profit than traditional media companies, the old fashioned publishers of printed media make far more money per reader. Recently, for example, top US media strategist Vincent Crosbie, from Borrell Associates, told the World Newspaper Advertising Conference & Expo that newspaper web sites need one hundred times more readers than a the paper version to generate the same level of revenue.
The difficulty with Internet advertising is this: There’s very little brand advertising. It’s all very well charging per click, but most TV or bill board posters, and to a lesser extent print advertisers, don’t expect you to immediately visit their web site. Instead, all they really want is to create more awareness for their brand, or to reinforce brand perception.
And Google, with its text only ads, patently does not do this.
But does that mean the markets were right to panic yesterday. Does that mean the phenomenal growth in Google is coming to an end?
Don’t you believe it for one moment. The company, has only just got started.
Mr Reyes hinted as much yesterday, saying “I’m not turning bearish at all. I think we’ve got a lot of growth ahead of us” and “We are going to have to find new ways to monetize the business.”
So what are the options? Google is well aware of the possibilities of generating revenue from display advertising. In the US it has been running a trial offering a novel twist on traditional display advertising, providing the technology for advertisers to bid for display space in certain paper magazines and more significantly, bidding for space in the Chicago Sun-Times.
Brand advertising is a turn off. No doubt you have noticed, that on TV, nearly all the channels run their ads at the same time, so if you channel hop during the interval, all you see are ads. On the Internet no such cosy accord exists. If Google present display ads, there’s a fear users will start showing more interest in rival search engines. And the extraordinary competition that the Internet represents could mean a natural barrier to the likes of Google hitting us with irritating ads. But then again, the company is nothing if not innovative, and it would probably be unwise to assume they won’t be able to crack that problem.
Google News for example, the bane of many publishers because it enables users to read by topic rather than by publication, currently carries no advertising. This will surely change. And, in the process, a reversal of the current key word sponsorship could ensue, with Google ultimately paying publishers per click to their editorial.
Then there’s Internet TV. We have argued before that a situation could arise in which video content owners market their own material via their web sites. So instead of us watching TV via a channel, an Internet portal will become our starting position. And Google is beautifully poised to exploit this.
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