All good things must come to an end, and we al know that Google’s startling run of growth must falter, and eventually stall altogether. However, for the time being at least, the company continues its staggering march forward.
In the quarter just gone, profits were double the level seen 12 months ago. At $721million, the quarter even trounced the previous 3 month period, which back in the middle of April, itself seemed a remarkable performance.
But Google does face a growing challenge. A challenge it’s well aware of. And in attempt to fight of this threat, the company plans to spend $1.2 billion on RD, this year, that’s 148 percent up on 2005. But, it may not be enough.
Google’s big threat, comes in the form of a new rapidly growing company from Mountain view California, set up by two universities whiz kids in the late ’90s called Brin and Page. For the big danger that faces the company, is that it will become a victim of its own success.
The company earned massive revenue, $2.46 billion, which was 77 percent up on a year ago, and yet, 99 percent of this revenue comes from one area, those little text based ads you see next to search enquiries. It’s an incredible business model. Unlike many other companies that generate revenue from advertising, with Google, advertising revenue builds upon the intrinsic part of the product. With most media companies, advertising is a hit and miss affair. And yet, as any consultant would tell you, any business that is reliant on one source of income is sitting in a precarious position.
From online spreadsheets, to Google’s rival to Paypal, Google Checkout, the company is trying to build upon its success.
But, for the time being, the company remains a one trick pony. It’s a trick it is performing with remarkable dexterity, leaving Yahoo, which recently disappointed analysts with its results, in the shade, but unless the company can diversify, its growth will be limited by the growth in the market for search engine sponsorship. And remember, if search engines were able to throw up perfect results, and deliver the precise information the user wants, no one would ever click on the ads down the side.
And just as search engine sponsorship has come from nowhere to the dominant advertising medium it is today, it could also lose its appeal. Users might grow cynical.
One of the reasons why Internet advertising has such incredible potential lies with online shopping. In the old days, a retailer had to rely on its position on the High Street to draw in traffic. These days, for the new breed of online retailers, it’s internet advertising. And at the moment, Google is the key. An online retailer can draw in big sales, just by getting its Google marketing right. But portal sites and price comparison products might undermine Google’s strength. The company is aware of this challenge, hence the big RD spend, and plans to diversify, but so far, only one rabbit has been pulled from the hat. Only time will tell if others will come bursting forward.
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