Google goes in search of new revenue streams
Google – the name evokes several associations. An internetsearch giant, one of the most innovative companies globally, bringing to market disruptive products and taking “moon shots” at things such as driverless cars and internet-beaming balloons.
However, of late, a few other things are becoming associated with the company – slowing growth and thus falling share prices, anti-competitive lawsuits, the exit of key executives and management shake-ups.
The company is fighting bitter legal battles with regulators in places such as Europe and China. Senior executives such as chief business officer, Nikesh Arora, and senior vice president, Vic Gundotra, have left the company in the last few months.
To address some of these issues, the chief executive, Larry Page, has reduced his involvement in the day-to-day running of the company to focus on major innovations.
A key reason behind these negative developments is that Google’s core business – Internet search and the associated advertising revenue it drives – is slowing. Search ads account for about 65 per cent of Google’s revenue and the growth in this segment is at its lowest in more than six years.
The reason is straight forward – people are increasingly moving their searches away from Google and on to their social networks or ecommerce sites. Instead of looking for a good nearby restaurant on Google, people just ask friends on Facebook (or Twitter) and get credible advice from friends whom they know and trust.
Similarly, while looking to buy something, users are now searching directly for their chosen items on shopping sites such as Amazon.com (in the developed markets) or Souq.com (here in the UAE for example).
Basically, search is becoming localised and also turning more social – it is also increasingly happening over mobile phones. This phenomenon is collectively known as SoLoMo – Social Local Mobile.
And the impact of SoLoMo is driving ad revenue away from Google and to the likes of Facebook, as the social network is increasingly used for things that are relevant to advertisers – search and recommendations.
To further cash in on this trend, Facebook is progressively enhancing its mobile services. Within the past year, the company has launched “premium video ads” that play automatically when users scroll through, as well as the post-view “call-to-action” buttons that allow advertisers to better track the effectiveness of their ads.
Just last month, Facebook fired another salvo at Google, by allowing users to search through old posts with keywords – much like Google. Facebook could in the future launch targeted contextual ads based on posts that the users searched for.
This might just open up new possibilities for Facebook in terms of ad monetisation. Google on the other hand is working hard to fortify itself against these market changes.
It owns the Android mobile operating system (OS), with over 80 per cent of the global market share.
Further, popular Google apps such as Maps and Navigation generate significant data about users’ locations and apps such as Chrome Now, Gmail and Inbox offer insights about user’s behaviour patterns. This knowledge arms Google with a lethal arsenal to cash in on the SoLoMo trend.
What Google still lacks is a solid ‘So’ – a social arm. Its social networking service, G+, launched in 2011 and billed as the Facebook killer, never really took off. In fact, an average G+ user now spends less than four minutes on the service every month.
Compare this to the over 7.5 hours spent on Facebook, and the gulf is there for all to see.
However, users of G+, even if they do not use the service much, allows Google to map their profiles against its other products such as YouTube and Gmail and thus create a far better profile for advertisers than Facebook can. Google is banking upon this data, to help it ride the SoLoMo wave.
Further, not wanting to be heavily reliant on search, Google is experimenting with new ways to make money.
One such example had been the November 2014 soft launch of YouTube Music Key – an ad-free, paid subscription service allowing users to stream high quality music and music videos.
Although the service is currently invitation-only and available only in select developed markets, its full scale global roll out is planned some time this year.
YouTube, in fact, is at the core of a Google fight back, especially in the markets outside of the US, which account for 80 per cent of all YouTube traffic.
Here, the Middle East region is of prime importance to both Google and Facebook.
In 2012, the region ranked second, after the US, in terms of the number of daily YouTube views. In fact, Saudi Arabia then had the highest YouTube viewership in the world with over 90 million videos viewed daily.
As Google fights Facebook in the US and lawsuits in Europe and China, it is the Middle East, and Latin America that will prove the key battle grounds in the race of advertising dollars and thus internet supremacy.
On a separate note, another big move that Google has been making is in the artificial intelligence (AI) and automation space. Prominent among the 35 companies it acquired were the home automation specialists Nest Labs (acquired for US$3.2 billion) and Dropcam (for $555 million), the solar drones and satellite maker Titan Aerospace (for an undisclosed sum) as well as DeepMind Technologies (for $400m), which also is working on AI.
Although Google has not revealed in detail how all these companies would be integrated into its fold it has shone some light on where it sees its future.
Abhinav Purohit is a UAE-based strategy consultant specialising in the telecoms and ICT industries.
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Updated: February 2, 2015 04:00 AM