SMARTER STRATEGIES

Google's 3 Pillars of Growth and Dual Achilles Heels

R. Colin Johnson | Date: 01-27-11 | Comments

Unstoppable Google continues to grow faster than competitors like Microsoft's Bing on the strength of its three core businesses, according to recent market research. But dual Achilles heels could cloud Google's long-term prospects.

Google has built its success on three pillars of growth, according to the marketing research and business intelligence company IHS. As a result, Google's core businesses are still rising rapidly; however, two challenges could curtail the company's long-term prospects.

Google's seemingly unstoppable growth is based on search, video and mobile businesses, according to IHS. Today, Google's search engine is the short-term cash cow, but video (YouTube/DoubleClick) is starting to take off. And mobile, especially location-based services, offers the richest long-term prospects.

In 2010, Google expanded its lead over rivals, reporting revenues that grew by roughly 20 percent over 2009. Google's growth rate even outpaced the global search engine advertising growth rate of 17 percent�$30.4 billion in 2010, up from $26.1 billion in 2009, according to IHS Screen Digest. As a result, Google boosted its market share from 81 percent in 2009 to 83 percent in 2010.

The video and mobile sectors of Google's business were much smaller, compared with its search engine business. However, in 2010 the video sector grew�IHS reports it grew by 61 percent in 2010, mostly on the successes of its YouTube and DoubleClick subsidiaries. Mobile advertising also grew in 2010 for Google, although not as dramatically as video. The growth in this market was due mainly to the popularity of Google's Android operating system and its AdMob subsidiary, promising long-term growth that could someday match search and video revenues.

However, Google has two Achilles heels that could hobble its meteoric rise. Those are rival search engines and social media. Google successfully staved off market share erosion to Microsoft's Bing in 2010, which so far seems to be siphoning users from Yahoo Search. Google's real challenge to long-term growth will come from home-grown search engines in China, Russia and South Korea, according to IHS. China, for instance, boosted the share of its domestic Baidu rival to Google, where the overall market grew 60 percent to $1.6 billion in 2010. Likewise, Russia and South Korea boosted domestic support for home-grown search engines that could eventually shut Google out of the world's fastest-growing markets.

The second threat to Google's continued growth, according to IHS, is search capabilities being added to social media sites like Facebook.

"Social networking is the only major Internet trend where Google has failed to make its mark by either acquiring or developing strong products," said Vincent Letang, senior analyst and head of advertising research for IHS.

IHS notes that Facebook is partnering with Microsoft's Bing to provide its 500 million users with similar capabilities to Google, but with more focused advertising and marketing by virtue of a deeper understanding of their user base.