While this article will not result in a buy or sell recommendation, it is geared to answer some of the questions that I so often receive, mainly about Google’s growth prospects. If Google is already so dominant in search advertisement, how can it continue to increase its revenues and profits. Of course, this is no simple question and certainly one that top executives at Google spend a lot of time wondering about.
Since its debut, Google started from a Stanford thesis project to quickly become the most used search engine. Because of its simplicity, the accuracy of its searches and their smart rankings system, they have been able to take control of the market despite very strong efforts by competitiors such as Yahoo!, Microsoft, and Ask.com. Many smaller startups also (and some still do) take shots at Google, but so far, Google has continued to gain more market share, quarter after quarter. In fact, Google is now the starting point for most internet users in the world and at the center of their internet experience.
But what’s next?
Google has been going in multiple directions as it is always working on multiple different projects but I would say that there is one main direction that the company is heading towards at full speed. Google wants to go beyond being the center of our internet experience and become the center of our life. That is happening in many different ways and is often described as local search. What is it exactly? The easiest example would be someone searching for a dentist on Google and getting the results of dentists around his neighberhood. Of course, that would have value in itself.
But what if Google was able to become a lot more? Think about it just a little. Through its acquisition of technology behind Google Earth, Google entered the maps and directions market (slowly taking out Mapquest), now provides GPS technology for free, and is now even in your mobile phone through its new Android operating system.
How does that translate into more revenues? Today I was looking for directions to go to visit my mechanic and went to Google Maps, got the directions. But as well, in the map just next to those directions, I had directions to a few other mechanics in the area. And in fact, I changed my mind as I noticed that there was one that was closer. Now how much did Google make out of my idea change? Probably nothing.
But in my opinion, as Google becomes the destination for any local needs, merchants will start to gain interest and see this advertising as a possible way to get new clients. And when that happens, the merchants will be competing against each other to get the most visibility on Google which will of course translate into a new source of profits for Google.
No doubt, this future market has incredible potential, I don’t think it has any equivalent right now so it is difficult to put into numbers. Sure, we have Yellow Pages that have everything looking for. But what are the odds that you will be taking your big yellow book around with you in your car as you can do with your mobile phone?
It’s difficult to quantify but I believe it will become the new growth engine in the Google empire….