Tuesday, May 31, 2011

What is the next big challenge for Google?


For the last years, Google has been the leading company in online business. To maintain its dominating market position and further increase its revenues, Google has been extensively diversifying its portfolio with products such as the Chrome browser, the mobile operating system Android and its lately launched service, Google Wallet. With this multitude of products and services (check it out on http://en.wikipedia.org/wiki/List_of_Google_products) it is getting increasingly difficult to manage the company. Due to its fast organic growth and an active acquisition strategy, Google now is competing against a huge number of companies in almost every segment of the digital industry. In my opinion, the biggest risk that Google is facing nowadays is the increased competition in its two core business areas: search (Bing partnering with Facebook) and advertising (Facebook). 

One future key success factor for search engines is the integration of social media in the algorithm. In this field, Bing currently has a clear advantage through its partnership with Facebook and is gaining market share. The social network exclusively allows Microsoft to include its users’ “Likes” of webpages and content into the search algorithm. With this new script, Bing has recently crossed the 30% mark in US market share and shows a continuously increasing user base. The picture below illustrates the market share of Google vs. Bing in US during the last 6 months. In my opinion, the gap between the two companies will further decrease and be marginal by 2012 although Google is trying to reverse this trend. To enhance its search algorithm it has started to include information of several other social network sites such as Twitter and Youtube. If they are successful, we will see during the next months.



Google’s main revenue driver is advertisement. In this area, the company faces increasing competition through Facebook. Although a recent study published in the Silicon Alley Insider shows that the revenue generated per user is still much higher for Google than for Facebook, the picture is changing. Facebook is redefining its business model, offering many advertising features for companies. Its main success factors are the long time users stay on the website as well as the fact that potential customers pay more attention to recommendation from friends than to Ads on Google.




I expect the competition between Google and Facebook to further increase and await some interesting developments in the next months.

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