Google Inc. GOOGL is mostly in the news for its futuristic technology efforts. Currently it is engrossed in projects like plying self-driving cars along San Francisco's roads and floating giant balloons around the globe to provide Internet access to remote areas.
But all these are part of its efforts to diversify its business and revenue streams. Otherwise, its core business remains ‘Search and ads’. It generates nearly 90% of its revenue from its core business.
Google’s search engine is advanced, simple and adaptable, all at once. This is the main reason for its leading search market share. But its dominance is under constant threat from existing players as well as a new set of players trying to bring a revolution in the tech world.
The new set of threats comes from Microsoft’s MSFT Bing, Facebook FB and the digital photo bookmarking and image sharing website, Pinterest Inc.
Why is Google Threatened?
In Nov 2014, Google’s traditional competitor, Yahoo Inc. YHOO replaced it as the default search engine for the Firefox web browser.
Google yet again received a setback when Verizon-owned AOL said that it will use Microsoft’s Bing search engine instead of Google for a period of 10 years. The shift will take place next year in January.
The announcement was a part of the deal per which AOL will take over Microsoft’s sales of display, mobile and video ads on the latter’s properties like Outlook.com, MSN and Xbox gaming consoles in the U.S. and eight other markets.
Facebook also upped the ante against YouTube by changing its payments policy to charge advertisers only when at least 10 seconds of the ad is seen.
Pinterest recently introduced its first buyable pins, under which users can finally start buying things directly from Pinterest. This marks a big step forward for the company to achieve its goal of becoming a visual search and discovery engine where users can start searching when they have a flicker of an idea of what they want to purchase. It will have a blue "Buy it" button next to certain "buyable" pins. Clicking on the button will direct to more product images, and also the option to check-out using Apple Pay or credit card.
Threat, Is it?
Pinterest may be starting to capture product search opportunities with its relatively new offering. Google however is not behind as it is also gearing up to launch its "Buy" button alongside sponsored mobile search ads. After the launch, Google will let you complete a transaction directly from the search results, rather than toggle between seller websites.
Now, Facebook’s new way for buying video ads also may not be much of a threat. Facebook is still trying to buck up to earn more revenues from video ad dollars while YouTube is huge and well established with advertisers and offers more flexibility, options and tools than Facebook.
So let’s take a look at its core search business. comScore’s May 2015 U.S. desktop search report, revealed that Google still owned 64.1% of market share (down 0.1% from April), Bing held 20.3% (0.1% above April’s 20.2%) share , Yahoo was flat at 12.7% while AOL gained 0.1% to 1.2% in May.
Despite Microsoft’s achievement, Google still owns three times more market share than Bing. Yahoo succeeded in maintaining its share, thanks to its five-year deal with Mozilla. The AOL-Microsoft deal came less than a year after the Mozilla –Yahoo deal and its unclear how much or high profitable that revenue stream was.
The real blow will be if Apple ditches Google for Bing or Yahoo as the default search engine for its Safari browser. If this happens, it could hit Google ad revenues via Safari, as Apple holds nearly 26% market share in the mobile and PC space in the U.S.
Irrespective of whether this happens or not, Apple has plans to block ads in Safari on mobile with its next iOS update. This way Google will reportedly lose nearly 10% of its annual revenues to adblockers, as per PageFair, a company that monitors online ads.
Given Google search's existing dominance and humongous market share, it will not be easy to knock it down from its pole position. But competitors and regulators are certainly going at it and Google’s own diversification efforts still generate a relatively small portion of its revenue.
Google has a Zacks Rank #3 (Hold).
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