What makes Google the massive powerhouse that it is currently also might be the very thing that causes it to lose relevance in the future. Such predictions are based not only on Google’s own performance but also the history of innovation-oriented and technology firms that burn hot, then fade away.
For Google, many key metrics still suggest its strength and ability. It earns more than $14 million in profits annually, and its revenues continue to grow at double-digit rates. Furthermore, it accounts for about three-quarters of all Internet searches conducted in the world. It owns Android, and it owns YouTube.
But even as its search advertising continues to grow, that growth has flattened out, rather than increasing exponentially anymore. Google relies on advertising for approximately 90 percent of its revenue. Perhaps because of the slowed growth, its stock price has fallen by about 8 percent. Furthermore, though Google earned about $45 billion from selling search ads, that number is just a drop in the bucket of the global advertising market, which totals around $550 billion.
The reason may have to do with the type of advertising that Google does well—and the type that it doesn’t do as well. If the goal of an advertisement is to prompt an immediate purchase by providing the necessary information, then Google is the place to go. People who know exactly what they want and type that search term into Google are likely to click on the associated links and make their purchase.
But not all ads are designed to prompt an immediate purchase. Brand advertising, which seeks to make consumers aware of the brand and include it in their consideration set, relies more on emotional resonance than information. And on that front, Google is somewhat less effective, especially in comparison with some other familiar high-tech names. For example, visitors to Facebook and Pintrest already are emotionally engaged, because they are actively seeking fun and social connections. Visitors to Google are not engaged similarly; we rarely hear of anyone wasting hours browsing Google, as they might do on Facebook.
Google contests these dire predictions though, arguing that while its search engine might be less emotionally engaging, its ownership of YouTube gives it a ready means to connect with users and a prominent site to place emotion-related brand advertising.
Still, the history of the tech industry implies that there is something of a natural order. Microsoft was once totally dominant, and it still earns massive profits. But observers also suggest that it is struggling to remain relevant. Hewlett-Packard’s struggles are even more evident, leading to a corporate split and concerns about the firm’s survival. In such a setting, is Google the exception, or is it more likely to be one more example of the rule?
Give reasons why Google might be the exception to the rule and why it might just follow the same pattern as other previously dominant tech companies.
Source: Farhad Manjoo, “Google, Mighty Now, But Not Forever,” The New York Times, February 11, 2015, http://www.nytimes.com