Is Google Invincible?

Google is powerful. Of course. But is it invincible?

According to Hitwise, Google accounted for 64.49% of all U.S. Searches in the four weeks ending October 27, 2007. According to RimmKaufman, Google controls 79% of the pay-per-click ad market. Google derives 99% of its revenue from advertising.

We just did a lengthy review of Google’s strengths and weaknesses. In it, we identified Vertical Search Engines as a key threat that Google needs to address this year. An example of a vertical search engine would be Kayak, which we just discussed. Some of these vertical search engines have their own ambitions of becoming independently successful web 3.0 companies. Kayak, in fact, is one of them. Google is rumored to be in talks to acquire SimlyHired, a job search engine.

My summary concern is Google’s absence from big verticals like Jobs, Travel, Auto, Real Estate, Health and Personals. If the roll-up we have just seen in Travel by Kayak happens also in the other verticals, Google will have a hard time closing this gap. SimplyHired, could, instead, choose to merge with Indeed.

Also, Vertical Ad Networks are gaining momentum and this could be a potential danger for Google’s AdSense, today over 35% of revenue. Google, however, has the cash to acquire some key players to claim its own share of the vertical ad network pie. The most likely target would be Adify.

Google got the go ahead from the US FTC to acquire DoubleClick. The FTC did not attach
privacy/data-collection conditions to the deal even though there was a huge privacy lobby against it. The deal also needs approval from the European Commission. Though the EU has stricter norms, the deal is expected to go through. However, the EU is expected to impose data-collection and mining conditions. The deal will enable Google to address the vulnerability of its AdSense revenues.

On an unrelated front, next on Google’s agenda is the late January auction of the 700 MHz Wireless Spectrum. Google is expected to bid aggressively as it has identified Mobile applications as a key growth area. Google’s goal is to make sure that the wireless network is open and the carriers do not block its mobile services. Eventually, if it is convinced that other players will ensure mobile openness, it may not bid as aggressively. I don’t think owning spectrum is strategic to its success. Rather, it would be a headache that would be squarely unwelcome.

Google has given phenomenal returns since its IPO. Both the momentum in its business and stock will likely continue through 2009.

However, I don’t believe that Google is invincible in the 5-7 year horizon. If the Vertical Search & Advertising roll-ups happen as independent Web 3.0 categories, Google will get tuned out of the radar of the biggest advertisers over the next 5 years. And with that prospect in mind, I applaud the Kayak deal.