According to the Advertising Bureau, Internet advertising increased 15% last year to $26 billion, compared with a 3% decline in 2009. The report found that the top 10 online ad companies contributed to 75% of all business in the last quarter of 2010. Search advertising, led by Google, accounted for $3.3 billion revenues in the last quarter and contributed 46% of total Web ad revenues for the year. Search advertising grew 12% over the year. Display ads contributed 38% of total Web ad revenues last year. Mobile advertising is also becoming a significant player, with revenues estimated to be $550 million to $650 million for the year.
Search leader Google’s (NASDAQ:GOOG) Q1 revenues grew 27% over the year to $6.54 billion compared to the market’s estimates of $6.32 billion. Google attributed revenue growth to 18% rise in paid clicks and 8% growth in advertising pricing. The company now commands 65% of the search market share in the U.S. and a more than 90% market share in Europe. For the quarter, EPS of $8.08 was short of the market’s projections of $8.12.
During the quarter, Google witnessed a 54% growth in operating expenses – the biggest rise since 2008 – driven by a 50% increase in research and development spending and 69% rise in sales and marketing expenses. Google recorded the addition of more than 1,900 employees during the quarter as part of its plan to add 6,000 jobs during the year. According to Google’s management, increasing expenses are Google’s investments in building better products and warding off competition from players such as Facebook.
Google’s Social Media Efforts
Google is focusing on addressing the social media space to compete with Facebook’s growing dominance. The recently appointed CEO, Larry Page, is said to have linked bonuses of employees with Google’s success in the social segment and has sanctioned big R&D spend to search for a successful social network tool.
Last month, Google added social features to their search by introducing +1 button, a social networking service that lets users share search results with friends. There are also rumors that Google is working on another tool called Circles that will let users share photos, videos and messages within user defined groups of people such as employees, friends, and family.
Google’s Successful Mobile Focus
Google’s mobile business continued to do well. While it did not disclose specifics, Google claimed that its mobile phone business is running at an annual revenue rate of more than $1 billion with more than 350,000 Android-based phones being activated daily. According to comScore’s Mobilens report, Android-based phones led the mobile phone segment in the U.S. with 33% market share, followed by RIM’s BlackBerry’s 28.9% and Apple’s 25.2% market share. Gartner estimates the smartphone market to grow 58% during this year, with Android-based phones registering a 39% market share.
Google’s Regulatory Concerns
Google is embroiled in regulatory concerns in Asia. Recently, South Korea’s leading Internet providers, NHN and Daum Communications, filed an antitrust complaint against them citing concerns that Google is stifling competition within the mobile search space by setting the Google search engine as a default search engine for the phones and making it “virtually impossible” to switch to another option. Google is said to own 70% new smartphone market share in South Korea.
The regulatory filing follows investigations opened in the U.S. and Europe. Earlier this year, Microsoft filed a similar complaint in Europe, triggering an investigation by the European Commission. Google has been accused of skewing the search results to favor its own businesses over competitors’ websites.
As part of its acquisition spree Google recently acquired PushLife, a Toronto-based mobile entertainment startup, for an estimated $25 million. PushLife’s products enabled users to port iTunes and Windows Media Player libraries to non-Apple phones. The deal will help Google push forward in its attempts within the mobile music streaming space.
Earlier last quarter, it acquired the UK-based price comparison site, BeatThatQuote.com, for $61.5 million. BeatThatQuote.com was named as among the fastest-growing sites in 2007 by a Nielsen study. The site focuses on providing price comparisons for financial products, utilities and legal services. The acquisition will help Google enter the financial products market in the UK.
Google also acquired Zynamics, a Germany-based security analytics software company. Zynamics’s tools help build offensive and defensive security systems that find and prevent vulnerabilities within software applications. Google will be looking at using Zynamics’s expertise to develop analysis tools to protect users from malicious software.
As part of its telephony efforts, Google acquired SayNow, a Palo Alto, California-based provider of voice messaging solutions. SayNow’s platform has a user base of more than 15 million and enables voice messaging, voice conversations, and group calls to be integrated into social media and mobile applications.
Google’s stock is trading at $521.53 with a market capitalization of $167.68 billion. It touched a 52-week high of $642.96 earlier this year.