Google’s Search Market Share Threatened

Search giant Google (NASDAQ: GOOG) appears to be struggling a bit. While they are still the leader in US search market by a long mile, the market share is gradually slipping. In the recent results by StatCounter, Google’s share of the US search market continued to drop. As of January 2015, Google accounted for 74.8% market share compared with 77.3% recorded in November 2014. The recently reported quarterly results weren’t impressive either as the company continued to miss both revenue and earning expectations.

Google’s Financials

Google’s fourth quarter revenues grew 15% over the year to $18.1 billion, again falling short of the analyst expectations of $18.5 billion. EPS of $6.88 was also short of the market’s projections of $7.12 for the quarter. Google’s rising costs are beginning to worry the investors now.

By segment, revenues from Google’s sites grew 18% to $12.43 billion. Network revenues grew 6% to $3.52 billion. Other revenues increased 19% to $1.95 billion. International revenues accounted for 56% of the quarter’s revenues at $10.23 billion. Aggregate paid clicks grew 14% over the year and average cost per click reduced 3% over the year. Google does not breakout its revenues into mobile and desktop contribution. However, the declining cost per click does indicate that the lower priced mobile search share is gradually increasing.

Google ended the year with revenues up 19% to $66 billion and EPS increased from $19.07 to $21.02.

Google’s Search Worries

Last quarter, Firefox announced their decision to drop Google as its default search engine and replace it with Yahoo. It appears that Firefox’s decision may be hurting Google. StatCounter’s report saw that Google’s share of the US desktop search market fell from 77.3% in November 2014 to 75.2% in December 2014 and finally 74.8% in January 2015. During the same period, Yahoo’s share increased from 8.6% to 10.9%. On Firefox browser, Google’s search share has fallen from 81.9% in November 2014 to 63.9% in January 2015 while Yahoo’s share has increased from 9.9% in November 2014 to 28.3% in January 2015.

And now, things may be getting worse as Google’s contract with Apple is set to expire soon. According to market reports, Apple may be looking at removing Google from its Safari search browser as well. Yahoo and Microsoft are already vying for the big contract. This may well be a rumor, but it will give Google something to worry about.

Within mobile advertising, things aren’t very rosy either. According to eMarketer and the latest financial results from Facebook, it is quite evident that Google is facing a rather tough competition from Facebook. eMarketer reports that back in 2012, Facebook accounted for a mere 5.4% of global ad spending. That number grew to 17.5% in 2013 and is estimated to grow to 21.7% for 2014. Compare that with Google’s share which is expected to decline from 50% in 2013 to 46.8% in 2014.

Google’s Innovations

But Google is trying to attract customers through several innovations. During the last quarter, Google’s Fiber project made significant achievements with plans to launch the service in Atlanta, Georgia; Nashville, Tennessee; Charlotte and Raleigh-Durham, North Carolina. The highspeed, gigabit Internet service costs customers $80 per month.

Google is also upgrading the Android OS. Android 5.1, which began shipping on Android One phones in Indonesia last month will now also be available for Google’s Nexus devices. Google had released Android 5.0 in November 2014, but the OS had several bugs. The latest version fixes those bugs and includes other features such as improved RAM management, improved battery management, and better management of Wi-Fi consumption of network devices.

To keep users interested, Google also launched Music Key, YouTube’s new streaming music subscription service in November 2014. The move will help Google compete with the likes of Pandora. They are also working on a child-friendly option for both Chrome and YouTube that will display content safe for children on these portals.

Google’s Tie-up with Twitter

Meanwhile, Google continues to improve their relationships with the social media companies. Last week, Google and Twitter announced a significant partnership. As per the agreement, Google’s search will also display Tweets from Twitter users. During the first half of this year, Tweets will become visible on search as soon as they are posted. The two companies had a similar agreement for the period 2009 through 2011, but the agreement ended as Twitter wanted to have more control over their content. The analysts are pleased with the deal as it will not only help Twitter increase its reach, but also help Google access real-time content and broaden its social media access. Terms of the deal were not disclosed, but it appears that Twitter would get data licensing revenues instead of advertising revenues from the agreement.

Google’s stock is trading at $531.08 with a market capitalization of $361.17 billion.  It touched a 52-week high of $604.83 in April 2014.