Oct 5, 2006

Can Google Get To The Next Level?

Over the past year, Google has expanded it's Paid Syndication strategy aggressively, branched into Enterprise Search - with some success, and grown it's Search Query share in almost every major region world wide. But is that enough? Is Web Search revenue enough to justify the very high valuations which this company receives on the street? Can a one trick pony - albeit one on steriods, survive and thrive in the online space? What happens when Live Search catches up with Google Relevance and matches it's feature set?
I ask this because, despite a dizzing array of product releases over the last year, Google has little to show for it's efforts. True, rivals get the jitters when Google's nonsearch products grab headlines. But a close look shows that so far, there's not a market leader among them.

When Google launched an instant-messaging program late last year, tech watchers buzzed over the looming confrontation with America Online (TWX ), Yahoo! (YHOO ), and Microsoft. Google's launch of online spreadsheet software in June was deemed a shot across the bow of Microsoft Excel. And when Google prepped for its June 29 debut of Google Checkout, an online payment system that will compete with eBay Inc.'s (EBAY ) PayPal, several headlines blared: "Google Readies PayPal-Killer."

But if you cut through the hype, Google's intimidation factor quickly fizzles. An analysis of some two dozen new ventures launched over the past four years shows that Google has yet to establish a single market leader outside its core search business, where it continues to chew up Microsoft and Yahoo.

Consider just a few examples: Google Talk, an instant-messaging service launched last August, now ranks No. 10, garnering just 2% of the number of users for market leader MSN Messenger, according to comScore Media Metrix. Three-month-old Google Finance, heralded as a competitor to market leader Yahoo! Finance, has settled in as the 40th-most-visited finance site, according to data from Hitwise, a competitive intelligence firm. Gmail, the e-mail service that was lauded at its 2004 launch for offering 500 times as much storage space as some rivals (they quickly closed the gap), today is the system of choice for only about one-quarter the number of people who use MSN and Yahoo e-mail.

Google clearly benefits from the fact that it's a market leader with a very strong brand. Analysts and market pundits love to talk about the ubquity of search and it's great long-term revenue potential, and Google is the Market leader.

I read an interesting quote by Paul Kedrosky, a venture investor at Ventures West Management Inc. "People give Google the victory in the beginning and don't show up later to notice that things didn't go anywhere," They don't know why they're getting into all of these products. They have fantastic cash flow but terrible discipline on products," says Kedrosky. "It's a dangerous combination."

The problem is that every time Google branches out, it struggles with the very thing that makes its search engine so successful: simplicity. The minimalist Google home page offers a stark contrast with the cluttered sites of key rivals Yahoo and MSN. People go to Google to find information fast. So Google can't showcase its plethora of new products without jeopardizing this sleek interface and the popularity that generates a $6 billion geyser of cash from search ads. But the lack of exposure for its new products means only a small percentage of Googlers use it for anything other than Web and image searches.

Google's problem isn't a string of failures, then, but rather the middling performance of many products that survive. In fact, it seems far from achieving even its intended 20% to 40% success ratio. This may be contributing to the internal debate that rages at Google's Mountain View (Calif.) headquarters over how to deliver more search users to the new products. For years, Google has relied on "tabs," the text links that sit above its search box and provide the option to search five different services, including images, news, and maps. There's little agreement, though, over how many tabs should be there and how they should be allocated. "There have been debates since 2001 about how many tabs it is safe to put on the home page before you get the Yahoo clutter," says Doug Edwards, ex-director for consumer marketing, who left Google last year.

One way around the tab problem is to urge more users to create personalized home pages around Google's search engine, an option the company has offered for the past year. A custom-built Google home page can be surrounded by information from Google News headlines, stock quotes, and a list of e-mails from a Gmail account. True, this pushes people toward a busier home page. But at least they can set their own threshold, including only as many add-ons as they wish. This strategy would be similar to the one employed by Microsoft's Live.com experience Google claims that "tens of millions" of visitors have set up customized home pages, though it's not clear how many are actively in use.

With its huge market cap and lead in search, Google has time to work out the kinks and a culture committed to learning from mistakes. And it is collecting a wealth of data about what surfers want. Still, the message coming back so far is that it needs to search harder for products people want to use.

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