Google recently experienced the largest drop in search market share since 2009. As a result, search industry insiders are starting to wonder if, after a decade of significant growth, Google’s core business is starting to decline. To be blunt, not exactly. Google is not exhibiting clear signs of decline. However, it is exhibiting signs of weakness, and the search advertising industry will undoubtedly react to this slowing momentum.
First, let’s look at the facts. Google has the most popular search engine on earth. It controls over 70% of market share in a $50B industry. It owns the most popular browser and the most popular mobile operating system. Therefore, it’s safe to say Google isn’t crashing.
However, not everything is perfect in Mountain View. As Internet search becomes increasingly fragmented, Google is facing stronger competition. Aside from traditional search rivals like Yahoo and Microsoft’s Bing, newer competition — from Facebook and Amazon –as well as specialized independent marketplaces — like my own company — present burgeoning challenges to the Google empire. In the wake of this increased competition, Google gave up two key browser contracts — Mozilla and Apple — which means that many users now need to navigate directly to Google.com to use the search engine. For rival companies, now is the perfect time to strike.
The loss of the Mozilla and Apple browser contracts will certainly affect Google’s core revenue. Google Chrome controls over 40 percent of the U.S. browser market share. Mozilla accounts for almost 20 percent and Safari for about 10 percent. Google bet that Mozilla and Safari users would follow their search engine over to their browser. They lost this bet, and without those contracts, Google lost more than a third of its desktop browser toolbar search coverage overnight, because toolbar searches in Safari and Firefox now direct elsewhere. The effect of this loss on Google’s overall search market share remains to be seen, and will likely play out over the next two quarters.
The Apple deal will also affect mobile monetization, which is the one area where Google is already struggling. Apple IOS controls almost half of domestic mobile market share (Android dominates internationally). This is a highly valuable advertising market. Without the Google/Apple deal, people searching on an iPhone will be directed to Bing. Many users now need to go out of their way to search on Google, and since there are plenty of other search options, both in-browser and in-app, customer loyalty to Google search may not be as high as expected.
The other element of Google weakness is more difficult to quantify, but possibly more damning. In short, both search advertisers and network publishers are losing faith because Google is bolstering its growth at the expense of its clients and partners. Specifically, Google is raising CPCs on U.S. core search, and at the same time squeezing revenue away from publishers.
The flat CPCs we see on Google earnings reports are the result of a bit of clever accounting, and many buyers have noticed that their CPCs – especially for desktop – have been steadily increasing. Overall CPCs across the Google network haven’t gone up, but this is only because Google’s quarterly reports bundle international and mobile CPCs with desktop CPCs, and the increased volume of low cost international and mobile clicks offsets increased desktop CPCs.
On top of this, many advertisers find themselves paying for clicks that used to be free because paid search placements now dominate a significant portion of above the fold real estate. Advertisers can no longer rely on the power of organic listings and SEO strategy, and they are forced to bid on their own brand terms to avoid competitor poaching.
Publishers are feeling the squeeze as well. Increasing CTRs and CPCs on Google’s core search property lets the company milk more revenue from owned and operated properties, where it keeps 100 percent of click values. Google is protecting its own margins by diverting revenue away from the partner network, which has been a consistent trend since their IPO. They are also currently being sued by several former search partners who claim that Google arbitrarily withholds revenue. It is becoming increasingly apparent that Google is having relationship issues and brand image issues. Google used to be seen as a white horse. Now advertisers and publishers are questioning Google’s black box “my way or the highway” approach to data and customer service. This is how monopolies operate, and history has no shortage of information on how this typically plays out. Rival companies see this public opinion shift as an opportunity.
Let me be clear. We are not witnessing the fall of a giant. Rather, we are observing the rise of parity in an industry that had been teetering dangerously close to monopoly for nearly a decade. Google’s loss of the Mozilla and Apple contracts means that many people will start using a different default search engine in their preferred browsers, at least temporarily. This, coupled with waning advertiser confidence in Google, should spur a shift in paid search dominance. Don’t expect Google to crumble. Microsoft and Yahoo are not Google killers, and Facebook, Amazon and Ebay are paid search neophytes. But don’t expect Google to maintain the market share dominance that they have enjoyed for the last decade. No one can control 80% of a market forever. For the time being, it seems Google is going to learn how to share.