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Suddenly, Google Looks Shaky

Larry Page not bad AP

Last week, Google reported slower-than-expected revenue growth during the third quarter.

Investors punished the company with a stock sell-off, and now Google shares are trading at $US511.17, well below a 52-week high of $US604.83.

In a story on the disappointing earnings, BI’s Jillian D’Onfro pinpointed Google’s problem: its big business, search advertising, isn’t growing as fast as it used to. In fact, it hasn’t grown so slowly since six years ago.

To be very specific: people didn’t click on Google search ads as much as everyone thought they would during the quarter.

“Growth in paid clicks didn’t accelerate as much as analysts expected it to: 17% year-over-year versus expectations of 22% year-over-year,” wrote D’Onfro.

Here are three reasons that’s happening.

Reason #1: Google search is the best money-making business on the Web, but the Web is slowly becoming irrelevant thanks to mobile.

Here are two charts that illustrate this point. We first saw them in a post by Andreessen Horowitz partner Chris Dixon.

The first chart shows what you already know, that mobile users surpassed desktop users this year:

Desktop versus mobile users in 2014

The second chart shows that, increasingly, mobile users prefer to connect to the internet via apps rather than the mobile web.

Apps versus mobile web

Looking at those two charts, we can perhaps infer the following: The world is moving away from desktop computers. As the world does this, Web usage is growing more slowly. As overall Web growth slows, Google Search growth slows — and so do clicks on search ads.

Reason #2: People are more comfortable going straight to Amazon to search for products to buy.

A couple years ago, we met with several Google executives and learned that the company keeping them up at night wasn’t Facebook and it wasn’t Microsoft; it was Amazon.

Google is a search company, but the searches that it actually makes money from are the searches people do before they are about to buy something online. These commercial searches make up about 20 per cent of total Google searches. Those searches are where the ads are.

What Googlers worry about in private is a growing trend among consumers to skip Google altogether, and to just go ahead and search for the product they would like to buy on Amazon.com, or, on mobile in an Amazon app.

There’s data to prove this trend is real. According to ComScore, Amazon search queries were up 73% in 2012. But it makes intuitive sense doesn’t it?

Why go through these steps …

  • Open a Web browser on your phone.
  • Google search “bike gloves”
  • Analyse some text links.
  • Click on one to go to a product page on some e-commerce store.
  • Click to add the item to your cart.
  • Input your credit card.
  • Input your address.
  • Select what kind of shipping you would like to pay for.

… when you can just …

  • Open the Amazon app on your phone.
  • Search Amazon for “bike gloves.”
  • Click one button to buy the product with your usual credit card and have it shipped to your normal address, for free.

Reason #3: Google is way behind in the best money-making business on mobile, monetizing streams.

Facebook generated $US1.8 billion in mobile ad revenues during the second quarter, 151% over the same period the year prior. Twitter generated $US255 million in mobile revenues during the quarter.

Both Twitter and Facebook are, mostly, making all the money by selling ads against “streams” in their mobile apps.

Google also sells mobile ads.

But it doesn’t own a stream to sell ads against.

Meanwhile, Facebook and Twitter keep adding more streams to sell ads against.

Facebook bought Instagram and WhatsApp. Twitter bought Vine.

Facebook and Twitter are also both taking what they have learned about putting ads their own streams to help other app makers sell ads (and taking a cut, of course).

It’s reminiscent of how Google made a bunch of money selling ads against its own content — search results — and then and then it took those ad-selling techniques and spread them all over the Web, to great profit.

Maybe Google’s growth is slowing because it’s not doing the same thing in mobile, while Facebook and Twitter are.

BONUS REASON: Larry Page is investing for the distant future, not the near term.

In the past couple of years, Google CEO Larry Page has invested billions of dollars in self-driving cars, thermostats, robots, and computers for your face. None of those investments have turned into real businesses yet. Maybe they will someday.

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