Google gained another point of query share in December and is now at 66% in the US per Hitwise (and as much or more globally). Google’s share is up 3 percentage points year over year. Meanwhile:
- Yahoo lost a point year over year (to 20.8%),
- MSN lost 3 points (to 7%), and
- Ask clung to 4%.
Based on the Hitwise numbers, Google appears to be stealing share primarily from MSN. The good news for Yahoo is that Google’s rate of share gain has moderated, which suggests that Yahoo will be able to milk its search business for a few more years.
How much share will Google ultimately capture? It seems reasonable to assume that it might eventually grab 80%+. At the current rate of gain, it should be at nearly 70% a year from now.
Google’s search future is likely factored into Google’s stock price, but future Google roadkill probably not factored into the future of, say, Yahoo’s stock price (although with the latest lurch downward, it’s certainly getting there). Below, we first discuss the downside of Google’s Surging Search Share (for Google). Then we discuss the impact of Google’s natural monopoly on everyone else.
The Downside of Google’s Surging Search Share
The bad news about this for Google, as we’ve previously observed, is that Google can’t capture more than the whole pie. (See The Downside of Google’s Surging Search Share).
If the search share patterns match those of the auction, operating system, and other monopoly markets (eBay, Microsoft), Google would end up with about 90% share worldwide. Network effects are less pronounced in search than in auctions, however, so we expect Google will probably end up with about 80% share. (According to ReadWriteWeb, however, Google already has 90% search share in France, so 90% is not inconceivable.)
What would Google’s ascendancy to 80% share mean in terms of dollars? So far, we’ve only calculated the value of US search share points, but here they are:
Google generated $2.7 billion in “Google Sites” revenue in Q3. Most of this came from search, and about half of it ($1.4 billion) came from the U.S. Each of Google’s 65 search “points,” therefore, generated about $22 million of quarterly revenue, or $86 million annually. For simplicity’s sake, call it $100 million per year per point.
As Google’s algorithms get more efficient, it will likely continue to generate more revenue per search point, but the point here is that the amount it can gain from search share gains is finite (even internationally). Specifically, in the U.S., at the current rate of revenue per query, Google can gain between $500 million (70% share) and $2.5 billion (90% share) before its search share gains are maxed out.
Those numbers represent an increase of about 10% to 40% on top of Google’s current U.S. search business. Based on anecdotal reports from other countries, Google may have even less headroom internationally.
IMPACT ON YAHOO
Per Hitwise, Yahoo is clinging to 21% share in the US. For perspective, in France, where No. 2 player Yahoo had five years to build up a lead on Google, Yahoo now has only 3% share (in August, per Comscore). We won’t do the 21% to 3% revenue maths, but considering that search probably contributes half of Yahoo’s revenue and more than half of its profit, that result would be devastating.
A decline of Yahoo’s US share to 3% would be shocking. Inasmuch as Yahoo has not proven that it can stem the share bleed, however, it is not just reasonable to assume that Yahoo is headed to less than 10% share–it’s prudent.
IMPACT ON MICROSOFT
Per today’s numbers, Microsoft has a pathetic 7% share of the US market, down 3 points year over year. Given the hundreds of millions of dollars (billions?) Microsoft has spent on search, it is impossible to overstate how awful this is. Based on past trends, moreover, it’s only going to get worse.
Despite all the advantages one could ever ask for (browser monopoly, unlimited money and R&D resources, global platform, etc) Microsoft is going nowhere but down in this market. Anyone who says differently is hallucinating.
IMPACT ON IACI’s ASK
Ask has 4% share (when you include all of its third-party syndication sites. The share for the site itself is about 2%). Ask is going to get squeezed out of the search market. Its only hope is to focus on a niche or sell itself to Google, Yahoo, or Microsoft.
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