The Downside of Google's Surging Search Share (GOOG)

Hitwise reported the usual trends in October in U.S. Internet search share: Google gained, (almost) everyone else lost. Specifically:

  • Google up to 64.5%, from 63.6% in September and 60.9% last year.
  • Yahoo (YHOO) down to 21.7% from 22.6% in September and 22.3% last year.
  • Microsoft (MSFT) down to 7.4% from 7.8% in September and 10.7% last year.
  • Ask up to 4.8% from 4.3% in September and 4.3% last year.

Google’s relentless gains in search share are viewed as great news for Google fans–and they are. But there’s a downside to them as well: The amount of share that Google can gain in the future continues to shrink…

Too Bad You Can’t Eat More Than The Whole Pie:


Specifically, according to Hitwise, Google can only gain another 35 points of share in the U.S. before it owns 100% of the market–and that’s if it obliterates everyone else. More likely, even if Google continues its stupendous dominance, it will max out well below 100%.

If the search share pattern match those of the auction market (eBay), Google will probably end up with about 90% share.  This seems unlikely, given that network effects are less pronounced in search than they are in auctions.  According to one recent report, however, Google already has 90% search share in France, so it’s not inconceivable. More likely, in our opinion, Google will probably end up with about 70%-80% share.

So, depending on what you believe Google’s “saturation” point will be, the company still has between 5 and 25 share points to gain.  This compares to the 65 points it has gained in the past 8 years in the U.S. alone. 

What does this mean in terms of dollars? 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. 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 it’s 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.

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