Friday, October 26, 2007

I think Google can officially be termed a monopoly

Wikipedia describes a monopoly as:

"a persistent situation where there is only one provider of a product or service in a particular market. Monopolies are characterized by a lack of economic competition for the good or service that they provide and a lack of viable substitute goods."

I've bolded the part to highlight where Google has reached monopolistic conditions. While there are minor sideline players in the Search Engine game, Google has more search volume than all of it's competitors combined. According to, in March 2007, Google accounted for 64% of all U.S. searches, and I've read more recent (yet hazier) reports of Google nearing 70% of all searches.

Before the Google-worshipers start falling all over themselves with excuses like

  • "but, but, Google has the best results!" and
  • "Google can't help it that they're better than the others"
  • and my favorite from the pro-corporatists: "Google has won the search engine battle because we let true market forces play out!!!" (usually with a stamp of their little jack boot on the ground)
Let's delve into the economics of online advertising. According to the blog SearchEngineWatch, online ad revenues reached a high of $4.8 billion in the final quarter of 2006. Google's own revenues in quarter 4 of 2006? $3.2 billion dollars. Read their own investor relations page to see the details. Their own information shows that "Google owned sites generated revenues of $1.98 billion dollars". In addition, the data shows that Google made $1.2 billion in AdSense revenue in quarter 4 of 2006. That's a total of $3.18 billion dollars on online advertising revenues

Calculating from the data from Google's own investor relations page, we can see that Google's share of the internet pie in quarter 4 of 2006 was about 66% ($3.18 billion / $4.8 billion). Even if we are to assume the $4.8 billion dollar figure is low, and that Google didn't make a full $3.18 billion in actual advertising revenue (financial reports are notoriously difficult to read for the layman - me), it's not hard to see that Google made more than half of all online advertising revenues in the fourth quarter of 2006. It's almost certain that that number has grown since Q4 of 2006.

So what does this all mean? Given the current political climate with a pro-business Presidential administration and the giddiness of Wall Street over Google's performance, maybe not much. But there are several factors that could change the outlook over the next 12-24 months:
  1. Google's crackdown on paid links. Sure, its Google's search engine, and they can pick and choose which criteria they use for rankings. But, when a company in a monopolistic position begins to perform actions that reduce revenues for smaller companies and increase their own, then a problem exists that only tighter regulation can fix. Will Google's monopoly be busted simply because of the paid link crackdown? No. Does it shine a spotlight on some of Google's vulture-like business practices? Yes.
  2. A possible change in national U.S. politics. It's appears likely that a Democrat will take the Presidency in 2008. That in and of itself won't provide a challenge to Google's monopoly, especially if a corporate-friendly Democratic candidate like Hillary Clinton or Barack Obama wins. But, if the anticipated increases in Congressional majorities for the Democrats continues its trend in 2008, there could be a similar increase in backers of Justice Department investigations into companies like Google and Microsoft that operate under obvious monopolistic conditions.
  3. A sharp increase in percentage of online ad revenues. Yahoo's "Publisher" program according to even the most ardent Yahoo supporters, has not exactly lit the world on fire. It suffers from a multitude of problems; unrelated ads appearing on pages; a selection process for testing that left a LOT to be desired; a lack of strong advertisers to push the program out of beta and into a real-world advertising environment. The trends show that both Yahoo and MSN are losing ground to Google. And while that may not be Google's fault (both Yahoo and MSN have been absolutely awful at playing the online advertising game), what it does mean is that Google has an even larger stranglehold on the market and gains even more monopolistic power with every passing month.
  4. A strong backlash from webmasters. Google's original creed was that every website, whether owned by General Electric or John Q. Public would be on an equal footing on the web. That's no longer the case - large companies can afford to pay large sums in the AdWords program to grow their online businesses. This has been an issue for quite a while, but it has come to a head with the crackdown on paid links. Webmasters, desperate to monetize their sites, started selling links based on their own Pagerank. With all of Google's progressive thinking, how did they not foresee this happening? What happens if there IS a large scale revolt? It might not hurt Google's bottom line, but bad press can hurt just as much as revenue drops, especially if investors get jittery about an online revolt against Google. A 25% drop in the price of Google stock would force a lot of folks outside the online community to take a look at what Google does.
My next post will be focused on Google's paid-link crackdown, and why it's wrong for the internet, wrong for Google, and bad for business in the long run. It will refer to this post a lot because the two issues may end up being intertwined. I decided to focus on Google's monopolistic position first, then use that as a catapult for my post on the whole paid-link semi-scandal.

Just to note: I have no inside information. I'm not talking to Justice Department officially or unofficially. I don't have some deep-throat feeding me information about what may or may not occur with a possible Google investigation. I do, though, have a brain, and the ability to Google all the information I need to at least make a semi-informed decision (ironic, ain't it?)

PS: no Googlebirds were hurt in the writing of this post, but at least one birdie has been fluttering around with questions.

The Google Watchdog