‘Hollowed out’: Google’s nightmare comes true as search business slows

February 11, 2020
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It’s not just about focusing on one single source of income and growth opportunity for your Business nowadays. You need to take into consideration your entire online footprint, including Google Search. Will be interesting to see how Search progresses.

Article first seen via smh.com.au:

New numbers from Alphabet this week confirmed a major fear that has lingered around the internet giant for years: the Google online search business is slowing.

In its 2019 financial report, Alphabet split its advertising revenue into three buckets for the first time: Search, YouTube and a network business that runs marketing spots on other websites. Search sales rose 15 per cent in 2019, a slower pace than the 22 per cent in 2018.

“This hollowing out of search is real,” Mark Shmulik, an analyst at Sanford C. Bernstein, wrote in a note to investors after the results. To maintain growth at even this lower level, Google will have to generate more revenue from its Maps service, image search and shopping search ads, he said.

Google search is one of the most profitable businesses ever created, helping the company amass a cash hoard of more than $US100 billion ($148.5 billion). It took Google from a garage in Silicon Valley to a trillion-dollar giant that dominates digital advertising, online video, maps and email.

Search grew rapidly as more people got online looking for information. Smartphones also boosted usage and revenue climbed after Google loaded more ads into the top of mobile search results. But there are limits to the growth of such a large business.

Google can only stuff so many ads onto its website without lowering the quality of search results. On mobile phones, ads often fill the entire screen, forcing users to scroll down if they want to see free listings. Over the years, Google has used various tweaks to wring more clicks out of search ads. But there may be limits to that, too. Recently, it changed the way ads are labeled, causing some people to say it was trying to blur the line between ads and free results. The company quickly backtracked.

And fewer people are joining the internet in the most lucrative search ad markets. From 2017 to 2019, the number of internet users in Europe grew 10 per cent, while in North America growth was only 2 per cent. In Asia, the online population jumped 19 per cent, according to data aggregation company Statista. Google worked on a censored search service for China, the world’s largest internet market, but scrapped the project after some employees and US politicians criticised the effort.

Some of the most valuable search ads – those for specific products that people can buy – face competition, especially from Amazon.com. About half of product searches start on Amazon now, Bernstein’s Shmulik wrote in a research note earlier this year. That’s spurred Google to build new kinds of shopping ads, but it hasn’t reversed the growth slowdown. Searches for decorating ideas and clothing are also increasingly happening on social networks such as Pinterest and Instagram. And millions of people look for music on Spotify’s mobile app, not Google.

“This hollowing out of search has been underway for many years and is not well understood,” Shmulik wrote.

Google is working hard to scoop up many of these more-specialised searches. However, the Bernstein analyst still expects revenue growth to slowly subside. After increasing 19 per cent a year from 2015 through 2019, Shmulik estimates Google search revenue will climb 13 per cent to 15 per cent annually in coming years.