Are we underestimating the power of Google's search?
It's been hours since we've posted about Google, so let me rectify that with this very interesting little item: Rick Skrenta of skrentablog, long skeptical of the analyst consensus that Google (GOOG) owns a 40% market share in search, uses HitWise to tabulate what percentage of inbound traffic a few major sites - apple.com, craigslist.org, flickr.com, nytimes.com - get from google.com. He finds it averages out to about 70%. That's much more in line with what most of us experience everyday.
Skrenta thinks this is a more relevant measure of market share than page views on Google's search page, which is how it's currently measured by Nielsen's comScore. After all, the point of a search engine is to find something and leave, not to just keep searching. And it's the linking to other sites, not the page views, where searches generate the vast majority of their revenue. So let's agree and say Google's real market share is 70%. Wow, that's a lot.
Yet more good news for the Goog, right? Well, perhaps not. Henry Blodget, writing over at Seeking Alpha, argues that such a huge market share only hastens the day when Google can no longer grow its search engine. That will ultimately become materially relevant to its projections -- and slam the stock.
You also have to consider the effect this has on Google internally. If google.com eventually becomes the only search in town (skrenta and his commenters don't think 99%+ marketshare is out of the question), that division will have the highest returns of any of Google's businesses by virtue of its monopoly.
Will that cause the company's best thinkers get stuck working on it? After all, in times when earnings pressure is higher, the temptation will be to wring a bit more from the golden goose. Techdirt points out the obvious problem with that: You neglect the future. They say Google is already misdirecting its development energy by passing up opportunities to become a platform, not just a destination, for Web 2.0.
There's also the risk that Yahoo (YHOO) and Microsoft (MSFT) might someday feel like they've been beaten soundly in search and retreat, freeing up money and time to shoot for the next big thing. Mightn't Google prefer to bog their rivals down in a land war they can't win, preventing them from beating them to the next frontier?
Oh, and don't forget the Feds, either. Seventy-percent market share is kind of magic number.
As someone who is greatly concerned about transparency and conflicts of interest when analysts write about stocks and when I personally do, I think that it is important that it is highlighted here that Blodgett was banned from working in the securities industry due to complaints about conflicts of interest from his time with Merrill Lynch as an internet analyst.
You can find this on his bio of his website. http://internetoutsider.typepad.com/about.html
Although Blodgett does not appear to be breaking any rules by writing about stocks here, I think it is important that all readers of his work know his background.
On his bio, it further says "Henry Blodget or other Cherry Hill employees own stock in Yahoo!, Time Warner, Amazon.com, eBay, and Microsoft and may own stock in other companies mentioned here." But he does not divulge on each article whether or not he owns stock in the companies he is covering. If he does own Yahoo, obviously it is good for him to slam Google in this article.
It is important that people adhere to the highest ethics in business.
If Google somehow gets to 99%, it would be a natural monopoly - it's only illegal if they leverage that to maintain it - not exactly sure how you would do that with a web search.
Besides, there are still plenty of search 3.0 needs - for instance, local search is still crappy. I can flip open a phone book and tell you how many pizzarias are my area but on Google? It'll give me pizza places from Africa ... or SHOPPING? People don't need Froogle to tell them prices as much as it tells them who has what.
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