Google. When you read that word, the first thing you probably thought of was search. Considering Google accounts for around 70% of all web searches in the world (or about 85% of the English-speaking world), and has done for a decade, that’s not a huge surprise. Heck, Google’s search engine is so renowned and ubiquitous that it’s one of only a few brands that has slipped from protected, trademarked usage into the common vernacular. It is not unusual to google instead of searchfor something (even if you’re using Yahoo or Bing!), much in the same way that you use a thermos or tear off some cellophane (both of which used to be capitalized trademarks).
You’re probably aware that Google has other products, like Maps, Google+, or Blogger, but they’re so inconsequential in the grand scheme of things, compared to Search. You could probably argue that Gmail and Android are important products — but to be honest, even in the case of Android’s hundreds of millions of users, it’s not like anything much would happen if Google ceased development — its open-source nature means anyone (Samsung, Microsoft, etc.) could pick it up and run with it. Losing Gmail would be a pain in the ass, but there are plenty of viable alternatives out there. If we lost Google Search, however, we’d be distraught and discombobulated. Bing is just about usable in the US, and China has Baidu, but that’s about it. Google Search is a fundamental part of the internet. Without it, entire swaths of the web would be deprecated and quickly laid to waste. I don’t think it’s hyperbolic to suggest that, without Google Search, society as we know it would change dramatically.
It is a little bit scary that one service has so much significance. The phrase “don’t put all your eggs in one basket” comes to mind. Having a single point of failure, especially when the service is as important as Google Search, is never a good idea. In much the same way that we have multiple water reservoirs, power stations, hospitals, and schools, we really shouldn’t have just one viable search engine. Google could turn Search off tomorrow, if I really wanted to.
But — and now we get to the crux of the matter — while Search is an important part of your life, it is the complete and utter be-all and end-all lifeblood of Google itself. Without Search, Google would have to fire the majority of its workforce or face losing billions of dollars per year. As of the end of 2013, 91% of Google’s income derived from advertising — the bulk of which stems from paid ads on search results. The remaining 9% comes from a mix of sources, but mostly Google Apps (Google’s enterprise version of Gmail and Docs/Drive). Everything else — Android, Gmail, Docs, Blogger, Maps, etc. — is just icing on the cake; benevolent gifts from the great Web Father in the sky that generate almost zero profit. To derive 91% of your revenue from a single source is incredibly dangerous. In much the same way that Google poached the search market from Yahoo, Altavista, and others, another startup could pull the very same trick on Google itself. Despite booming revenues and profits, Google is precariously placed. The online display advertising business will not exist forever. The search company needs to do something, and quick.
Diversification
In a word, what Google needs to do is diversify — it needs to develop new revenue streams that, ideally, aren’t connected to its advertising products. As it stands, almost all of Google’s web properties (except Apps) generate their money from display ads, which are managed by the AdSense and DoubleClick programs (and yes, both are owned by Google). Google Apps, which sells a monthly subscription of Gmail, Docs, Calendar, and Drive to businesses, is a good start — but Google needs more.
Just so you understand the scale of the challenge that Google faces in its attempt to diversify, let me give you a few more figures. Google’s revenues last quarter were $14.9 billion. 91% of that, or $12.54 billion, derived from advertising. The other $1.23 billion comes from “other Google revenues,” which mostly stem from Google Apps subscriptions. Android, despite it being shipped on over 200 million smartphones in 2013, provides negligible revenue. (At the end of 2012, it was estimated that Google had only made $550 million from Android devices, but almost $2 billion from iOS devices. These figures have surely changed in 2013, but the fact remains that Android isn’t a big money maker.) Chrome, the browser, generates advertising revenue and nothing more — ditto Blogger. Maps, News, Plus — no income here. Basically, it’s advertising and Apps, and that’s it.
Of course, this isn’t to say that Google isn’t trying to diversify. In fact, Google is somewhat famous for its “throw it at the wall and see what sticks” approach, which has resulted in the company running a vast number of free products and services. Almost none of these services, though, make any money — and in many cases probably cost Google a lot of money to continually develop and keep online. After becoming CEO in 2011, Larry Page very quickly started the process of shuttering many of these services, stating that Google needed to put “more wood behind fewer arrows.”
Where then does this leave Google?
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