Social Machinery

Although the vast majority of Google is search engine market, the reality is that after 10 years the Mountain View giant has become the largest advertising agency in the world. 

Over the past year, Google reported total gross revenues of $ 24 billion USD. If we discount the 6 billion paid to its partners (with whom they share the advertising revenue), net revenues are in the range of $ 18 billion. 

If we look at the chart above, supplied by Business Insider, Is quite obvious that almost all revenue comes from ads on Google’s sites. Only a small portion of revenues comes from Adsense or other services offered by the new media company (Google Apps, Youtube, Picasa, etc).

Is Google’s diversification strategy working?

Even do Google has been one of the most prolific internet companies when launching new online and mobile services, still after ten years almost 90% of their revenues are coming from their most basic and oldest product.

Why the diversification program Google launched many years back by introducing other product lines like Gmail, Youtube, Picassa, Doubleclick, AdMob, Google Energy and others does not translate into a significant level of revenues?

It seems that the source of monetization that Google found on the search market, has not yet found on other business divisions. Again, the key challenge for most internet companies today is how to monetize the value created by their applications or services.

Moreover if we look how much Google has invested on diversifying their portfolio; for instance Youtube was acquired in 2006 for 1,650 million USD.

Anyway, Google’s strategy could work in the long term. If we look closely on year 2009, revenue from ads on their sites accounted for 83% of the total. Compared to 2008, this item represented 90% of Google’s total income. Nevertheless, the growth rate of these “windfall” is, so far, relatively modest.

Is Google a facing a major risk due to their dependency in only one source of revenues?  Could a loss in their share in the search market against Bing or Yahoo jeopardize Google’s future?

The is other angle that we are not able to assess in this graph, such as the impact of mobile internet exponential growth driven by our paranoia of real-time information and the increasing power of social networks, which inevitably will end up affecting the search industry and therefore Google’s current revenues. Just as an example, online users spend more time on Facebook than in Google, Yahoo, MSN, Youtube and wikipedia together!

Google is aware of this and has already begun to position themselves strategically. Its foray into the mobile world with Android OS, the recent AdMob acquisition,  Twitter and Facebook included their search results and the launch of its latest social media attempt, Google Buzz, confirm that the battlefield is now for the end user’s mobile.