August 1, 2006

Google is slowing down.

Posted in Category: Work — Amr Awadallah @ 7:53 pm | link | | comment (0)

Google’s amazing revenue growth over the last couple of years is mainly due to the fact that they had a vast resource (queries and clicks) that they were not able to monetize for years until they figured out the charge-per-click business model. Google was amazing in how quickly they were able to develop the matching technologies to monetize every single crank of that resource, hence their explosive growth in 2003, 2004, and 2005.

That said, 2006 is showing the early signs of slow down for four reasons:

  1. Once you have tons of revenue, its hard to keep high Year-over-Year (YoY) growth rates
  2. The search marketplace is slowing down a bit due to saturation in the US and European markets (still plenty of growth in Asia though, but Yahoo is stronger there).
  3. Google launched almost all the tricks in the bag during 2003, 2004 and 2005, the only remaining tricks are visual placement tricks and looser matching (i.e. more, less-relevant, ads on top of web results).
  4. None of Google’s other products, other than web search that is, have decent “money” marketshare. Google’s Image Search is actually pretty large, but they have no ads there (will that change in Q3? possibly).

To further illustrate this point, I show below the YoY and sequential growth numbers for Google’s revenues (extracted from their quarterly announcements). The important trend here is the one for the sequential growth (the blue curve), notice how strong 2005-Q3 was compared to 2005-Q2 (up 14%), that happened due to Google increasing the max number of ads on top of web results to 3 (up from 2).

Quarter Seq Growth YoY Growth
2004 Q3 15.00% 105.00%
2004 Q4 28.00% 101.00%
2005 Q1 22.00% 93.00%
2005 Q2 10.00% 98.00%
2005 Q3 14.00% 96.00%
2005 Q4 22.00% 86.00%
2006 Q1 17.00% 79.00%
2006 Q2 9.00% 77.00%

Don’t expect this strong growth for 2005-Q3 to repeat again for 2006-Q3, it will be lower, much lower (unless if Google increases the ads above web results or start monetizing one of their other large products). In fact, I expect the summer impact to be larger on Google since they have more share of students and schools.

What do you think ?

— amr

Google Revenue Growth

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