Despite mounting competitive challenges from global and regional rivals, Google Inc. in 2010 expanded its leadership in the worldwide search advertising market, according to new IHS Screen Digest research.
Google is to release its fourth-quarter and full-year earnings on January 20. Based on results for the first three quarters of the year, it is estimated that Google’s full-year search advertising revenue in 2010 amounted to $25.4 billion, up 20.2 percent from $21.1 billion in 2009. This gave the company a market share of 83 percent in 2010, up from 81 percent in 2009. Google’s revenue growth was even stronger in display and mobile advertising. As a result, Google’s total revenues are expected to reach $28.9 billion in 2010, up 22.5 percent from 2009.
“With the arrival of Microsoft’s Bing and rising competitive obstacles in fast-growing regions including China, Russia and South Korea, 2010 seemed like it might be the year that Google would surrender some of its dominance in the global search advertising market,” said Vincent Létang, senior analyst and head of advertising research for IHS. “However, even amid these challenges, Google managed to outgrow the overall market. What makes Google’s outperformance even more impressive is that it came during a year when the overall market revenue rose at an impressive double-digit percentage following a slowdown in 2009.”
The global search advertising market amounted to $30.4 billion in 2010, up 17 percent from $26.1 billion in 2009. This represents a strong acceleration after the slowdown of 2009, caused by the global advertising recession, when search growth declined by 11 percent in Europe and by 1.5 percent in the more mature U.S. market.
Google’s Three Pillars of Growth
Google’s market-beating revenue growth stands on three sturdy pillars: search, video/display and mobile, Létang observed. The search pillar represents Google’s cash cow, fueling current revenues. In comparison, the video and display pillar generate short-term revenue growth, while the nascent mobile pillar provides long-term growth insurance.
Display revenue increased by an estimated 61 percent during 2010, playing a major role in Google’s market share performance. This area was boosted by the success of Google’s subsidiaries YouTube and DoubleClick.
On the mobile ad side, Google benefitted from revenue generated by the increasing popularity of the Android operating system and the company’s acquisition of AdMob.
Google’s assets allowed it to brush off several challenges in 2010.
One major challenge was the launch of Microsoft Corp.’s heavily promoted Bing and the search engine’s alliance with Yahoo. However, Google so far has lost little or no ground, as Bing is mostly growing at the expense of Yahoo Search.
But while Google remains the undisputed leader in most major markets, there are some notable exceptions. These include South Korea, Russia and, most importantly, China. In these markets, the dominant search engines belong to local operators, i.e., NHN, Yandex and Baidu. Owing to its dispute with the Chinese government in the first half of the year, Google has lost significant market share to Baidu in 2010, but finally decided to stay in the local search market that is already worth $1.6 billion and growing at an impressive 60 percent in 2010.
The ‘Social’ Threat
The only real challenge for Google actually may lurk in the rising tide of social media, rather than in competitive search engines.
“Microsoft and Facebook recently have deepened their own alliance in search, with Bing now providing sponsored links on Facebook searches and Bing to integrate social results powered by Facebook,” Létang said. “The association of Microsoft with Facebook and its 500 million-plus users is, in our view, a much bigger threat to Google’s dominance of the Internet than the Yahoo-Microsoft deal or the company’s legal issues. Social networking is the only major Internet trend where Google has failed to make its mark by either acquiring or developing strong products, despite semi-failed short-lived attempts.”Létang noted that Facebook’s global advertising revenues were estimated at between $1.2 billion for the first nine months of 2010, and the company has now firmly established itself as a cost-effective marketing destination for many major brands. The main concern, from a Google perspective, is that by providing similar scalability and accountability along with more focused targeting, social marketing may become a viable alternative to both search engine marketing and display.