At the heart of Google's (NASDAQ:GOOG) profitability lies its unrivaled search engine. On February 25, contributor Shlomo Wiesen wrote an article (entitled"Hey Google, A Search War Is About To Explode") on why the Google search engine is in danger of losing its dominant spot. I applaud his effort as it's very important to be wary of this danger. However, I would also like to highlight why Google's wide moat is becoming wider with every second that the search engine dominates its market.
The author argues that Google will come under pressure because of efforts by competitors that traditionally didn't start out in search:
Forget for a moment the Microsoft (NASDAQ:MSFT) promotion of search maven Satya Nadella to CEO, and hold that thought about the recent revelations of Yahoo CEO Marissa Mayer's secret search projects named Fast Break and Curveball. Google has held off Microsoft and Yahoo (NASDAQ:YHOO) for long enough. It's two or three other companies, not currently in the comScore rankings, that Google needs to worry about.
At the same time, the author brings up the argument that Microsoft is losing $2 billion a year on their efforts:
Microsoft is currently losing $2 billion a year in search, while Google brings in $25 billion. Sheesh. At what point does Microsoft throw in the towel? Former potential CEO candidate Stephen Elop had said he would consider selling Bing, but with Nadella now in charge, a former VP of search, I don't see him selling it.
If Microsoft, the clear number in search, is losing money on its efforts is it realistic Facebook, Twitter or even Apple will do so much better?
The argument there is that this revolution in search would be powered by the information provided by social networks. An area where Google's G+ is a weak player. However Twitter is allowing Google to crawl its tweet/hashtag. Admittedly Facebook isn't accessible to the same extent to Google but Pinterest for example is very accessible again.
There is some merit to the argument of social media being important to search. In my opinion this is mostly true for a particular type of search. Usually examples of searches that are "local" in nature are brought up to support this argument. For the vast majority of searches, a wider search will provide superior information.
Google's Wide Moat
I'd like to illustrate one important thing about search to show how exceedingly tough it is to take Google's top spot away. It makes intuitive sense that the most valuable contextual information of a "query" is actual search history.
Don't get me wrong, data from social media is valuable as well, but there is nothing that helps search like search history itself.
Let's say you regularly search for movies. However, you hate reading. Whenever Google feeds you results leading to the book, the movie is based on, you click back. This behavior is very helpful to improve your search experience. That's just one very basic example.
Dominating the market, Google is collecting the most valuable information to improve search results for you. It is doing so, faster and more efficiently than any other party. Every second it is becoming harder for incumbents to match the quality of Google's highly customized search product.
See it for yourself
If you want to see this illustrated try this little experiment: Make a list with a couple of queries you'd like to make. Open a browser in incognito mode and one in regular mode and put them next to each other. Now perform the same searches in each browser and compare the results.
Search for Ajax in Chrome incognito mode
Search for Ajax in Chrome
As you can see, when I'm in incognito mode Google is guessing I'm interested in Ajax the soccer club because of my IP information but it isn't using my personal information. When I perform a regular search Google clearly recognizes I'm a nerd and is inserting information about the programming language Ajax into the search results.
The search results that Google provides me with are superior to that of competitors. I occasionally try out Bing to test this. At the same time it's not a level playing field:
- I use the Chrome browser: Google knows exactly what links I click even when I'm outside of a page it controls directly.
- I use GMAIL: Google can search the mail I send and receive to profile me
- I store lots of files in Google Drive
- I use a mobile with an Android O.S. ...
- I use Google for my daily searches and have been doing so almost since it became available
- I employ Adsense on my websites and regularly visit websites that deploy Adsense.
- I frequently use my Chromebook
Google has an obvious headstart compared to its competitors in predicting what my searches are about. I don't think my profile is that of a typical consumer.
Its most important advantage: access to search history of 67% of consumers is extremely valuable. That wide moat advantage of having access to all that historical data is growing wider with every second 67% of people are using its search engine. I see Facebook or Twitter crumbling before Google loses its fortified top spot in search.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
Additional disclosure: As a blogger I have an Adsense account and receive income from the Google Adsense program. These payments are relatively small and I don't think they influence my opinion of Google.