What has happened to Google (GOOG)? The stock has performed miserably this year. Meanwhile, Baidu (BIDU), its Chinese competitor, continues to soar. Google, of course, has retreated from China, but that alone is unlikely to explain its underwhelming performance.
A few facts which have been borrowed from Eric Qualman, a leading student of social networks, might help us understand what is going on:
- 96% of US millennials (those born after 1970) have joined a social network
- Facebook now tops Google for weekly traffic in the US.
- 1:8 couples in the US married via contacts they made on a social networking site.
- It took 38 years for the radio to reach 50m users.
- It took TV 13 years.
- It took the internet 4 years.
- It took the iPod 3 years.
- Facebook reached 200m users in one year.
- iPod downloads hit one billion in 9 months
- If Facebook were a country it would be the third largest in the world.
- 50% of UK mobile traffic is Facebook.
- 97% of people trust world of mouth recommendations.
- 14% of people trust advertising.
Facebook is the best example we have of how the internet zeitgeist has swung in favor of social networking. The other change is the growth of mobile internet. Marry the two trends together and you have a new internet, one that is more closed to what we have known in the past. For instance, Google’s ability to gain access to Facebook is limited. Likewise, Google’s ability to know what users of iTunes are doing is also limited. Yet Apple has the credit card details of more than a 150m iTune users.
All this represents business as usual as far as the internet is concerned - the network continues to devour its own children. In the early days, email was the dominant application. Then it was portals, such as Yahoo (YHOO). Google dominated the next cycle, which was search. Now, it in turn is being brushed aside by social networking and the mobile internet.
By 2012 there could be 500m to 600m smartphones on sale, a number expected to exceed PC sales. PCs are open devices; you can run whatever software you want on them. Smartphones and tablet computers are, by contrast, closed devices which are tethered to the manufacturer. A world populated by such devices and social networks is not as Google friendly as a world dominated by PCs. Search is less important than communicating with friends or consuming content.
Google's Android gives the company a foot in the mobile internet world but it does not solve the real problem. As Steve Jobs pointed out recently, there isn't a lot of evidence that we use search that much on a mobile device. It looks as though Google's long march to the sidelines of the internet has already begun.
Disclosure: No positions