We think Instant could help Google consolidate its already dominant share of the search advertising market. Although the new technology will probably reduce Google’s click-through rates, we expect this decline to be offset by rising cost per click, keeping Google’s search revenue roughly constant.
Our analysis follows below.
Search advertising market
According to Google, Google Instant will shave between two and five seconds off the time required for a typical search. As a result, Instant should drive up the total number of searches.
We currently expect Google’s search advertising market share to grow in coming years, reaching 73% by the end of the Trefis forecast period. However, there could be an upside of 5% to the $643 Trefis price estimate for Google stock if the impact of Google Instant boosts Google’s share to 78%.
You can drag the trend-line in the chart above to create your own search market share forecast for Google and see how it impacts the company’s estimated share value.Revenue per search
We currently expect Google’s revenue per search to increase from around $35 per 1,000 searches in 2009 to $44 by the end of the Trefis forecast period. Revenue per search equals the click-through rate (NYSE:CTR) multiplied by the cost per click (NYSE:CPC).
Instant will probably drive Google’s CTR down because each ad may be displayed several times as the user types letters into the search box. However, users are unlikely to click on ads until they have completed their queries.
Google’s CPC may actually increase because Instant will help people search using terms that connect them more directly with the information they need. Advertisers should benefit from higher conversion rates, making the average search term more valuable.
Google’s CPC could increase because Instant will allow users to type shorter queries before getting results. This will likely force advertisers to bid higher for more common terms.
In this scenario Google’s rising CPC would offset declining CTR, leaving our search revenue forecast unchanged.