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Rich Skrenta (via Searchblog) analyzed the source of traffic for ten big sites and illustrated what "everyone in the web business already knows," which is that Google has a heck of a lot more than 40% share of the search market.  The analysis covers only a small sample, but it certainly seems plausible that, as Skrenta concludes, Google already has 70% share.

For Google bulls, this is good news and bad news.  The good news is that their predictions have already come true.  The bad news is that, if Skrenta's estimate is accurate, Google only has another 30% market share to gain.

In the past three years, Google's growth has been driven by increases in 1) revenue per search, and 2) number of searches.  The second factor, increasing searches, has been driven by growth in global market share and, to a lesser extent, growth of the Internet.  If and when Google's market-share gains slow or stop, this will act as a major drag on its revenue growth.

Can Google gain that last 30% share?  Yes, possibly, if Yahoo, Microsoft, Ask, et al, reach new heights of search patheticness.  Will it?  Unlikely.  As synonymous as Google has become with search, the network effects in this business are not as strong as they are in, say, auctions, and they are probably not strong enough to warrant 90%-100% market share. 

It would be a mistake to make too much out of a small sample, and pinpointing the likely ceiling on Google's search share is difficult at best.  It does, however, seem reasonable to note that at some point Google will no longer be able to gain share and that this will have a "material adverse impact" on its revenue growth.

GOOG 1-yr chart:

goog chart

Source: Google's 70% Market Share: The Bad News