If You Own Google, Watch These 3 Trends

Jun. 5.12 | About: Alphabet Inc. (GOOG)

Google's (NASDAQ:GOOG) entire method for displaying search results has changed greatly over the last several years, to the point of making several changes that search engine optimization experts traditionally thought were extremely unlikely. This, mixed with several business and market changes, are some of the most important developments for Google that investors should watch.

1. Search Engine Changes

Last year, Google introduced what became known as the "Panda" update. The update essentially was a choice to move the results away from smaller niche websites toward larger websites - typically larger, mega-corporate websites. So much for "don't be evil" as a campaign message.

This consolidation of search results did several things. First, it moved results away from being specific to being general; for instance, if you type in a long keyword phrase, you'll often get results back that have nothing to do with the keyword phrase and more to do with the general niche, because the only specific results would be from smaller websites Google doesn't want to pitch. Second, it essentially penalized thousands of smaller webmasters.

Fast-forward one year to Google "Penguin." In this update, Google essentially penalized mostly smaller websites that had "low quality" links from smaller blogs. In other words, if you were running a blog and were popular in a smaller niche with plenty of links from other relatively small blogs, you could almost instantly get annihilated by a larger, more popular site writing a single article - even if you had plenty of traffic subscribers to your site. This was a huge, huge move toward larger corporate websites at the expense of the smaller sites.

This isn't inherently bad, but it's an important trend worth noticing. I think the Google results tanked. It's very difficult for me to find specific results that just 18 months ago were easier to find. I'm not a fan.

And I'm not alone. Bing used to be so awful it was funny. Google was amazing. Now it's a toss-up, and I use Bing more than Google. That's just bad, Google.

Google is so obsessed with fighting spam that it missed the point - give me good results. This is bad for Google because it means that the meat and potatoes of its traffic is being undermined. This isn't an instant prediction of the end of Google in the next 15 minutes. It'll take time. But rest assured that Bing is finally in a position where competing isn't a joke, and Google is essentially throwing away the greatest market edge I've ever seen. What a waste.

2. Charging for Services

The Financial Times just recently reported that Google has begun charging companies to list their products in Google Product search, essentially replacing a free service with a paid service. To be exact:

Google is to start charging companies for listing their products in a core part of its search service, the first time it has converted a free section of its giant online index into a purely commercial venture. The change to Google Product Search will mean that many merchants that have relied on the search engine to lure potential customers online will face higher costs, according to analysts.

While this will likely create some profits in the short run, Google is also running the risk of poisoning the well by watering down how useful its product search results are by weeding people out who aren't willing to pay. Over the long run, it's likely to bed damaging. Whether it'll cost more over time is anyone's guess, because we're not able to see how much revenue the service brings in already - it might be a negligible amount of indirect income.

Again, this trend is about Google compromising and becoming evil because of short-sighted goals and oversimplified changes. And that's all bad.

3. Facebook and Bing Competition

The above two trends are only important because of this third trend. Google isn't going to be a ghost town anytime soon, but it's not the only company in town in the first place.

Any "real" competition by Microsoft's (NASDAQ:MSFT) Bing and Facebook (NASDAQ:FB) in the future could be a Google killer. If Facebook ever partners with Bing to emphasize their already existing partnership, well, I'd start betting money on Facebook and Microsoft. This isn't about Yahoo (NASDAQ:YHOO), just about Microsoft and Facebook.

And this isn't just theoretical stuff. This is real. Go to Facebook and search for something random - now look at "all results." On the left side of the page, you'll see a Bing logo. That's because they're partnered.

If Facebook makes a big deal about using Bing search in the future and ever considers starting its own browser - well, that's the end of Google. And it'll all be Google's fault.

Conclusions: In the short run, Google's profits are likely to keep increasing, unless the company is hit by a surprise. This is a long-term warning, not a short-term scare.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.