Google Strong, but Microsoft Pays Attention to Verticals

Google (GOOG) reported its Q1 numbers Thursday, and exceeded all market expectations. Q1 revenues were $5.2 billion with EPS of $4.84 compared to the street’s views of $5.1 billion with EPS of $4.52. The revenue reported a 42% increase over Q1 revenues of the previous year.

Google’s revenues recorded an impressive 49% growth over the year, and 9% over the quarter to reach $3.4 billion. AdSense revenues grew by 25% over the last year and 3% sequentially to $1.69 billion. Its paid clicks grew by 20% over the year, and 4% sequentially.

To expand its geographical reach, the company launched tailored homepages for Asian markets and promoted local country search results while demoting foreign search results. These efforts resulted in the growth of International revenue share to 51% from 47% contribution a year ago, and 48% contribution in the previous quarter.

Google also completed its acquisition of DoubleClick which will allow them to offer a more comprehensive solution for advertisers and publishers. Using DoubleClick’s display ad management products and Google’s ad network, it is expecting to be able to help publishers get more revenue while they put forward a richer content. Despite all that, AdSense continues to grow at a marginal growth rate of 3% per quarter. This slow growth is also derivative of the fact that AdSense still does not monetize the social networks it pushes ads to. As I've said before, AdSense is great at monetizing crap.

The company's monetization strategies of YouTube continued for the quarter with the launch of AdSense for videos. In-video ads can now run on sites besides YouTube. At the present time, it gets traffic of more than 10 hours of video uploaded every minute on YouTube. It is getting better click through on these video ads than on its banner ads.

During the quarter, Google continued to improve the quality of its search, increased the value for its advertisers, and improved its web experience. The company partnered with Salesforce.com (CRM) in a continued effort to build a business applications business to compete with Microsoft (MSFT).

However, Google does not seem to be doing enough on increasing its vertical scope. It is absent from key verticals such as Jobs, Travel, Auto, Real Estate, Health and Personals, domains that have seen the rise of compelling Vertical Search Engines and Vertical Ad Networks. While in the short term this will not affect the company (Travel portals are some of Google’s largest customers for AdWords), in the long run, eye-balls will veer away to sites like Kayak that provide a better search experience.

There is also a farce going on between Yahoo (YHOO) and Google right now, as Yahoo makes a rather silly attempt to fend of Microsoft’s hostile takeover bid. At some level, it is a waste of time for everyone. For the moment, there is nothing interesting to report on the Microsoft-Yahoo saga. Once the deal gets done, which I believe it will, it would be interesting to see how Microsoft plays its hand. In fact, Microsoft’s purchase of Travel Search Engine Farecast tells me that the company is paying attention to the verticalization opportunity that I have been pointing at.

In the after hours trading session on Thursday, Google stock was up 13% to $507.71. On Friday morning, it traded up, even further to $544.

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Comments

[Hal J Likakik:]

If you would like to see how a Google-powered Real Estate Vertical Search Engine looks, check out RealSearchCT.com. My company built it using Google Enterprise Search Technology, and our clients are Real Estate brokers, so we have all the listing data in the markets we serve.

Ours are the only Real Estate sites where you can, literally, "Google" Real Estate with freetext searches like "Newport RI Victorian with water view" and be assured that you are searching *all* the listings. Google itself could not build this site, even if they wanted to.

Google Base or Trulia, while technologically and aesthetically superior to traditional Real Estate sites like Realtor.com, rely on voluntary feeds from brokers, so they are missing listings. We have the chocolate of Google technology, AND the peanut butter of MLS data, and these two great tastes that taste great together drive our user experience. For more info: mainrhode.com.

2008 Apr 21 10:45 AM

[Aleem Bawany:]

I completely agree with your view that verticals are important. The long tail has a lot of chump change that adds up.

When it comes to searching, you sometimes want to limit your search to certain domains or always include certain keywords which is the key to a vertical search--essentially a subset of a larger set. And Google is addressing this with its Google Custom Search product.

Verticals are a subset of the broader search and even within there are many verticals. It is something that Google cannot do directly, but must be created by the community at large. If you create a vertical for cars, then you have sub-verticals for hobbyist, sales, history, green cars running on biofuels which coincides with other verticals. Google cannot possibly attempt to categorize and target these vertical and its an exercise best left to the community. Hence Google Custom Search (GCS) bridges this gap and quite beautifully I should add.

GSC allows you to limit your searches to domains, add certain key words to all searches originating from your custom search engine and best of all, the ads displayed on the side of those searches generate revenue for the webmaster responsible for creating and managing the vertical search engine. Google obviously gets revenues from the spread (what advertisers pay - what it pays websites) and both parties win. The API for GCS is very simple and powerful (easy to implement, easily manageable through web based dashboards etc).

In fact, I am fairly certain that Google will generate substantial revenue growth as this feature gains adoption and critical mass. Imagine publishing platform like WordPress and Movable Type adopting GCS as default engines (plugins also exist for web developers to integrate these into their websites within minutes).

The value proposition for publishing platforms and web developers to adopt such systems is not only the additional revenue generated when users click on ads from these search pages, but also the quality of search. Unlike enterprise Google boxes that are installed in corporate server rooms, GCS uses the very same Google technology that is people are accustomed to and benefits from all the refinements on the Google back end. The current state of search is quite lousy on these publishing platforms. They use the highly substandard search facilities built into the SQL database upon which they are built.

At the end of the day, going after verticals is not a search platform strategy, its a portal strategy (MSN Autos, et al). Google has taken the better, more correct approach and while Windows Live does offer custom searches, it suffers from the competitive drawbacks that Windows Live search faces from Google Search.

2008 Apr 21 05:20 PM