By Carl HoweI had to take a second to comment on Google's (NASDAQ:GOOG) stellar earnings report last week. Not only did the company boast its revenue nearly a billion dollars year-over-year, but according to Andrew Melcher, it grew most of that revenue itself rather than stealing share from other advertising networks. Said another way, they aren't monopolizing an existing market; they're building their own market, which, not surprisingly, they are ideally positioned to satisfy. And I agree with Andrew -- they're not going to slow down any time soon.
That said, there are limits to growth for Google. Its revenue of $10.6 billion in 2006 was more than a quarter of the $38 billion US businesses planned to spend on all online advertising that year according to Blackfriars' estimate published in Sizing US Marketing 2006. While that number could probably grow another factor of 10 or so over the next few years by gobbling up all international online advertising as well, that would probably be close to the limit of Google's growth through advertising. At some point, the company is going to have to diversify into other revenue sources to continue its torrid growth.
Now remember, that television was entirely advertising-supported for the first 50 years of its life. But then something interesting happened: a company called HBO saw an opportunity to build something called a pay-TV network. While it took years to catch on, HBO grew to become one of the best sources of quality content, simply because customers paid for the programming.
So I'll leave today's post with a question: today, most customers use Google because they know and trust the brand to deliver good search results. If Google started charging, say, $0.01 a search for a pay search with even more relevant, advertising-free search results, how many customers do you think it might sign up? We don't know the answer to that question until Google tries it -- but just as pay TV channels grew out of ad-supported television, we could see pay search offers in the future as Google tries to find new ways to monetize its world-wide infrastructure.