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Stratagem
 
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INTERNATIONAL STRATAGEM: GOOGLE’S SOCIAL NETWORK
Is failure an option for Google+?
Google+ is the latest bet from Larry Page in the social networking space. Many have tried it, but only a few have stuck on. And this is a bigger problem than Google actually thinks it is.
Issue Date - 22/12/2011
 
It was only a couple of months before MySpace’s ownership changed hands (in the summer of 2011), that Page had begun testing out the beta version of Google’s social network, Google+. One weekend, he spotted a problem with the photo uploader function of the site. He was of the opinion that it was too complicated. At Google, Page had always had it his way. This time was no different. Vic Gundotra, the architect of Google’s social initiative was summoned and instructed to rebuild the feature. Today, a user can drag-in the image to be uploaded on his Google+ account – with a single-click. Problem is: this was not the only problem with Google+.

Larry Page considers Google+ serious business. Two reasons. One, the project is very closely linked to Page’s ascent to the corner office at the $203 billion worth web property. He has been supportive of the initiative from the very start – from moving into the building where Google+ R&D team worked, last year, to attending the weekly 11am Google+ review meetings on Fridays at the Googleplex headquarters. Two, for Page, the $585 million spent in just developing and launching the social web is no easy bargain (costs incurred on the project till July 1, 2011; estimates by research firm Creative Good). The monies amounted to 1,571.43% more than the amount Page would have had to spend last summer on purchasing a bigger social web property with 100 million-plus users. [News Corporation sold MySpace in June 2011 for $35 million to Specific Media and Justin Timberlake.] The fact that six months post-launch, Google+ has only touched a user base of 50 million users (Global Equiities Research), is an indication of the opportunity lost. Spending $550 million less, Google+ today, would have had 160 million users instead of just 60 million! All Page had to do was time the acquisition right and rebrand MySpace (if at all he wanted the network to be called Google+). He didn’t.

Today, Google is fighting hard to retain its dominance over the web. Even though it gave the world an organised web of information, Google is struggling to keep pace with the transition that is occurring in the public domain of the Internet, which is fast turning into a world of countable people, from being painted as an infinite world of hyperlinks for two decades. And of all its impacts, this has changed most the way businesses and consumers perceive, perform and consume advertising. The change has been sudden – just like how capitalists got hooked on to online advertising (spelling boon for Google in early 2000s), today, everyone’s talking of advertising on social networks – paid or unpaid. Problem is: they think Facebook.

 
The success of Google+ is important if Google’s share price is to reach levels achieved four years back (it is down 12.53% since then) in times to come. The company earns 96.3% of its revenues from online ads (total online ad revenues of $28.24 billion in FY2010). Bad news is that growth in search advertising – which is Google’s mainstay, with the company earning 89.94% of its revenues through the search advertising route in FY2010 – is slowing. As confirmed by Fortune magazine, “growth in search advertising is slowing and advertisers are putting more of their limited dollars into Facebook”. Reports by research agencies Covario & Efficient Frontier confirmed that online search ad-spend grew only 7-8% in Q2, 2011, as compared to the usual high double-digit growth experienced in all quarters over the past decade (excluding those between Q3, 2007 to Q3, 2008). The situation is worse in US – a market from where Google earns 48% of its ad revenues. As per Covario, search ad-spending in US fell 16% q-o-q and 5% y-o-y in Q2, 2011. The warning sign here as the Q2, 2011 report by Citibank (titled, ‘Search Marketing Sees Slower Second Quarter Growth’) states that, “Search marketers are allocating at least 10%, if not fully 20%, of the money they’re spending on search to Facebook.” The danger to Google is made more obvious by this July 2011 report by Efficient Frontier (titled ‘Search spend growth slows’) that states, “Advertising on Facebook continued to get more competitive in the second quarter of 2011. Brands that are actively acquiring fans on Facebook are on course to double their fan base y-o-y by October 2011, demonstrating an increasingly competitive marketplace for consumers’ attention.”

Take a look at how Facebook’s valuation has soared in the past four quarters (estimated between $80-$100 billion today), and how its revenues are said to be more than double this year to $4.3 billion (from $2 billion in 2010, according to research firm eMarketer Inc.), you are forced to believe that the forecasted chance of Facebook’s display-ad revenues growing by 104.3% this year is a sign of prosperity for the social network (Facebook will become the top seller of display ads in US in FY2011, with a 20% market share, surpassing Yahoo with 16% and Google with 9.1%; estimates by eMarketer Inc.), and a warning for Google, which plans to generate “more ad revenue from display than search by 2015”, as per a November 01, 2011, report by Zacks Investment Research.

          

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