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Google's got a problem

Jul 30 2006 17:00

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San Francisco - The No 1 internet search provider wants to succeed in three key growth areas: blogging, video sharing and social networking.

Yet in all three cases, Google is getting trounced by upstarts even as it enjoys a phenomenal lead in its core business.

At a time when Google can do little wrong in the market for text-based internet search ads, the upstarts like YouTube, Technorati and MySpace are proving that the online search leader can be beaten in fast-growing and potentially-lucrative areas of the web.

"The problem with Google is everyone associates them with being a search engine, but nothing beyond that," says Richard Fetyko of Merriman Curhan Ford & Co, an independent equity research firm.

Google's motivation is to both diversify, and to protect its brand cachet by extending its internet search engine into the red-hot new web services of the future.

To be sure, whatever revenue that the small new players are generating is - for now - small potatoes for a mammoth like Google, which garners more than $1bn in sales every quarter as the internet search market continues to sizzle.

Matching rivals

What's troubling for Google, analysts say, is how far behind it has fallen in markets considered key to its future. The impact won't be felt now, but years from now when Google can no longer rely on its search engine for the bulk of its revenues.

Over the past five years, Google has introduced dozens of new features beyond just internet search in an effort to widen its business beyond search. There's been Gmail, its free, web-based e-mail; Google Finance for information on stock markets and Google Earth, its beloved satellite imagery and mapping feature, to name just three.

But those efforts were, to a large degree, a matter of Google trying to match widely used features in which big corporate rivals were already established. Gmail competes with web-based e-mail that's been available from Yahoo, Microsoft and Time Warner's AOL. Another relatively new Google feature, Google Finance, is a competitor of Yahoo Finance.

This year, it's trying to make headway in three new areas of business that are relatively new for both Google and its major competitors.

Eric Schmidt, chief executive of Google, has openly spoken of Google's need to diversify its revenue stream because the hyper growth of search-based advertising will slow down some day.

But for the time being, that move to diversify is running into significant competition in from the likes of Technorati in blog searching and YouTube in video searching.

Flogged on blogging

And in the web's wildly popular world of social-networking, Google's eating the dust kicked up by MySpace, a startup that News Corp acquired last July for $580m.

YouTube's 19.6 million monthly visitors outnumber those of Google's video-download site by 4 to 1, according to ComScore Networks.

Additionally, on any given day, the privately held YouTube serves about 10 times the number of videos of fourth-place Google Video.

For its part, MySpace boasts almost 50 million registered users, according to the company, which dwarfs the comparable user base that signed up two social networking features run by Google: Orkut and Google Groups.

Google is best known, of course, for the extensive reach of its internet search technology. Yet, even when it comes to internet search, that reach has its limits.

Technorati, a fast-growing upstart, in two years has become the No 1 way to search for content posted on blogs, according Neilsen/NetRatings. Meanwhile, Google's own blog search engine failed to crack the top 25.

For now, blog search and video sharing aren't bringing in buckets of cash, yet analysts agree there's a lot of money at stake in the future.

 
 
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