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Google's Business Is Under Threat from These Players

May 12, 2014 | About:
Vinay Singh

Vinay Singh

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Google (GOOG) had a fairly solid 2013 with shares gaining close to 60%. The stock crossed the $1,000-mark and investors would be hoping for more such landmarks in 2014. However, Google investors shouldn't forget the threat that they face from the likes of Amazon.com (AMZN), Apple (AAPL) and Facebook (FB). Let us take a look at how each of these companies can make life difficult for Google in 2014.

The Arch Rival

Android dominates the smartphone market, with research putting its share at 80%. Android is steadily gaining share in the tablet market as well, with certain research data projecting its share to reach 65% of overall tablet shipments in 2014.

But, Apple leads Google by a significant margin in the area that matters most of all: profits. However, Google is improving the monetization of the Android ecosystem; revenue in Google's digital apps and content business surged 85% to $1.2 billion in the third quarter. If Google can maintain its unit share lead in smartphones and claim the lead in tablets, its share of these industries' profits should continue to grow.

Google is also battling Apple in the productivity software arena. Apple recently made its iWork suite of productivity apps free to existing users and new owners of its devices. Many have seen this as an aggressive move by Apple to slow the growing popularity of Google Docs. But Apple's software is only available on Apple devices, whereas Google's applications are available on Windows-powered PCs, Macs and Google's own Chromebooks. That's a powerful advantage that should continue to serve Google well.

Threat from Amazon

Google makes the majority of its revenue from connecting businesses with consumers that are searching for products and services to buy. So what happens when these consumers begin to search for those products on Amazon.com instead? Thanks to its wide selection of goods, low prices and excellent customer service, Amazon has become the first and last place that many consumers shop online.

Google has taken steps to combat this trend with its product listing ads. These ads appear as a set of product photos with prices and links near the top of Google's search result pages, and also push Amazon's regular search results further down the page — making them less likely to be clicked. In addition, if these ads increase the convenience of searching for items on Google, it could reverse the tide of people going directly to Amazon.com.

Facebook's Threat

Much has been made of the dangers that Facebook's surging growth in active users — now more than 1 billion people globally — poses to Google's search business. That's because Facebook blocks Google from indexing its data and making it available in its search results. And Facebook's users generate an incredible amount of valuable data to which advertisers crave access, as those billion-plus users basically tell Facebook what they "like" on an almost daily basis.

But Google has built its own social-media platform, Google+, to be a "social layer" that enhances many of its online services and helps Google obtain the type of personalized data that Facebook possesses. Currently, no other company matches Google's data collection abilities, with its dominant positions in desktop and mobile search, Internet browsers (via Chrome), and email (via Gmail), among other services. This creates a powerful virtuous cycle in which the data Google collects allows advertisers to better target their ads, making them willing to buy more ads from Google, which generates more cash flow that Google can reinvest in improving its services and expanding its ecosystem, which in turn collect more data, and the cycle continues.

So while Facebook and other social-media platforms are a threat to Google, the search titan has a wide moat protecting its core advertising business that its competitors will find difficult to breach.

Conclusion

If Google fails to properly address any of these threats, it could get beaten by the competition. And taken together, these three threats could crush the search king. But for the reasons I've outlined in this article, I believe Google is well positioned to meet these challenges head on and, in many cases, win.


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