While Google’s Q3 earnings report was relatively upbeat, yesterday’s Q3 numbers from Yahoo were anything but. The No. 2 search company announced that its net income fell 64% in the third quarter, and that it planned to cut back its workforce by 10%, laying off as many as 1,500 employees. So what does Google have that Yahoo doesn’t? Forbes’ Andy Greenberg offers a good assessment of the search market and the fallout from the economic downturn. And while the overall impression isn’t that good, it looks like as the economy spirals down, Google is the one search ad company positioned to survive.
Some points Greenberg makes include:
* Ad revenues are dropping. Online advertising revenues in general are falling, with spending dropping in both Q2 and Q3, according to the Internet Advertising Bureau. But while spending on banner ads is flat, at about 21% of the total, Google’s biggest money-maker, search advertising, grew 3%, accounting for 44% of all online ad spending.
* Search ads are a safe haven. Advertisers flock to search-based ads in tight times, since they pay for them only on a per-click basis, while banner ads seem to provide less of a concrete payback.
* Diversification is bad. Yahoo, AOL and Microsoft all are more invested in display ads, so they are more vulnerable to the trend. While Google is less diversified, it’s also less vulnerable, leaving it better positioned as advertisers tighten budgets and move to the safe haven of search ads.
* Competition will whither. As the downturn goes on, Google will see less competition in search, especially since the funding for start-ups with innovative search techniques will probably dry up. But since Google is cash-rich, it will be in a good position to buy up promising start-ups, picking off the best of these new technologies to strengthen itself.
The upshot is that while its competitors fall, Google will continue to strengthen its dominance. The only caveat is looming regulatory pressure. Google already owns 71% of the search ad market, and if Greenberg’s assessment holds true, that number is poised to climb, resulting in increased regulatory scrutiny, as Google comes closer and closer to monopoly status. But it looks as though Google CEO Eric Schmidt has that base covered as well.
