How Google Inc (GOOG) Is Building Its Empire

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While a lot of people are excited about the Google Inc (NASDAQ:GOOG) Glass project, it would not be a major game changer from a financial point of view, at least for the short-term. Google Inc (NASDAQ:GOOG) is an advertising company. According to its latest earnings report, the company gets 92.7% of its revenue from its core advertising business. Google officials like to talk about their most recent and innovative products, but advertising stays the most important part of the mix.

Google Inc (NASDAQ:GOOG)

There are two ways that you can see Google ads. You can use Google’s search or you can visit a site that is part of the Google Inc (NASDAQ:GOOG) Network and see the ad displayed. Google dominates the search market in most countries of the world. Google holds a 83.04% world search market share as of April 2013. Yahoo! Inc. (NASDAQ:YHOO) and Microsoft Corporation (NASDAQ:MSFT)‘s Bing are far behind with 7.88% and 5.16% market shares, respectively. Google Inc (NASDAQ:GOOG) loses on just two significant individual markets. In Russia, Yandex NV (NASDAQ:YNDX) holds a 61.9% share. China’s, Inc. (ADR) (NASDAQ:BIDU) dominates the search market with an 80% share.

Controlling what you see

Modern life is highly dependent on information. People typing their search queries are seeking for some information. There is more than 80% chance that they would be searching for it using Google search. The organic search results that they would get are determined by Google Inc (NASDAQ:GOOG)’s algorithms. Through those algorithms, Google controls which content would meet which query. Google states that it is working hard to improve user experience.

It means that it tries to deliver results that are meaningful to the end user. Nobody wants to click on a search result and be taken to a site with no useful information. Therefore, Google Inc (NASDAQ:GOOG) makes it harder to shortcut your way to its first page. It all looks perfectly good. You get the information you want, best sites that deliver the best content are rewarded.

However, I want you to look at this from another perspective. Google does a tremendous job to shift public attention from its advertising business. You use Gmail, Google Maps, watch YouTube videos, and upload files to Google Drive. You use all this for free. Google is not a charity, it is a successfully run business. In most countries, Google has an almost monopoly on information.

The difference between the first page and the second page in the search results is the difference between success and failure for most businesses. As I mentioned above, Google makes it harder for a site to rank from scratch. They tell you they do it for the better user experience, but I think the reason is more pragmatic: they want businesses to purchase ads.

Getting to the first page of Google search results

Nowadays, you can’t go to a link farm to purchase links that would help rank your site well. Some people still do it, but their sites get penalized and their rankings vanish. The days where you could stiff your pages with keywords and succeed are long gone. Businesses need to have a whole army of specialists to help their sites rank well. Google Inc (NASDAQ:GOOG) loves good original content, so you need to hire writers. Google loves social media links, so you need people to do social media marketing. Google loves good site architecture, so SEO people are necessary as well.

When you look at this process from a business perspective, you would see that these are all costs. These are costs that would last over a significant amount of time, and it’s hard to predict the end result. Looks overwhelming, doesn’t it?

To light up the game, Google comes in with algorithm updates. Those updates can severely affect site rankings. The next version of the famous Penguin update, which has initially hurt a lot of sites, good and bad, would be released this month. Of course, Google does not disclose what exactly these updates do. They do not want people to try and game the system. These updates make some sites change something, and this adds to costs and uncertainty.

Making businesses pay more

Google has a solution to all these problems. All you need is to launch a PPC (pay-per-click) campaign. You are now in control of your costs and you can see exact conversion rates. Google’s platform for launching PPC campaigns is called Google AdWords. Google decides whether to show your ad or not based on an auction. You can compete on price and quality. The price part of equation is easy to understand — you can bet more or less for each click.

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