Google facing struggles

So Nick Wilson expands on comments by John Battelle about a coming backlash against click-fraud, and especially points out comparisons with Yahoo!’s business model.

The first problem is that Google have been sitting on a bubble of hype and expectation for some time.

Let’s look at the current situation:

• Google shares are hopelessly overvalued
• Googl’e search algo is broken and has been for some time
• Yahoo! are about to square up against AdWords - and Microsoft are coming up behind
• Google are losing grassroots support

On the issue of Google’s being over-valued - as the link there makes clear, value is a function of market expectations of future performance.

For 2004 Google experienced accelerated growth - but the company warned in November last year that it could not sustain growth.

At the moment, the markets are still banking on accelerated growth across 2005 - and in comparison to Yahoo! this market expectation is the only thing keeping the Google stock price so high.

And if there is one thing clear, it’s that markets do not forgive companies that fail to meet expectations.

Now, the big problem here is Google’s revenue: Google generates 98% of its revenues from Adwords.

And in being built simply on AdWords, is going to be very vulnerable to Yahoo!’s coming advertiser publishing program.

This is going to be even more of a problem due to webmaster disaffection with how Google operates - firstly, the concern with Google’s Autolinking as seen as a method ultimately for altering - and potentially monetising - copyright webmaster content without webmaster permission; and secondly because Google has been running a flawed search index since at least February 5th, which means that companies are losing income from Google being unable to even list them for their own unique names.

Google built it’s net presence on its flagship search, and now the company somehow considers it acceptable to run a flawed and second-rate product on the internet - despite that its dominant market position in search mean that untold numbers of businesses are adversely affected for no better reason than Google would rather fix the algorithm live over a number of weeks (it’s now almost exactly a month).

Now, Google are happy to dictate terms at webmasters - but what Google forgets is that it needs the goodwill of webmasters to publish its advertising across webmaster pages. Webmaster publishing is directly responsible for a third of Google’s revenues.

You can bet that, faced with auto-linking, crippled rankings on Google, and competitive publishing offerings from Yahoo! and Microsoft, that webmasters will move in number away from Google’s advertising publishing method. That’s a big threat to revenues.

Additionally, if webmasters find themselves becoming more used to using rival company publishing products, then what’s to stop webmasters moving to Yahoo! or MSN products such as search? That’s Google’s other 2/3 revenue under threat.

Now, if publisher concerns weren’t enough, the advertisers themselves are also beomcing increasingly concerned - clickfraud is a very real and growing concern, and at the moment Google are not seen to be pro-active enough to combat it.

As a content publisher I cover a range of subject areas, and at the moment I am seeing very high click-through rates of around 7-8% in certain areas - and even specific niches have jumped to nearly 15% clickthrough recently.

I’m just a publisher - I have no idea to tell if I’m simply good at getting clicks in certain areas, or whether it’s simply because I attract a specific type of searcher, or if my figures are simply not large enough a set to base any definitive conclusions on.

However, it’s hard not to suspect that certain pages are getting automated clicks from clickbots. I have no idea though - I have no tracking statistics to work with to figure it out.

As a publisher that concerns me. Yes, I’ll get a small boost in revenues in the short-term - but there is absolutely nothing to stop Google suddenly deciding to claw back payments. And if my incomes does not feel secure, then I’m not comfortable using that service.

Overall, 2005 is going to be a real test for Google, and I do not see the company enjoying the experience. The company is in their own little dotcom bubble at the moment, but it can only burst.

At the heart of it are two key problems:

1. Investor over-expectation
2. Google’s disregard for webmaster concerns

Google is a company that could certainly benefit from opening up communications with webmasters - rather than expecting webmasters to provide information freely, Google could at least talk back - and not *at* webmasters, with them.

In the time being, Google are shut away in their own high tower. But the foundations are shaking, and whether they like it or not, the company is going to find that they have to come out from it sooner or later.

2c.