Google-Has it hit the growth ceiling?

My first tryst with internet was at almost the same time as the launch of search engine by Google. I used to work with PricewaterhouseCoopers (PwC) as a management consultant and at one of my client’s place, I first heard about the exciting new search engine “Google” and how good it was over the existing search engines. Larry Page & Sergey Brin were PhD students at Stanford University working on their thesis on the topic of the internet search. Their passion was in their research project for search and later they commercialized their successful project. Google changed the way we searched for information or even the way we used internet. Unlike its competitors, Google was a pure search engine and not a portal. It was the passion of Larry & Sergey that made them successful in their venture against established companies like Microsoft, Yahoo, etc. For me Google has been part of my virtual identity since I started flirting with internet. However, now when I look around and see the growth of completely unknown companies in this space, I feel that Google may not be able to keep pace with them on passion, nimbleness and more importantly consumer understanding.

Facebook is the new phenomena and is currently focused only on social networking. Facebook’s roots are very much similar to that of Google. Mark Zuckerberg founded Facebook while he was at Harvard University. He had a passion for translating physical relationships into virtual relationships. Today, Facebook has over 175 million registered users and adding over 5 million new users every week. As per the Fortune Magazine, Facebook reached the 150 million user mark faster than any other service including mobiles. On an average a facebook user spends over 180 minutes per week with over one visit every alternate day. No site of Google can match Facebook on the time spent by an average user per month. Microsoft valued Facebook at $15 Billion which is a lot of money for a single service company with revenues of less than $250 million and yet to break-even.

Similarly, Youtube was started by three employees of Paypal. According to a story, Chad Hurley and Steve Chen developed the idea for YouTube during the early months of 2005, after they had experienced difficulty sharing videos that had been shot at a dinner party at Chen’s apartment in San Francisco. Jawed Karim did not attend the party and denied that it had occurred and then the idea of YouTube got incubated. Again passion and consumer insight gave birth to a new service. Google later bought Youtube.

Apart from the single minded passion of the founder, the success of any venture is dependant on the consumer insight. Many more ventures fail than the successful ones. The founder of a failed venture may be equally passionate as the successful ones but what differentiates a successful venture from the failed venture is the consumer insight. After search, Google has not had even a single big success that is based on consumer insight.

Search is still at the center stage of whatever Google does. However, Google has now extended its offering to email, maps, blogging, advertisements, social networking and mobile OS platform (Android). Is it equally successful in all its offerings? Is it likely to be the leader in all its offerings? The answer to these questions is NO. Out of 1 billion online users every month, Google search is used by 673 million people giving it a reach of 67%. However, no other offering from Google matches the popularity of search. Its mail service has a reach of 12% and lags behind Hotmail and Yahoomail that have a reach of 28% each. Orkut has a reach of 5% vs. 22% reach of Facebook and if India and Brazil were to log off from Orkut, there would be hardly any users left with it. In the messaging space, Google Talk has a reach which is not even 1% compared to 28% of MSN. Social networking, entertainment, travel and messaging are the fastest growing categories on the internet and Google’s presence is miniscule in these areas barring Youtube which is a popular video entertainment site (with components of social networking). Youtube was acquired by Google and was not an in-house development. The point I am making is that Google has not able to cut much ice and is facing pressures from either incumbents or new age entrepreneurs.

Google is company that is great at developing platforms. It has developed platforms like Adsense, Blogger, search, etc. and should focus on developing platforms that the other entrepreneurs can use to further their initiatives. It would destroy the value of the company if it tries to acquire consumer driven companies. The passion cannot be the same when you are pursuing one opportunity or when you are pursuing multiple opportunities. If Google continues on its acquisition spree, it would spread itself thinly across many services and would neither have the resources or the vigor to follow on each opportunity.

Internet space is highly personal and differentiated. There cannot be one global strategy that would work. Though a public space, the virtual space is a mirror of an individual. Everybody is seeking to develop their own clone in the virtual world. People are replicating their relationships on internet they way they would like to have in the physical world through social networking media. In fact the Facebooks of the world are blurring the relationship management in the physical and virtual world. I discover a long lost friend on one of the Social Networking sites and then want to meet him in person. I want to communicate with my friends in my language and would like to see familiar things on a website. I would also want the services that could be more specific to my surroundings. It is for this reason that services like Baidu and QQ are so popular. Google would do well to develop the platforms that could help the entrepreneurs monetize their services in different parts of the world. It cannot expect to develop consumer understanding in each and every country. The basic platforms would remain the same but the consumer offering would differ and Google would benefit by focusing on the platforms that can be standardized across the globe.

As far as Google is concerned, its high growth past may not get emulated in future and if it continues to add the list of services, its growth prospects may get severely challenged.

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23 Comments on "Google-Has it hit the growth ceiling?"

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Tom Miller
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Tom Miller
7 years 4 months ago
Good article – but I disagree with some of the fundamental assumptions: The first is that Google’s customers are the users of its products. The real customers of Google are the people that advertise through Google and the venues that use Google to monetize their traffic. Google has near-monopoly power with search advertising (between Google and YouTube) as well as a growing list of sites that use AdSense (including their own properties and this site). Google’s motivation in developing/acquiring new products isn’t to provide its users with more cool tools, it is to provide its advertisers with more venues to… Read more »
Fred Stein
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7 years 4 months ago
Well said Tom. To add support, the recession makes it easier for Google, with great cash reserves and great cash flow, to acquire hot new properties. As well, they can afford to make a few mistakes as they try new markets and products. They can be patient. Initiatives like Android can grow and morph over time since Google has no need to show quick returns. Cloud computing is just starting. Google has phenomenal Intellectual Property and capital to apply to this growth market. Mohit, your central thesis has merit. At Google’s size, future CAGR will taper off. What exactly is… Read more »
Robert Neuschul
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Robert Neuschul
7 years 4 months ago
Like Tom I disagree with your analysis and your conclusions, but for other and additional reasons, not least is that your historical analysis is seriously flawed, whilst your knowledge of the technologies appears to be limited. The most fundamental reason I disagree with you is that Google isn’t in the business of search engines; and it never has been: that’s the model used by Yahoo/AltaVista and all the rest. Google IS in the business of retrieval. That’s a subtle but hugely important distinction If you don’t understand that distinction then you never will understand Google’s position in the market or… Read more »
Amajit
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Amajit
7 years 4 months ago
Hi – Good discussion . One that merits a close look. The enigma refuses to die. Fact is Google so far is a one trick pony . No denying that – despite the ‘forced’ entry into muticlity of other ‘services’. The concept of that being a platform – is far from tooth . Prorgramable, extensible & open – the fundamental tenets of any ‘platform’ is not fully proven in case of Google’s offerings- at least not in scale yet. However most and maybe singularly important – is the fact that the biggest selling online asset of any sorts by far… Read more »
Mohit
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7 years 4 months ago
Thanks Tom, Fred, Robert and Amajit. Thanks for contributing to the discussions. Fred, when I talk about the growth coming down, I mean that Google is likely to growth at 15-20% CAGR over next 5 years and would not see abnormal growth. Robert – In this discussion, the focus is not on technology but on business issues. We need to step back from getting into technology and look at the bigger picture. The focus of the article is on bigger picture and I have made a conscious effort not to discuss technology. I have focused on how many services can… Read more »
Shefali Kotnala
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Shefali Kotnala
7 years 4 months ago

Google scale will perhaps be its biggest impediment to growth. The company has brilliant technology all right but doesnt know how to monetise its innovations. The much hyped Google latitude which could have done wonders for advertisers, is sadly just a product innovation with no commercial offering. The company needs to be a lot more agile and flexible to retain its leadership in the “connecting people” space. Till such time, business will obviously flow to the rival internet companies.

Asimkh
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Asimkh
7 years 4 months ago

Nice article with good info

Robert Syputa
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Robert Syputa
7 years 3 months ago
Lively discussion. I’ll start by saying “I don’t know” if Google has reached a peak in growth because the technology, services provided and market environment continues to evolve. It looks likely that over the next 2-3 years that a combination of saturation of the search market and economic retrenchment will cap growth prospects. Beyond that, the expansion of services into location based search based advertising, payments, extended and new forms of social networking that better harness multiple media, and extension into vertical markets including corporate/government documentation and search services, SaaS, and cloud computing services have potential to fuel long term… Read more »
Marshal Yung
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Marshal Yung
7 years 3 months ago
Though I agree with the analysis form the last 2 paragraphs, I however, doubt Google has reached its ceiling growth. Everytime I see Google introduces a new service or bought over a new internet company, I got a feeling that they have something else pre-planned underneath their sleeves. I agree with the article that Google is a company great at building platform. This is why I don’t think Google is at its growth ceiling. They have various cross vertical user applications though not everything yet). The only thing left for them to do (in my opinion), is putting all these… Read more »
kshitij jain
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kshitij jain
7 years 3 months ago

yes the strategy of Google to hire the best talent and the most important thing about google is its negligible attrition rate.The Strategy to get the brightest mind and retaining them had always a differentiating factor.An organization always keen on innovation and research,it had huge prospect to growth.The Human Resource is the most important differentiators in today service sector,Those organization which retain there best talent will always be a winner in long race.

Vasudevan
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7 years 3 months ago
Read your above article on Google I respect your conclusions while disagreeing on it 🙂 Let me reiterate your observations about Google for the benefit of a discussion. You said… 1. Apart from Search, Google has no products those are leaders in the respective categories. 2. The possible reason for this, according to you, is the lack of consumer insights. 3. If Google continues to add the list of services, its growth prospects may get severely challenged. As we all know, Google is one of the biggest media company in the world and generates revenue through advertising. No one can… Read more »
Alan
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7 years 3 months ago
I think your article was interesting, though I’m curious as to why you are asking the question in the first place. Google is an amazing company in a variety of ways. Even so, it is a more mature business these days and with that reality, it seems clear that the company cannot grow at the rate of a startup. The loyalty factor with Google is huge and coupled with its strong core business of providing quality search results; it enjoys its strong market base. No other company has been as successful in getting that level of market penetration, but that… Read more »
Ashish Banerjee
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7 years 3 months ago
I consider Google as a disruptive company, that is and will continue to change the game through its paradigm shifting innovation. It questions the core of a business model and then brings along a creative destruction through its innovations. It even helped Microsoft to relook at its Office Productivity product line strategy after Google introduced Google Apps. Next is the Telecom space. Andriod is just the tip of its iceberg, the real game will be the change in telecom business model at infrastructure level. Its already started providing free wireless Internet through Adhoc WLAN network at Mountain View California. Incidentally,… Read more »
Himmat Bhandari
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Himmat Bhandari
7 years 3 months ago
I dont have much knowledge on Google Busniess Strategy or its core values but from my experience I have seen companies coming down after reaching at a particular position or at its Peak, but company never able to find where is its peak or destination – especially when they are growing faster and they dont have competitors around them. They underestimate slow moment from the competitors whereas they are visiable to the world for the competition. Big reasons for this can be – Competitors slowly hires their best resources and the resources with the company are at their ease because… Read more »
Mehul
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Mehul
7 years 3 months ago

The rapid growth achieved by Google and with the immense cash reserves built by the co. can easily sustain its growth. A recent book my McKinsey (http://www.mckinsey.com/ideas/books/GranularityOfGrowth/) summarizes what companies like Google can do to sustain their growth, apart from market momentum, innovation (new websites/gadgets), M&A (orkut, youtube),

Mehul
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Mehul
7 years 3 months ago
previous comment incomplete- A recent book my McKinsey (http://www.mckinsey.com/ideas/books/GranularityOfGrowth/) summarizes what companies like Google can do to sustain their growth, apart from market momentum (new internet users in developing countries), innovation (new websites/gadgets), M&A (orkut, youtube), and conventional share gain (stealing users from Yahoo, MSN, askjeeves etc) The immense cash reserves built by Google can easily sustain its growth. refer – http://en.wikipedia.org/wiki/Matthew_effect) ; its cliched but true. Also Google is the front runner/activist for the free for personal use concept, in the longer run this gives them immense potential for marketing newer products. What we are witnessing with Google is… Read more »
Saurabh Pandey
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Saurabh Pandey
7 years 3 months ago
Hi Mohit, My take- You have raised a relevant point and an interesting title for the story! But your articulation doesn’t prove it! I also believe that Google’s strategy to acquire great startups (like YouTube etc.) is a fine way to grow. This reduces your go-to-market time and effort. I also admit to the fact that localization is important- but why do you think Google cannot localize? Infact if you see late happenings in China- you can find how Google has customized itself in China and as a result has almost doubled it’s share there! I would put this in… Read more »
Prashant Dogra
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Prashant Dogra
7 years 3 months ago
fantastic article, mohit and i agree with most of Tom Miller’s inputs Agree with most of the comments, except Ashish – who seems to have gone overboard giving carte blanche to google Operators could easily choke google, they control the proverbial chicken-neck mohit is right, that we need to see the business side of things. google innovations are great, nobody can deny that but acquisition spree can make google spread too thin. also what needs to be thought is whether individually those acquisitons make business sense. the money burned to keep YouTube content runnig outpaces the revenue it gets, so… Read more »
Arihant Nahar
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Arihant Nahar
7 years 3 months ago
good day. well must appreciate your effort and the article you wrote, but I personally disagree with the question you have raised!!!!!!!! There are reasons for this first its too early to predict such thing just seeing the figures of last couple of years…Where most of the part of world is going under financial crisis. And buying good ideas is no wrong also as you mentioned the the deal of Google and You tube. Its business big fish always eyes for small fish!! And as you also agree with the growth of You tube, which is still growing will keep… Read more »
YuriBCN
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7 years 3 months ago

Wot? No mention of SaaS?! Google’s mid- to long-term strategy is not consumer oriented, but business oriented. Much like AWS, Google is clearly planning for huge, long-term growth with business oriented services, helping businesses migrate their IT services to cloud computing, and the really big added-value: cutting business IT costs in a huge way. A very, very attractive proposal in a business environment where cost cutting is, and will be for some time, a big priority in business strategy when growth will be much more limited and cautious than it has been for decades.

Shyam Somanadh
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7 years 30 days ago
Short answer: No. They have not. 6% growth in Q1 2009 Y-O-Y in a company that is heavily dependent on advertising, in a bad recession phase is still stellar. Yes, it is not the double-digit numbers that we are used to, but you have to see the prevailing conditions too. Previous comments in the thread has said a lot about the wrong assumptions in them reasoning, won’t repeat them, but a lot of people also get the one-trick-pony aspect of Google wrong in two ways: 1. They use a massive common computing infrastructure, which makes the cost of doing all… Read more »
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