the 07/22/2008

If Google should falter, how many others will follow?

Nothing says "recession" like a bit of a dip in the rate of growthof Google's profits, which is what we saw this week. The searchengine company has built up such a mythical presence in the mindsof the old media, most spend their evenings behind the sofa shivering with primal fear, waiting to be disaggregated by thejolly primary coloured beast. But there are a couple of things toremember - Google's results this quarter represented a slowing inthe rate of growth rather than a full-throttle reversal of fortune,and it were slightly impaired by the effect of interest payments onits purchase of DoubleClick's online advertising business. At moreor less the same time as spotty youths on Wall Street weresignalling sell on Google, Microsoft (which also took a bit of amarket battering last week) was waving the worried flag overGoogle's potential dominance of a search advertising market. Theirony of the situation is acute.

And if proof were needed that Google is not in trouble, it camelast Friday when the US research company Efficient Frontier put outa report saying that Google took 77.4% of all search ad spending inthe second quarter (April-June). In fact Efficient Frontier did themaths and came to the conclusion that Google actually now takes$1.10 for every dollar spent in search advertising. This is notsome wonky Sats marking, it means that both Microsoft and Yahoo!were losing search advertising money in that quarter - to Google.

Online advertising is projected to grow overall by something like6% for the financial year - although this doesn't reflect theexplosive growth in some very new areas of activity, such as themobile internet and online video, or the fact that searchadvertising is going up by about 14%.

In the UK alone there were 3.6bn videos watched over the internetin May 2008 - more than a 56% increase on the previous year. Theonline market for video advertising was recently estimated byeMarketer as being worth around ￡700m a year. And the fact isthat while the recession lasts, online media, because of its lowerdistribution and fixed costs, will continue to be some of thecheapest advertising. One of the areas that is likely to be hit bya steeper drop will be online display advertising - which, ofcourse, is where most companies with more "traditional" webproducts are most exposed (the idea of a traditional web product isakin to the idea of an innovative wheel).

It doesn't mean, however, that a genuine recession will claim onlyold media casualties. There is still a really significant number ofnew media companies that are barely breaking even and still seekinginvestment, and one has to worry for some of them given thegathering advertising storm. But it is much easier to keep anonline media brand going than an offline one because it is muchmore scaleable - no trucks have to take it to the four corners ofthe country and no transmitter bills have to be paid. Studios donot have to be kept open and no dead airtime has to be filled.

Where the recession could have a sharper impact is where there isvery rapidly declining advertising revenue in an offline part of abusiness that can't absorb falling revenues in digital at the sametime. Under this category one would have to worry about elements ofthe regional press, radio, the national press that might not haveprioritised digital quickly or completely enough, and broadcasterswho are similarly exposed. Just about everybody really.

Apart perhaps from Google. Search guru John Battelle was noting onhis blog on Friday that the game was up: "If I were at Google, I'dbe more than a bit worried. Why? Because once you've vanquishedyour competition then what?" Back behind the sofa then.