Is Google's Growth Rate In Trouble?

The New York Times' Steve Lohr has an article on the risks Google faces in continuing its growth. The author's main concerns are employee bloat, search technology competition, and government intervention.

While each of those is indeed worrisome for Google stockholders, the real threat is competition to its Adsense technology. Google makes a big chunk of its revenue from supplying ads to other websites. Lohr mentions the threat.

"Google’s ad revenue comes mainly from two sources: text ads from its own search results and ads it places on the Web sites of other companies. On the latter, it pays 80 cents or so of each dollar to the Web site and keeps the rest. Increased competition in ad networks, especially from Microsoft, will drive the payouts higher, nibbling away at Google’s profits.

This ad-supply market is quickly becoming crowded with competition. Glancing at any search engine optimization blog reveals tales of making good, in some cases better, money from Google's competitors. One recent example is Digg.com inking a lucrative deal with Microsoft to use its ad-supply tech. Digg had been using Adsense. There also have been complaints about the relevancy of Google's Adsense ads. What good is it if you have a blog about flowers and the ad engine is not supplying relevant advertising? However, webmasters can complain until they're blue in the face, ultimately, it's the advertiser's, not the webmaster's, opinion which matters. The money starts with the advertiser, and they are the ones who see the click rates and their effect on sales. If advertisers feel they get better click-through at cheaper rates from someone else, they will move. Google's advantage is that they can offer their dominant search engine in combination with possible Adsense results as well, something that no other competition can offer. This, in turn, encourages webmasters to use Adsense. If you have a blog about some weird fetish but no advertiser is buying the keywords for your fetish from your ad supplier, you're not making any money from blogging. But, Google might have advertisers for those keywords via their search engine, where else you gonna find links to your obscure fetish? Thus, Google has the snowball rolling down the hill effect--more users, more searches, more keywords, more advertisers.

Another advantage Google has for the future is the size of the market (not market share, but simply the market) is growing. We hear a lot about Google's market share versus its competitors, but we hear little about whether the number of actual searches is growing. It's very likely that every year, more and more people type keywords into Google's search engine. More and more people rely on technology to supplement their memory. More and more are turning to the computer for entertainment, communication, and all around information. And they turn to Google to find it. Financial people know about increase in same-store sales, but they don't know about increase in same-person search.