Too Dependent On Search Advertising
Google's chief strength--its dominance in the search advertising business--is also its main vulnerability. Currently, 99% of its revenue comes from search-related advertising. The remaining 1% comes from sales of its enterprise search appliance.
"Google needs to broaden its horizons," said Martin Pyykkonen, an analyst with Hoefer & Arnett, pointing to the fact that although Yahoo also gets the bulk of its revenue from advertising--85%--those dollars are divided 50-50 between search and display, or "branded" ads.
Online advertising is divided into two types of ads: search and display advertising. Search-related ads are the simple text-based ads that appear on the right side of the page after completing a search. Display, or branded, ads include the banner ads commonly displayed on Yahoo and America Online; they contain graphics and, increasingly, video and animation, and are placed on pages specified by the advertiser.
Display advertising is an area that Google has yet to venture into. And although Google owns nearly 70% of the paid search advertising market, it only controlled 28% of the $12.9 billion market for all online advertising in 2005, according to online market-research firm eMarketer.
