Google Growth Spurs Misgivings

by Erik Sass, Jul 24, 2006, 6:00 AM

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KEYSTONE, COLO.--As Google's revenue, profits, and share of the search market continue to surge, some industry observers are viewing the company with increasing wariness.

"The balance of power on the Internet today is more skewed than I've ever seen it," said stock analyst Jordan Rohan during a keynote address on the second day of MediaPost's Search Insider Summit in Keystone, Colorado. "Google is at the center of the Internet today," continued Rohan, managing director and Internet analyst at RBC Capital Markets.

The day before Rohan's remarks, Google reported that second-quarter profits surged 110 percent from 2005. Google also recently upgraded some offerings and released new products--including, most notably, an electronic payment system.

Rohan said that Google's aggressive development of new products--many of which it offers for free--potentially undercuts vendors trying to sell similar products. "If you're an SEM and you have a proprietary bid management tool, you might want to license it, and that could be a great business model--but somewhere down the road, Google could give it away for free. There's good reason to be wary of Google's product development."

For example, he said, Google's new electronic payment system, Google Checkout--which allows visitors to make purchases without entering their payment information at vendor sites--potentially gives e-commerce marketers a huge boost. But, he warned, Google also can use the information gleaned from vendors for to help set its own prices or raise minimum bids.

And the breakout session that followed Rohan's presentation, hosted by Matthew Roche, CEO of Offermatica, and Rob Griffin, EVP and U.S. director of search for MediaContacts, suggested that there is indeed widespread apprehension about Google's plans.

Discussing analytics services, Roche urged clients to refrain from using Google Analytics, noting that Google Analytics' tracking of post-click purchase patterns gives the search giant a window into the ROI of particular search terms and profit margins of participating businesses--information that could allow them to begin raising prices for premium search terms. "I think we've seen a trend of the raising of the rates; they're clearly going after places where there's a rich profit margin," Roche said.

Noting that Google aggressively tries to bundle Google Analytics with its new electronic payment system, Google Checkout, Roche asked: "What happens when Google Checkout tells them what words are most effective at which time of day?" One result, said Roche, is that Google will use that information to "start squeezing profit margins." "It's incumbent on us to be wary, and to be aware that every piece of information we give them will change the bid prices," he said.

Click here to view photos and listen to panel discussions from the Search Insider Summit.

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