No matter how much Google improves search and the tools used by marketers, one analyst points to limits for long-term growth and revenue from
paid-search ads. He bases the data on a variety of criteria and data suggesting that about 75% of domestic paid-search advertising collectively comes from the budgets of small businesses in the United
States.
Google will continue to capture the majority of its revenue from small businesses that bid on AdWords paid-search ads, but Pivotal Research Group's Brian Wieser sees a ceiling. In a
research note, he tells us these advertisers -- primarily supported by self-service technology -- spend about $10,000 annually. Today, sales represent the highest-margin inventory Google sells.
The findings emerge after Wieser ties a series of numbers into IRS tax data on small business ad spending trends, published in 2012 based on data from 2009. Some of those numbers consider small
companies with assets of less than $250 million -- about three million businesses that generate on average $2 million in revenue annually and spend about $16,000 per year on advertising.
Second, the number of businesses that meet this criterion peaked in 2007, growing with the economy and declining in the subsequent two years. Third, ad spend per company peaked in 2005. The total
U.S. directories revenue was $13 billion, while paid search was $5 billion. In 2012, Pivotal estimates directories generated $4 billion revenue and paid search generated $19 billion. Combining the
two, both media grew by a CAGR of 3.6% during the past seven years.
If 75% of Google's paid-search revenue comes from small businesses, this would imply $14 billion comes from these
advertisers, out of what we believe is $50 billion in total. "Against our $10,000 per advertiser estimate, this would imply 1.4 million advertisers. In other words, even if ad spending per advertiser
held constant during the period of slight economic improvement of 2010-2012 and the numbers of advertisers held flat, Google is capturing fully two-thirds of ad spending from nearly half of the
small businesses in the United States," he wrote.
Some analysts might believe that diversity remains the only strategy that will help Google grow. Companies must have other businesses that
offset declines.
Google will look toward wearable and automated technologies -- two trends that Piper Jaffray analysts believe will have a major impact on the Internet within the next 10 to 20
years. The report puts Google at the forefront, but there are other companies that will play a role, too.
Piper Jaffray put a price on both trends at $565 billion --slightly more than the size
of today's global ad market of about $600 billion. Of course, Piper Jaffray Analyst Gene Munster, who leads the research, points to Google Glasses and self-driving cars, but an abundance of
patent applications both pending and granted show what may be coming to a store near you.
ABI Research forecasts the wearable computing device market at about 485 million annual device
shipments by 2018. The research firm attributes 61% of the wearable technologies market to sport and activity trackers in 2013. Smartphone compatible watches are beginning to emerge, and rumors
have materialized regarding Apple releasing a smart watch some time this year.
Most wearable devices initially aimed at supporting the health market, such as sensor body implants that prevent
epileptic seizures. One patent allows two wearable devices to communicate.