What Larry Page Will Be Up Against at Google
NEW YORK (AdAge.com) -- A decade after nailing the business of search advertising, Google has never been more dominant. Revenue grew by 25% in 2010, its Teflon search business has proven resistant to challenges from Bing and Yahoo, and after years of effort, Google is becoming a bigger player in display advertising. And as the number of people flocking online via PC and mobile devices grows, so too do the ad dollars that follow them, which should ensure Google's future for at least some time.
That might make it seem like smooth sailing for co-founder Larry Page, who in a surprise move last week announced he will take the CEO reins from Eric Schmidt in April. But looking ahead, Mr. Page faces numerous challenges, from reinstilling some kind of entrepreneurial culture at a bureaucracy of 24,000 employees, to coping with a threatening group of newcomers such as Facebook, Twitter and Groupon, to tapping the bigger reservoir of brand dollars still spent largely on TV.
They are the grown-up problems of a grown-up business, and there are several areas in which Mr. Page's Silicon Valley roots will be tested in the coming months and years.
Google's bedrock business got even sturdier toward the end of 2010 as it increased its slice of the pie to 82.6% from 77% in the same period a year earlier, according to SearchIgnite. Part of that stemmed from buyer hesitancy to try rival Bing during its integration with Yahoo. But another part is that Google ads just convert better, and the company keeps innovating. "They keep steamrolling forward and keeping market share while improving the product," said Kevin Lee, CEO of search-marketing firm Didit.
THE THREAT: Search is becoming more personalized and more social. Google has plenty of capacity to learn what users might be looking for from their search history, but the question is whether Google can stay ahead when discovery happens via the social graph, as defined by Facebook or some other network. Real-time services like Twitter deliver information from a trusted network, often before a user knows he wants it.
According to Google Chief Financial Officer Patrick Pichette, "one out of every five searches" on Google is local. But as search goes mobile, that's going way up. According to Microsoft, 50% of mobile searches reflect local intent, and Google's local search results and ads are its weakest link. Traditional search ads don't make sense for most local businesses, and the most-valuable keywords in most local markets are out of reach. Google appointed one of its top execs, Marissa Mayer, a confidante of Mr. Page and co-founder Sergey Brin, to head up its efforts.
THE THREAT: The growth of Groupon, Living Social and imitators around the world are enough of a worry that Google made a bid for Groupon and is reportedly planning to launch its own deal service. Facebook's self-serve system is also a threat, especially now that it has added location through Facebook Places. And of course there's Foursquare, still niche, but still growing.
Now that it outsells Apple's iPhone, iPad and iPod, Google's Android operating system has to be considered its biggest hit outside search. Since the operating system is open-source and free to use, it generates no revenue for Google, but it does ensure Google's ads and services have access to the mobile platform. It also creates an app marketplace outside of Apple's walled garden.
THE THREAT: Because it's open and on hundreds of different devices with different processors, capabilities and screen sizes, developing for Android is a nightmare compared to Apple. That will continue to hinder the Android marketplace. And with the iPhone now on Verizon, Apple opens up another big market of potential users -- and marketing dollars -- from the world's No. 2 advertiser.
In the past five years Google has moved from mostly clueless about brands to having the best digital sales force in the business. Much of that is credited to Eric Schmidt and executives past and present, such as Nikesh Arora, Tim Armstrong, Dennis Woodside and Penry Price. Display is now a meaningful business for Google, thanks to DoubleClick, Google's AdEx exchange and YouTube, now reported to be profitable. And while Google adapted to agencies, "our world ... has changed to become more like [Google's]," said Matt Freeman, CEO of Interpublic's Mediabrands Ventures.
THE THREAT: The question is whether Mr. Page understands the type of marketing not transacted between machines and whether brand ads remain a priority. Top agency execs had plenty of interaction with Mr. Schmidt. "My sense is that as CEO Larry will be compelled to understand the ecosystem, that generates the enterprise's revenue and the value of agencies as an interface with short-tail customers," wrote Group M North America CEO Rob Norman in an email.
THE PUBLIC FACE
Finally, the reappointment of Mr. Page has stirred up questions of style and presentation -- or lack thereof. Mr. Page is famously media-shy and considered off-putting by those who have worked with him. "He's brilliant, difficult, rude, stubborn -- he tunes in and out to what he's interested in," said a former executive.
In strategy meetings with top-level executives, Mr. Page and Mr. Brin would often stare at their computers, occasionally leaving the room to get a snack. Acting the schoolmarm, Mr. Schmidt would pester the two co-founders to pay attention. In last week's announcement, Mr. Schmidt said Mr. Page was ready to take over, and insiders say he has always had the strongest vision for the company.
But despite reports that Mr. Page has always had an interest in business as well as engineering, those who have worked with him say he is often uninterested in details of the day-to-day. "Larry's just not that interested in so many of the things that go into driving the business of that company," according to an insider.