One of Warren Buffet’s most famous quotes is that, “In business, I look for economic castles protected by unbreachable ‘moats’.” An “economic castle” is a great business, and the “unbreachable moat” is the strategy or market dynamic that heightens the barriers-to-entry and makes it difficult or ideally impossible to compete with, or gain access to, the economic castle. . .
For Google, the economic castle is clearly the search business, augmented by its amazing AdWords monetization framework.
The post is spot on in almost every sense. But I have one issue…
Just about everyone still thinks of Google as a search company. The reality is that those days are long over. Google is a web services company that makes quite a big chunk of its revenue from a very large, efficient advertising platform.
The notion that Google is 90+{e1f18614b95d3cd6e4b3128e1cd15d99b042a60a5a19c19b7a8e07e7495efa10} search hasn’t been true for a long time, but lately it’s become obvious: YouTube, AdSense, Enterprise and location/mapping are becoming huge businesses in their own right and together may have replaced search as Google’s biggest revenue generator.
Google doesn’t derive nearly 90{e1f18614b95d3cd6e4b3128e1cd15d99b042a60a5a19c19b7a8e07e7495efa10} of its revenues from search. So how much revenue does it represent?
On Google’s last earnings report, it said that AdSense accounted for a significant 30{e1f18614b95d3cd6e4b3128e1cd15d99b042a60a5a19c19b7a8e07e7495efa10} of its revenue. AdSense is advertising on third party websites. That has little to nothing to do with search (there is ‘AdSense for Search’ where Google powers the local site’s search engine, but it is a very small part of AdSense). From Google’s last earnings statement:
Google Network Revenues – Google’s partner sites generated revenues, through AdSense programs, of $2.50 billion, or 30{e1f18614b95d3cd6e4b3128e1cd15d99b042a60a5a19c19b7a8e07e7495efa10} of total revenues, in the fourth quarter of 2010. This represents a 22{e1f18614b95d3cd6e4b3128e1cd15d99b042a60a5a19c19b7a8e07e7495efa10} increase from fourth quarter 2009 network revenues of $2.04 billion.
In other words, Google revenues from search must be less than 70{e1f18614b95d3cd6e4b3128e1cd15d99b042a60a5a19c19b7a8e07e7495efa10} from that statement alone. But moving forward, Google’s other businesses are growing at a much higher clip than search.
