Google: The search party is over (Fortune)

It looks a lot like the midday break at some elite college campus. But almost 12 years after it was launched by precocious Stanford grad students Larry Page and Sergey Brin, Google and its founders are grappling with a very grownup set of problems. Google’s core business, online search, is slowing. That is partly due to Google’s own success; it’s hard to keep posting record growth rates when you dominate a business so thoroughly — Google sites lead the U.S. market with 64% of all searches conducted. But more crucially, the web has changed significantly since Google became a verb. There is (at long last) fresh competition from Microsoft’s Bing, and also a new wave of sites and services that offer alternatives for consumers’ time and attention — and the advertisers that follow them.

The Googlers certainly know this, but in classic Innovator’s Dilemma fashion, the company seems unsure about how to move beyond the core search business that has brought it such massive success. Google has placed expensive bets on acquisitions, chief among them its $1.6 billion purchase of YouTube, a $3.1 billion wager on ad network DoubleClick, and more recently its $750 million purchase of mobile advertising platform AdMob. But none of those deals have yet significantly diversified Google’s $23-billion-a-year revenue stream: Google’s main focus continues to be driving people back to the search box and the ad dollars that Google collects for helping marketers reach highly targeted consumers. Even Google’s most successful new product, the Android operating system for smartphones, generates scant revenue for the company: Google gives the licenses free to mobile-phone operators to facilitate, you guessed it, searches and use of other Google services on mobile phones. And while it lets its whip-smart engineers dedicate a portion of their workdays to dreaming up the coolest products for the web, all that Googley experimentation hasn’t had a huge impact on the bottom line.

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