Monday 18 June 2018

Alphabet's Google the last word in generating online revenue

If you think about it nobody ever says
If you think about it nobody ever says "I will look it up on the internet" - we just simply 'Google it'. And if you are lost somewhere, it is no longer a case of putting the destination into the sat nav - we simply 'stick it into Google maps'. Stock photo: Rafael Ben-Ari/Chameleons Eye

Aidan Donnelly

For decades, as consumer brands have become integral parts of our lives, another phenomenon has grown in lockstep - anthimeria. Now before you all tune out or start looking up medical journals for the symptoms, bear with me and I will explain, because believe it or not, we all have experience of it.

How many among you say that you are 'doing the Hoovering' when vacuuming the carpet? Or order a 'Ballygowan' in a bar when you want a sparkling water? Magazines we read have hundreds of images that have been 'Photoshopped' rather than digitally enhanced and we may 'Xerox' them rather than photocopying them

The list of examples where brand names have become either the category name or the verb used for the action is long and in this technologically advanced age you might expect that it wouldn't happen, yet one company would beg to differ.

If you think about it nobody ever says "I will look it up on the internet" - we just simply 'Google it'. And if you are lost somewhere, it is no longer a case of putting the destination into the sat nav - we simply 'stick it into Google maps'.

When Google listed on the stock market in August 2004, it was all about the internet search engine and the associated advertising revenue potential. But the company's rapid growth since incorporation has seen many changes, not least its name. In August 2015, Google announced plans to reorganise its various interests as a conglomerate called Alphabet Inc - and triggered a chain of products, acquisitions, and partnerships beyond this core search engine. The Google operations remain Alphabet's leading subsidiary, and continue to be the umbrella company for their internet interests.

Today Alphabet has an unparalleled technology platform, creating opportunities in multiple compelling and growing markets. Google has a dominant position in the online advertising market and is poised to benefit from the growth tailwinds in internet search and display advertising, particularly as it moves onto mobile devices.

While at its core, Google is a technology company, the amount of advertising-related revenues it generates means it is one the largest media companies, having single-handedly driven search advertising to the mainstream. As the manner in which we consume media content changes, Alphabet is well positioned through its ownership of YouTube.

With such a strong position in the search and advertising arenas, it would have been easy for Alphabet to sit on its laurels but instead it has, on the back of continuous innovation, made an aggressive push into many nascent markets.

Google has been quietly rolling out a basic Do-It-Yourself (DIY) website builder product for small and medium sized businesses (SMB), integrated into its Google My Business solutions, over the last few weeks. This move is the most recent in a number of initiatives in the SMB space over the past decade, with various levels of investment, dating back from "Get Your Business Online" to "Go Mobile" (GoMo) to Domains to Site Builders. These initiatives are meant to get SMB's online and speed up the functionality and ease of use with the end goal of generating more advertising-related revenues.

The Google App is well distributed (111 million users in the US alone) and recently the company announced the next major evolution of its 'smart feed' for the app, available on both Android and Apple devices. Alphabet continues to push hard on machine learning (ML) capabilities, and the new version of the app is a way to leverage Google's ML technology advantage.

The company has been highlighting the advancements which should lead to better compilation of relevant streams of information for users covering sports, news, videos, music, and stories, with the added advantage of recognising interests based on cross-platform engagement (search, YouTube, etc) as well as factoring in intensity of interest. A new ability to follow/unfollow search topics lets users optimise interest inputs, a feature lacking in the preceding Google Now predictive search feature.

It's early to say how successful Alphabet can be in terms of enlisting significant numbers of new users or increasing the time existing users spend on the app, but the company's machine-learning expertise and cross-platform data pool could make for a compelling, personalised news source.

If the feed gets traction, in addition to advertising revenues, it could provide yet another source of user data that can be used for better content curation and advert targeting across other Alphabet platforms - the so called 'halo effect'. That said, it appears Google's feed is not on course for a head-on collision with Facebook, focusing content more on user-specific topics and behaviour versus friends and sharing.

Given the broad spectrum of areas that the company operate in, it might not be long before it's a case of 'Google's the word that's been heard, it's got groove, it's got meaning'.

Aidan Donnelly is Head of Equities in Davy Private Clients. Please see disclosures at

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