On Friday (19th July 2013),
Finance ministers from 20 of the world’s largest economies have endorsed the first internationally co-ordinated attempt to roll back decades of ballooning tax avoidance by many of the biggest multinational corporations in the world.
(From the Guardian)
Obviously, there are certain companies in the crosshairs: Amazon, Vodaphone, Starbucks, Google…
I want to talk about Google and how this decision could affect search engine marketing.
Google’s Stock Market Price
At the moment, Google’s shares (GOOG) are trading at €896. That’s a PE ratio of 26.3, which is 62% higher than the average PE ratio for the S&P 500.
What does this mean in layman’s terms?
It means that investors are very optimistic about Google’s future earnings. So bullish about these future profits, they’re willing to pay an excess premium to own the stock.
Google’s Future Earnings: The Big Problem
The question is, where are these extra profits going to come from?
If anything, Google could struggle to maintain onto their current profits. Here’s why…
– Higher tax bills (by $bns) due to G20 tax plan
– Possible loss of search market share due to Facebook’s recent deal with Bing (The “Search for people, places and things” bar at the top of your Facebook page)
– Bing are arguably offering better search results (for some types of search). So Google are seeing their competitive advantage eroded… putting their market share at risk.
– Potential significant loss of display network revenue if/when Facebook offer a display ad network. (Which would likely offer better ad targeting for advertisers than Adwords does.)
– More and more people use mobile phones to access the internet instead of laptops/desktops, which reduces ad revenue (See: This Is Why Google Missed Its Q2 Revenue Expectations by Business Insider).
Every one of these things would be likely to cut billions from Google’s future profits – and push the share price down.
Keeping The Shareholders Happy
If Google’s profits fail to grow at the rate expected by shareholders, those shareholders are not going to be happy.
And the major shareholders – fund managers who are focused on short-term results – would soon lean on Larry Page to find a quick way to generate extra profits.
So where is Google going to look in order to find these ‘quick wins’?
They could charge for analytics, for example. Though, by doing that, they’d give up a lot of valuable data they get from it.
It might be by going offline and into, say, mobile phones.
Another option would be to add their own verticals to the search results. So, if you search for a flight, “Google Flights” could offer you a price comparison – and Google could be an affiliate for companies that want to be included. However, given the heat Google are getting for things like “Google Finance”, this is probably off the table.
So perhaps the easiest way for them to generate more money would be to push more searchers away from organic listings and towards paid listings?
A study by Wordstream last year showed that “64.6% of clicks for high commercial intent keyword searches” are on sponsored results. (Meaning organics get just 35.4% of the clicks.)
This is a far cry from just a few years ago, but it doesn’t seem to have turned off users and lowered Google’s market share.
So the SEO world is fighting over an ever-shrinking pie. And, if Google can’t figure out a way to make up the money they’ll lose to the G20 tax plan, I suspect that pie will get even smaller.