Google's 10th Year Poses Major Strategic Challenges

Its number one challenge is fending off a variety of potential challenges that might disrupt its dominant position in the online advertising marketplace, researchers say.

In a single decade, Google has emerged from its humble beginnings as a Stanford University research project and become one of the most recognized brands in the world, as well as a competitor to technology giant Microsoft.

The brainchild of Sergey Brin and Larry Page can't rest easy in 2008, however, as they celebrate the 10th anniversary of Google's incorporation. Google is branching out with various side projects, potentially including a television offering and an online service giving people access to their own medical information.

Goal No. 1, though, is fending off a variety of potential challenges that might disrupt its dominant position in the online advertising marketplace, says Karsten Weide, director of IDC's digital media and entertainment program.

"Google's top priority is to diversify their revenue sources," Weide says, explaining that because Google relies on search ads for 99.1% of its revenue, the company is vulnerable to disruptions in the online advertising market.

The most immediate challenge here is advertising contained within online videos -- that is, online commercials, according to Weide. Google's acquisition of YouTube?was designed to shore up a weakness in video advertising, but this is an emerging market that is still in flux, and billions of dollars will go to the eventual winner, he says.

Advertising on YouTube is scarce because the site isn't "brand-safe" -- advertisers stay away out of fear that content is illicit or stolen, Weide says. Pirated content also makes commercial content providers wary of YouTube. A resolution to this power struggle "will perhaps come this year [2008], but it may take a while."

If it takes too long, new distribution avenues like Hulu, a video-on-demand site currently in beta, could benefit at Google's expense.

Second Challenge

Google's second major challenge is in the mobile advertising market. Android, Google's platform for building mobile phones, is a good start, but this is an area where rival Yahoo could make a charge. Google gets better media coverage than Yahoo, to be sure, but Yahoo is a profitable company with billions of dollars in revenue and reaches 25% of the mobile Internet world, the same percentage as Google, according to Weide.

Despite these major strategic challenges, Google and its nearly 16,000 full-time employees figure to spend plenty of time on side projects that will expand Google's reach well beyond the world of online search -- and potentially raise privacy concerns.

Google and Microsoft are pursuing projects aimed at giving people new tools for managing their health care. A prototype of "Google Health" gives consumers a central repository for their health information, as well as the ability to share it with doctors and family members, if they choose to do so.

"I'm not sure how [Google] plans to implement this exactly," says Philipp Lenssen, a former Web developer who tracks the company on the blog Google Blogoscoped. "There's quite a lot of privacy risk in this application. If this were hacked and somebody releases your medical records, it would be very damaging," he says.

Google projects in 2008 also could include upgrades to Google Apps, a hosted service that's challenging Microsoft Office; more development related to Google Gears, an open source technology for building Web applications that work offline; and the creation of a new social-networking platform.

Some rumors have Google testing social-networking software at Arizona State University, with plans for a general release in the near future.

As if that's not enough, Google has begun laying the groundwork for some type of television offering. Details have been scarce, but Google has hired a team of software engineers to develop products for television.

Google also seems to be preparing for more business in China -- no surprise, given the country's massive economy. Google is testing an alternative home page in China, and released an input editor that takes characters entered into a Western-style keyboard and converts them to Chinese, Lenssen says. Although Google claims its mission "is to organize the world's information and make it universally accessible and useful," the company thus far seems content to censor itself to please the sensibilities of the Chinese government.

"I'm sure [Google] would like to bow less [to China]," Lenssen says, "but they have to at the moment -- or at least they think they have to."

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