Why Google's Search Ad Monopoly is Understated

Google's core search advertising monopoly is understated substantially by many for several reasons.

1. Most cite second best source: Media reports tend to report the most frequent and publicized ComScore 65.1% retail market shares for Google in the U.S., not the more accurate and comprehensive Hitwise 70% retail market shares in the U.S. that the DOJ/FTC rely upon, (because Hitwise's sample size is much bigger than ComScore's.)

2.  Most don't cite total share: Media reports almost never use Google's total market share because they almost always miss or forget to add in Google's wholesale share of searches to its retail share of searches.

• Thus Google's total U.S. search market share (retail + wholesale share) is 71.4% per ComScore and ~74% per Hitwise.  
• This is because most don't know that Google provides outsourced search to most all of the major search generators, like Ask.com, AOL, MySpace, eBay, CraigsList, etc. (The only major search generators that do not partner with Google for search are Yahoo, Microsoft (which are in the process of combining their search businesses with DOJ approval) and Facebook.)  

3. Many overlook that Google's overseas shares are much higher: Since 53% of Google's revenues are non-U.S., and since search is a global scale and scope business, it is relevant that Google is more dominant in most every major country other than the U.S. According to a table in a Google Operating System post, Google's search shares are: 

• UK 91%; France 91%; Germany 93%; Spain 93%; Italy 90%; Switzerland 93% Australia 87%; Canada 78%; Brazil 89%; etc. 
• Google is not dominant only in China, Japan, South Korea, Russia, and Taiwan.  

4.  What matters most is revenue share:  Expedience and simplicity explain why most cite query share from Hitwise and ComScore as a very rough proxy for market share, even though search queries are not a actually a business because they are free. Antitrust is about competiton between businesses, and Google's business is search advertising not search; and Google's paying customers are advertisers and publishers not users. 

Moreover, if the search advertising market is anything like most all the other markets the DOJ and the FTC have investigated for market power, scale and scope advantages confer pricing power, which means that any antitrust investigator would expect Google's revenue market share to be greater than the underlying commodity share proxy.

• As the revenue share calculations below confirm, Google's revenue market share is substantially higher than the Hitwise/ComScore proxy shares.

Estimating Google's revenue share takes a little work and simple calculations, but that is not as simple as citing a rough and reputable proxy in Hitwise's or ComScore's share numbers.    

• Google's 1Q10 $6.77b dominant share of search advertising revenues increased $1.26b or +23% (1Q10/1Q09).
• Yahoo's 1Q10 $343m share of search advertising revenues decreased $56m or -14% (1Q10/1Q09).
• Microsoft's 1Q10  search advertising revenues are much smaller, roughly half of Yahoo's. Microsoft's online advertising revenues, (of which search is only a portion) were $566m in 1Q10 and decreased $155m or -21% (1Q10/1Q09) from $721m in 1Q09.
  • For comparative purposes, if we assume Microsoft's search share of its online business is the same as Yahoo's search share is of its business -- ~21%, this rough proxy of Microsoft's search advertising business would mean Microsoft's search advertising revenue proxy decreased $32m or -21% from $151m in 1Q09 to $119m in 1Q10.
  • All other publicly traded entities search advertising is provided by Google on an outsourced or syndicated basis, so this revenue share analysis for all intents and purposes involves three companies: Google, Yahoo and Microsoft.   

Putting all this together:

• 1Q09 search advertising revenues of Google $5,510m, Yahoo $399m and Microsoft ~$151m equal ~$6,060m.
• 1Q10 search advertising revenues of Google $6,770m, Yahoo $343m and Microsoft ~119m equal ~7,232m.
• 1Q09 Google's search advertising revenue share was 5,510/6,060 = 90.9% revenue market share.
• 1Q10 Google's search advertising share is 6,770/7,232 = 93.6% revenue market share.

 

In sum, the best metric for gauging Google's true monopoly position and market dominance is search advertising revenue market share, which is ~93.6% according to the calculations and assumptions openly presented above.

This also means that in the last year Google has continued to take massive revenue share, i.e. Google has taken ~40% of the search advertising revenue market share that they did not have the year before -- per company reports.

Lastly this bolsters antitrust officials current tough line against Google in:

• The FTC's likely blocking of Google's acquisition of AdMob for creating a bottleneck for advertisers and publishers; (see backgrounder)
• The DOJ's objections to the Google Book Settlement here and here; and
• The EU's inquiry into allegations of anti-competitive behavior against Google by Foundem, ejustice.fr and Ciao.