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The 3 Markets Alphabet Still Can't Crack

By Leo Sun - Feb 20, 2018 at 7:28PM

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Google doesn’t "get" social networking, e-commerce, and paid streaming media.

Alphabet's (GOOG -0.28%) (GOOGL -0.27%) Google owns the biggest search engine, mobile operating system, web browser, and video streaming platform in the world. Its dominance of those markets tethers billions of users to its ecosystem, and makes it an 800-pound gorilla among internet companies.

But Google has also repeatedly failed to crack or conquer other markets. Let's examine the three key markets where the tech giant still lags behind its rivals.

A robot tries to repair a broken robot.

Image source: Getty Images.

1. Social networking

Google's toughest competitor in the internet advertising space is Facebook. Google crafts targeted ads with a user's search and browsing histories, but Facebook creates its ads by analyzing a user's personal profile, social connections, and liked posts.

Google recognized Facebook as a disruptive threat many years ago, but every attempt it made to move into social networking fell flat. Its long list of failures includes Orkut, Latitude, Buzz, Jaiku, and Dodgeball.

Google Photos.

Google Photos. Image source: Google Play.

In 2011, it launched Google+ as a serious competitor to Facebook, but it never gained much traction. In 2014, Google removed Google+ profile photos and circle counts from its search engine, and Google+ founder and chief Vic Gundotra resigned.

In 2015, it split Google+ into the stand-alone Photos and Streams services, removed Google+ integration from all of its other services, and relaunched the entire brand with the new Reddit-like "Communities" and Pinterest-like "Collections."

Then in 2016, Google hired Christopher Poole, the founder of the controversial site 4chan, to help fix its social networking efforts. It also tried to buy Snap ahead of its IPO. When that failed, Google started developing Stamp, a clone of Snapchat's Discover feature. It also introduced Allo, an Android-exclusive messaging app.

In the end, none of these fragmented efforts have hurt Facebook, which grew its monthly active users (MAUs) by 14% annually to 2.13 billion last quarter.

2. E-commerce

According to a UPS survey last year, 38% of online shoppers in the U.S. go directly to an online marketplace like Amazon. That's nearly twice as many shoppers as those who start their searches on Google.

This has become a major blind spot for Google, which can't track consumer purchases. Google initially tried to solve the problem with Google Shopping, which listed merchant-submitted prices for free.

A shopping cart icon on a smartphone.

Image source: Getty Images.

However, Google started charging merchants for listings in 2012, and the platform's growth stalled as it was absorbed into its core advertising business.

That integration resulted in a 2.4-billion euro ($3 billion) fine from the European Union Commission last year, due to allegations that Google favored its own online shopping services in its search results.

In 2013, Google introduced Google Express, a same-day delivery service aimed at countering Amazon. Instead of fulfilling orders on its own, Google hired couriers to deliver products from participating brick-and-mortar retailers, assuming that the platform would unite them against Amazon.

But in 2015, Google shuttered two of its main delivery hubs in San Francisco and Mountain View -- indicating that even the tech-savvy users of the Bay Area weren't impressed by Google's e-commerce efforts. The following year, Google stopped shipping fresh fruit and vegetables, abandoning the market to Amazon Fresh (and now Whole Foods).

Google Express isn't gone yet, but research firm CIRP recently reported that 63% of Amazon's U.S. customers are now Prime members who are locked into the e-commerce giant's sprawling ecosystem.

3. Subscription-based streaming services

Google's YouTube is the biggest streaming video platform in the world, but Netflix is the clear winner in paid subscriptions. Google's answer to Netflix, YouTube Red, remains a tiny rival with an identity crisis.

Google Play Music, which was introduced in 2011, is also dwarfed by leading music streaming platforms like Spotify. Last July, Billboard reported that YouTube Red and Google Play Music had a combined user base of just 7 million. By comparison, Netflix had 110.6 million paid subscribers at the end of 2017, while Spotify reaches over 70 million subscribers.

A man listens to music on his smartphone.

Image source: Getty Images.

Earlier this year, YouTube CEO Susan Wojcicki told Re/code that YouTube Red is "really a music service" for people to watch music videos. Yet the service also seems to be chasing Netflix with original programs and movies -- some of which star its own YouTube celebrities. This confusing mix of content makes the platform a jack of all trades but a master of none.

As for Google Play Music, the platform was a handy way to store personal music collections in the cloud, but it simply couldn't match Spotify's first-mover advantage, or the brand and ecosystem appeal of Apple Music.

Google bundled YouTube Red and Google Play Music together in a $10 per month package last year, but it seems doubtful that merging two losers will create a winner.

The bottom line

Google's failures in the social networking, e-commerce, and streaming-media markets indicate that even the biggest tech ecosystems have their natural limits. The company still has a rock-solid advertising business, but its expansions into adjacent markets probably won't threaten Facebook, Amazon, Netflix, or Spotify anytime soon.


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