A company with the size, reach, and capabilities of Google (NASDAQ:GOOG) would seem to have few real challenges to its future. However, no company is impervious to competition, and the search giant is no different. In fact, investors would be wise to keep an eye on three threats to Google's continued growth.
Google's core strength will weaken in the next few years
Google is well-known for its advertising revenue generation, and in every earnings report, the company focuses on statistics like paid clicks and cost per click. Since Google is the dominant search engine, this makes good sense.
However, if research from a division of the advertising giant Publicis is right, the first threat to Google is that its main growth engine will slow in the next few years. Global Internet advertising spending is expected to hit $121 billion in 2014. However, paid search is expected to grow the slowest of the advertising groups.
In the next few years, paid search is expected to grow by 13% annually, whereas mobile advertising is expected to grow by more than 200% in total by 2016. Social network advertising is expected to grow by nearly 30% annually.
These numbers suggest that Google Site's 21% year-over-year revenue growth may slow going forward. Meanwhile, the expected near-30% annual growth in social network advertising is good news for both Facebook (NASDAQ:FB) and Twitter (NYSE:TWTR).
By 2015, display advertisements may surpass paid search, with a ratio of $74 billion spent on display ads compared to $71 billion on paid search. Given that both Facebook and Twitter have more obvious platforms for display ads compared to the traditional Google sites, this shift could slow Google's growth as well.
25% of global users?
The second threat to Google's future is the lack of real engagement with the Google+ network. According to some reports, Google+ is used by about 25% of global Internet users. However, the way Google+ counts activity makes this estimate highly questionable.
Any time a user comments on a YouTube video, it may be shared automatically on Google+. If a Gmail user clicks on a link to insert pictures into email, it brings them to their Google+ pictures. The point is, Google+ may have 300 million users, but they may be users only in a peripheral sense.
By comparison, Facebook and Twitter users are much more intentional. While it's true that users of both services can "like" or "tweet" articles and pictures, most Facebook and Twitter users are active in the real sense of the word. They seek out each site both on the desktop and on mobile and spend time specifically on those sites.
If Google hopes to benefit from the significant increase in social media advertising, the company needs to find a way to increase real engagement in Google+.
The numbers don't lie, and advertisers may be about to flee Google
Google is huge and does great in paid search, but one of its biggest sites is driving less business to advertisers than it should. According to Experian Marketing Services, social media accounted for 7.7% of traffic to retail websites.
Though YouTube has more than 1 billion users and is the default site for video uploads, the site drives only 3.8% of its traffic to retail websites. By comparison, Twitter drives nearly 3% of its traffic to retailers.
Facebook has a similar user base relative to YouTube, yet drives more than 5% of its traffic to the retail sites. Somewhat surprisingly, the king of the hill is the 4-year-old Pinterest site, which drives nearly 11% of its traffic to retailers.
The point is, if retailers know that smaller sites like Pinterest drive more than twice the traffic to their sites compared to YouTube, why would they continue to spend money with YouTube? The bottom line is, Google has some serious challenges.
Search growth is slowing, Google+ is less than effective at attracting users, and advertisers aren't getting as much from YouTube as from other sites. If these trends continue, Google's best days may be behind it.