Boomajoom

Last Friday, we reviewed how increased pressure from Wall Street is likely to prompt Google to find new revenue sources. Yesterday, we looked at the possibility (in our mind, inevitability) that they would begin charging for additional features on Google My Business.

Today, we’re here to confirm that Google has begun experimenting with monetizing Google Home and Google Assistant, two voice activated products the company offers.

Google Home is a set of voice and web controlled products to allow you to control lights, television, and music from either voice commands or an application. Google Assistant is a voice commanded personal assistant you can use to control these devices, search the web, or interact with other Google services. Combined with the acquisition of Nest, maker of internet connected security cameras and alarm systems which now are integrating Google Assistant, Google Home and Google Assistant offer a wide product set for people looking to make their home “smart”.

To date, most of Google’s efforts have been in solidifying product offerings to compete with Amazon’s Alexa and Ring products, Apple’s Siri, and a range of smart home devices offered by companies like Honeywell. The battle has been about market share.

That might be changing in four ways.

First, in February, Google started testing ads in Google Assistant results on smartphones. Then in April, Google officially announced that ads would be included in Google Assistant results where ads would be relevant. So far, there are fewer ads in Google Assistant results than the standard search engine.

Second, Google has decided to give Google Home smart speaker owners access to YouTube Music, which is supported by ad revenue. To remove the adds, users can subscribe to the premium version for $9.99 a month.

Third, Google is beginning to show local listings in response to searches for local providers on Google Home and Google Assistant. Yesterday, we discussed how Google might begin charging a subscription for local listings.

Fourth, and of most interest to us, is through payments. Though Google Express has proven to be unpopular, users can currently send and request money through Google Pay using their Google Assistant. Currently Google doesn’t charge a transaction fee for this service, but we wouldn’t be surprised to see that change.

 

Google has started sending out surveys to some local businesses to see if they’d be willing to pay for features on Google My Business that they’re currently receiving for free. Google My Business (GMB) is a free service from Google that allows local businesses to change and update their information. Acquiring a listing in GMB has been free since its introduction, and is an important step to being included in local results.

The survey asked users how much they would be willing to pay each month for many services already included, with a range from $10 to over $70 per month.

Business owners will likely need to decide if GMB is something they’d be willing to pay for. We believe some subscription model on this service is inevitable; if not now, then later as Google runs out of room to sustain high levels of revenue growth. This would mark a huge change in how the company has typically monetized the search engine.

Some new features are being reviewed for a possible subscription model including:

• Automated review response
• Google customer support
• Online booking
• Verified licenses
• Featured reviews
• Quotes (instant and by request)
• Background check
• Google guarantee
• Removing ads from your GMB profile
• Allowing you to include a video on the GMB profile
• Source leads from competitor profiles
• Search result placement
• Automated responses for reviews and messages
• Call reports and recording
• Promoted map pin
• Verified reviews
• Booking promotion
• Verified bookings

As stated in yesterday’s article, Google enjoys higher profit margins on owned and operated properties and is under pressure from Wall Street to restart revenue growth.

Be afraid.

In Google’s most recent quarterly earnings release, they missed targets for ad revenue growth. Still wildly profitable, Alphabet Inc (Google’s parent company), experienced a surprising slowdown. Advertising sales grew at the slowest rate since 2015. Management had no clear explanation why, with investors accusing the company of having a “botched” earnings call “littered with evasive commentary.”

The slowdown isn’t surprising to common sense investors, of course. The entire advertising industry experiences only moderate growth each year. The two largest online advertising networks, Google and Facebook, have experienced rapid growth but rapid growth eventually becomes harder to sustain. To use easy math, a 30% increase on $10 million is $3 million but a 30% increase on $10 billion is $3 billion. It doesn’t take a lot of analysis to realize that it’s easier for a company to find $3 million than it is $3 billion. Double digit growth eventually has to run out of room, or else the companies in question would take over the entire economy (not possible).

Google’s management blamed currency fluctuations and unspecified product changes for the slowdown. Investors have punished the company, pulling the stock price from near $1,300 a share to under $1,200 a share.

The truth is that Google is running out of room to maintain unusually high levels of growth. At the time of this writing, the company’s market capitalization was approximately $812 billion. To just match average market performance (which would make investors very unhappy), the company would need to add $81 billion to their valuation in 2019. That’s an incredible amount of money.

The rest of us should be worried. Management can’t and won’t take the slowdown lightly. Third-party networks depending on Google for revenue should be nervous. Google’s growth has, in part, been driven by increasing margins on their owned and operated properties as profit margins on network members (usually content sites that can choose to join the network and display Google ads on their sites) has been declining. The featured photo on this article shows the history of that change; bear in mind that Google went public in 2004. What does this mean for the average site owner? Google will continue to try to keep traffic off your website and within their owned and operated properties. The company will also continue to undertake efforts to monetize different products in new ways – a phenomenon we’ll cover in the next few articles.