It's not often that Google (GOOG) waves the white flag, but last month the search advertising giant capitulated in its attempt to enter the real estate search market.
In 2009, Google entered the property category with a specialized search offering. In major markets—including United States, the United Kingdom, and Japan—it used Google Maps as a starting point to place ads for houses and apartments. This feature amazed some and worried others, especially given Google's Street View feature, which enhanced listings by supplying eye-level images of posted properties. The move seemed promising at first blush, but Google turned out to have been late to the party. A number of specialized property websites had already developed powerful search tools to help property buyers.
People searching for places to live have complex purchase criteria and their search parameters quickly become quite specific. Google provided listings enhanced by mapping and images, but little more. Category specialists such as Realtor.com, Trulia, and Zillow in the U.S. and Rightmove in the U.K. made it possible to search real estate inventory, using algorithms to personalize and customize search that were superior to Google's generic, if free, offering—including its location-aware services.
Such setbacks have hardly affected Google's financial performance. Its 2010 financial results were stellar. Fourth-quarter results topped expectations, with $29.3 billion in revenue and a full-year profit of $8.5 billion—a 30 percent gain over the past year. The question is: How long will the good times last?
Google continues to generate the lion's share of its sales—over 96 percent—in search. Yes, the company has shown glimmers of financial diversity in mobility (Android), video advertising (YouTube), and browser software (Chrome). Each platform could help reduce the company's outsized dependence on search advertising. But search pays for everything Google does: Most of the company's offerings are free, such as YouTube and Chrome, and few generate ad sales. Pretty much nothing Google does other than search, AdWords, and AdSense turns a profit. For now, Google looks well-defended. Microsoft's (MSFT) Bing remains a distant second. Still, only 18 months ago Bing didn't exist. In December, Google served 69.4 percent of U.S. search results while Bing served 24.4 percent.
The bigger question, then, is how long "horizontal" search—search that "sees" a vast swath of the Web's 182 million sites—can remain an attractive business model.
Google's humbling in the property sector indicates that the real threat is not from such Goliaths as Microsoft, but from a myriad of Davids—specialized search engines tailored to conduct "vertical" search tasks. Examples of these include restaurant reservations by OpenTable (OPEN), job hunting at Simply Hired, and online travel with sites like Orbitz (OWW) and Priceline (PCLN). These sites are not promoted explicitly as "search engines," but that's what they are; they also happen to execute transactions. (Google tried transactional retail with Froogle, but the effort fizzled.)
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