Google's highly profitable secret war against small businesses and jobs

Google's highly profitable secret war against small businesses and jobs

Summary: Google distracts analysts and media with non-revenue projects such as G+ or driverless cars, cloaking its attack on thousands of smaller companies, and their jobs.

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Google has managed to boost its revenues by billions of dollars this year by attacking thousands of smaller businesses who make money from affiliate programs. It does this by deliberately favoring large brands in its search results.

This war is largely secret because very few people understand this shift. Google manages to deflect attention through publicity about projects such as Google+, or its self-driven cars -- none of which are revenue generating businesses.

Yet in its core business, under the renewed leadership of CEO Larry Page, Google has launched an incredibly aggressive strategy targeting mostly small firms. You can see how effective this has been in the following numbers culled from its financial reports.

For example, for the whole of last year, 2010 Google's revenues from its own sites could barely keep pace with growth in revenues from its AdSense partner network -- mostly small firms.

2010:

- In Q1 Google sites grew 20% and partner sites grew 24%

- In Q2 Google sites grew 23% and partner sites grew 23%

- In Q3 Google sites grew 22% and partner sites grew 22%

- In Q4 Google sites grew 22% and partner sites grew 24%

Yet in 2011 this trend miraculously reversed itself within just 1 quarter and Google sites' growth jumped suddenly and for no outward reason.

2011:

- In Q1 Google sites grew 32% and partner sites grew 19%

- In Q2 Google sites grew 39% and partner sites grew 20%

- In Q3 Google sites grew 39% and partner sites grew 18%

What did Google do that suddenly, its sites nearly doubled their growth rate while partner sites suffered a massive drop?

The answer is that it controls the traffic and that controls revenues. Google managed to shift traffic and revenues from its partner network to its own. That means it keeps

    all

the revenues -- it doesn't have to give away 80% of AdSense revenues to partners.

There's other things that Google has done that hurt small businesses trying to make money online such as banning tens of thousands of affiliates from its Adwords network.

It has gotten away with this strategy by shifting the attention of analysts and media to projects such as G+ and self-driving cars. These aren't businesses and have no effect on its revenues but that's the subject of the questions asked by Wall Street analysts on its earnings calls.

I haven't come across any analysts or journalists looking into this major shift in Google's business strategy. I haven't seen any financial analysts explaining how Google has been able to grow revenues so quickly -- yet some of the answers are hiding in plain sight -- in Google's financial reports (as above).

Google's strategy is to set itself up as the largest affiliate and displace the hundreds of thousands of small businesses that make money from affiliate marketing. It wants to be the main affiliate for online sales of branded products and that's why its organic search results heavily favor large companies -- the brand owners.

But this strategy comes at a significant cost -- lost jobs as it displaces the smaller firms. It's not a cost to Google but it is to society.

That's not a good scenario in today's hard economic times, it's a PR nightmare for Google to be seen as anti-small business and causing job losses.

Small companies don't have a much of a voice in Washington DC and Google knows this. It has been careful not to antagonize the large brand owners, reports one of my contacts, the CEO of a large company that relies on AdSense revenues, because they have lobbyists and they could add their voices to complaints about Google's business practices.

Google, however, is working hard to keep the US government out of its business. This year it dramatically stepped up its lobbying efforts, hiring more firms and spending a record amount on political influence.

Jessica Guyen reported in the The Los Angeles Times:

Google spent $5.9 million from Jan. 1 through Sept. 30, a 51% jump from a year ago. To put that in perspective, Google spent $5.2 million total on lobbying last year.

Google has doubled its spending on lobbying in the last two years. It has also formed a political action committee to give donations to candidates and it has hired influential lobbyists such as Richard Gephardt, a former House Democratic leader.

So who will come to the aid of small businesses? By the time the government figures out what's going on, and politicians extract themselves out of the pocket of lobbyists, it'll be too late.

Maybe Facebook will be a savior of sorts, it has been far more small business friendly than Google lately. But, this might be just a short term strategy because Facebook will face pressure to grab an ever larger share of the revenues flowing through its network, as Google is doing today. That pressure will mount when it becomes a public company next year.

What's happening to small businesses in the Google ecosystem is precisely why Facebook, Apple, etc, prefer to build a walled garden online and control as much of their ecosystem as they can so they aren't vulnerable to a change in business strategy by a large partner providing traffic and web services. Google's decision to start charging third-parties for using its formerly free maps service is a good example.

One of the very few people I've found that understand Google's anti-small business strategy is Aaron Wall over at SEOBook. Here's an excellent post by Mr Wall on Google trying to stamp out affiliates.

Google Hates Affiliates

At Affiliate Summit last year Google's Frederick Vallaeys basically stated that they appreciated the work of affiliates, but as the brands have moved in the independent affiliates have largely become unneeded duplication in the AdWords ad system. To quote him verbatim, "just an unnecessary step in the sales funnel."

It is worth noting that Google doesn't consider itself "just an unnecessary step in the sales funnel" when they insert themselves as an affiliate.

He recently produced an excellent infographic to explain Google's focus on large brands.

Topics: SMBs, Banking, CXO, Enterprise Software, Google, IT Employment

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61 comments
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  • RE: Google's highly profitable secret war against small businesses and jobs

    It's an advertising company. It's living down to expectations.
    tonymcs@...
    • RE: Google's highly profitable secret war against small businesses and jobs

      @tonymcs@... <br>Completely agree. If you want to use a search engine that's not trying to fund itself from advertising, use bing. As an added bonus, the company that runs wasn't convicted as a monopolist and hadn't held back the tech industry for a decade unlike Google.
      anono
      • RE: Google's highly profitable secret war against small businesses and jobs

        @anono Ummm...moron...google is CURRENTLY under investigation for doing pretty much the same thing. And even worse. They have been caught (with evidence) telling a site that won't "do business" with Google and saying "You might just find yourself scraped from our results altogether..how would you like that?"

        That is ILLEGAL...and perhaps why several independent recent studies have shown that Bing's results are BETTER than Google
        jkfan87
      • RE: Google's highly profitable secret war against small businesses and jobs

        @jkfan87<br>Where I live (and according to beliefs) being investigated is very different from convicted. You could be accused of destroying the world (in fact, for argument's sake why don't I just go ahead and do that); that doesn't make it true.
        anono
      • Held back the industry?

        @anono ,,, You said: " held back the tech industry for a decade unlike Google"
        How has that been done that's any different than any other similar company? I assume you want their algorithms published, etc., so they can return to yesteryear with nearly useless searches as they used to have because everyone will know how to stuff them.
        .
        tom@...
      • about bing

        @anono bing won't lead at least not for another 5 years and here is why.
        Microsoft has stupidly turned a blind eye to user stats. It thinks Us is the only market worth pursing ??? Bing is designed for broadband users. If you notice most google products except for G+ scale down appropraitely or at least give you an option to do so when you are connected with a slow connection.
        Hotmail is only sweet when you use broadband - even their msdn blog makes the same stupid mistake. All videos in the name of HTML5 begin autoplaying even if you had no intention of watching it in the first place.

        This "Lightness" is one of the main secrets behind Google's success and if bing does not follow suit, there is only money bleeding in their path - they really do not know how to think like an internet company.

        If you still doubt this, then ask yourself the secret behind facebook's dominance.
        Myspace was really cool but people without broadband had to deal with heavy downloads before accessing the site - facebook made it light. Infact one of the things I was told about facebook 4 years back (before I joined is) once you are in, you can use the site even with the slowest of connections.
        I have to stop writing now.
        vezycash
      • RE: Google's highly profitable secret war against small businesses and jobs

        Microsoft's Bing is every bit as ad funded and self serving as Google. The basic difference is the quality of the search results in much better on Google. Both are parasitic in that they take a substantial percentage of the profits of small companies advertising on their networks, often nearly 100% or sometime far more than 100% of the company's profits.
        bioresearch
      • Well anono, it's too bad were talking about Google here

        @anono
        and not MS, but nice try at the misdirection.

        You want to compare the action of a company from close to 20 years ago to the actions of a company today?

        Sure MS got caught, [b]and[/b] punished for that, but that doesn't let Google get away with underhanded things today.

        The "He did it, so I should be able to do it, too" excuse is better left to 10 year olds.

        What Google is doing in this case isn't illegal, but I questions the morals of it.

        But then, like the story mentions, Google does give alot of things out for free.
        And it seems some people here will happily ignore Google's moral dealings with "partners" as long as they get some free email and other worthless trinkets.
        William Farrell
    • Oooo, yes

      @anono
      Let us keep harping on something that happened ove 15 years ago, that had absolutelly nothing to do with online advertising, because we all know that a monopolist is right up there with murder.

      Maybe we should advertise with Apple, a company that was run by a person who stole from his business partner and excluded fellow employees who helped create the company from recieving stock at it's IPO. Yes, he was never convicted of grand theft, so it should be OK.

      Or we can go with Google, who even though their deeds have shown what they think of their partners, it is OK as circumventing, and then throwing those that have helped you obtain your postition to the wolves is not a crime.

      Maybe it is time you grew up, dropped the whole "Microsoft is a convicted a monopolist and therefor should be hated" as an excuss to turn a blind eye to the misdeed of those you champion.

      It does give us an insight though, into the quality of a person's character who would turn their attention away from the hurt presently and purposelly caused by this just because the outcome suits a person's wants and desires.
      John Zern
      • Agreed

        @John Zern
        I'm guessing he still palls around with people who had run-ins with the law 15 or 20 years ago. ;)
        William Farrell
  • RE: Google's highly profitable secret war against small businesses and jobs

    Three years ago I identified Google as a malevolent interest. As more about Google comes out, perhaps I will have a little company. If Google depended on my business, it would have gone bankrupt long ago.
    nikacat
    • company..

      @nikacat Before google launched it should have been obvious to anyone armed with the facts that it was going to be 100% untrustworthy from day one.

      Their funding came primarily from a CIA fund, fronted by a group called Sequoia Capital. The principals involved in the funding and launch of google are a who's who of the National Security State apparatus.

      Cycle through the graphics (be reloading the page) on the scroogle scraper home page until you see this graphic, then read up on the money trail leading to google:

      http://www.flickr.com/photos/44948879@N00/3822977155/in/photostream/

      the scraper:

      http://www.scroogle.org/cgi-bin/scraper.htm
      pgit
      • What's that I hear?

        @pgit Is it the black helicopters swooping in?
        cornpie
  • RE: Google's highly profitable secret war against small businesses and jobs

    It's great to see an authority source such as ZDnet looking sometimes at our Search Engine Landscape.
    However, I would only partially agree to this article

    Most small players I help with their SEM campaigns have only limited budgets which they easily burn by doing simple mistakes

    Those errors are often the key to driving price of popular search queries up. A normal business owner with no knowledge of search engine bids will often try to push it site up for the most popular kwd in his category.

    Those small players, multiplied by millions, ensure that bids for top queries remain high. It is not uncommon to see top keywords within each category go up to $10 a click or more.

    By attacking Small businesses too hard Google would likely be killing the goose that laid the golden eggs. My take is Google is moving harder on its tougher but bigger clients, the big brand optimisers.

    See coverage on article below:
    http://www.inmarketingwetrust.com.au/google-war-on-small-businesses/
    fred.tcholko
  • RE: Google's highly profitable secret war against small businesses and jobs

    Great conspiracy theory. Too bad that a much non-sinister explanation exists.<br><br>If Google is displacing mom and pop affiliates it's because it thinks it can do a better job itself (while keeping more of the revenue). For each small affiliate that Google displaces, hundreds of thousands of small businesses in other industries (the ones actually producing goods and services) are benefited by the more efficient advertising channel.<br><br>The focus on brands is Google's reaction to the pressure about spam in results. Established brands are well recognized and have a reputation to keep. Emphasizing them and what they say is one of Google's many attempts to impute quality to content on the web. Social, with Google+, will hopefully yield better results and not rely so much on established brands.
    mcamelo
    • RE: Google's highly profitable secret war against small businesses and jobs

      @mcamelo ,,,
      Not sure I completely understand you, but I do gve you good marks for at least being a thinking person rather than a parrot; kudos.
      tom@...
  • Forgot Comparison Ads.

    This great infographic would have been even better if it had remembered Google Comparison Ads. Highly disruptive entry into the sales funnel of many businesses, especially those which provide research/comparison services for high-payout affiliates. Bing recently did a similar thing by blocking Cyber Monday aggregators.
    websiteadvice
  • RE: Google's highly profitable secret war against small businesses and jobs

    I couldnt get pass that line "partner sites suffered a massive drop?" they went from growth of 23.5% to growth of 19%. That's a massive drop? They still grew right? what would you have said if those partner sites SHRANK?

    I didn't finish this article, and will be very careful when (if) reading more of your articles.
    Jean-Pierre-
  • RE: Google's highly profitable secret war against small businesses and jobs

    Largely twaddle. Google's war is against the spammers and scammers who pollute the web and abuse both Google search and Adwords (not to mention just about everywhere else, including here).

    I'm sure some innocents have been damaged along the way ... but do you really want to give the web to the scammers?
    Heenan73
    • RE: Google's highly profitable secret war against small businesses and jobs

      @Heenan73 ,,, There seems to be a faction here of at least 3 posters so far who do appear to want to give the web away to scammers and worse. I can't tell whether they're a set of trolls and use aliases up the ying-yang yet, but they would give it all away according to their posts. One in particular will say it's not "broken" and then later in the article will say to "not fix" it. And the rest of his opinions like up along the same lines.
      tom@...