The Business of Relying on Google

Joel Anderson |

Google SEOMuch was made of the degree to which Zynga (ZNGA) depended on a single revenue stream in the lead-up to its IPO last year. Zynga depends on Facebook (FB) for over 90 percent of its revenue, making some skeptics wonder whether or not the company was all that healthy. Similarly, review site Yelp (YELP) relies on Google (GOOG) for roughly 75 percent of its web traffic. It's no wonder that sub-industries in online marketing and terms like "Search Engine Optimization" and "Keyword targeting" have grown in prominence in recent years. To be certain, no company wants to rely so heavily on other business entities for its life's blood, but one company may have more businesses that its propping up than any other. Google is positioned well as the world's most visited website to make or break the future of many companies. As an example, content company Demand Media (DMD) said last month that Google's Panda algorithm update was the main factor in the company's $6.4 million loss in its fourth quarter results.

Web Traffic Essential

Google's hold on the internet is strong, dominating search engine traffic with over 65 percent of total searches coming through its website. This sort of hold on internet traffic can make or break internet companies that rely on traffic to survive. Greater traffic means more eyeballs and better ad revenues, and Google is the lynch pin for improving traffic. One example could be eHealth, Inc. (EHTH). The website for eHealth is the number one result for a Google search for "health insurance." This means thousands more hits for the eHealth website every day at a company that states that “We depend upon Internet search engines to attract a significant portion of the consumers who visit our web site” in its 10K.

There are a number of other publicly traded companies that need Google's traffic desperately to keep their companies afloat. In 2009, Google generated 89 percent of traffic coming to Answers.com and 88 percent of the revenue for the company, which is owned by private equity firm Summit Partners and is one of the 100 most visited websites in the United States. Local.com (LOCM) is also heavily reliant on Google, getting over half its total traffic from the site.

Google also props up a number of entities through its money. One of the primary examples is AOL (AOL). Google is the default search engine for AOL users, a privilege that Google paid $556 million for in 2009. That year, it represented 17 percent of AOL's total revenue.

Ubiquitous Site Could Dominate Business in the Future

Google's hold on search traffic could mean dramatic things as more and more commerce shifts to the internet. Google's ability to route traffic to certain sites through its algorithms while dominating internet advertising could mean that the company could continue to grow to the point where even more major companies will rely heavily on Google for their own business models.

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to: http://www.equities.com/disclaimer

Companies

Symbol Name Price Change % Volume
YELP Yelp Inc. Class A 36.49 0.34 0.94 955,458
ASTC Astrotech Corporation 1.56 -0.08 -4.88 26,797
DMD Demand Media Inc. n/a n/a n/a n/a
GOOG Alphabet Inc. 762.52 12.02 1.60 1,394,158
ZNGA Zynga Inc. 2.95 0.09 3.15 8,295,535
EHTH eHealth Inc. 10.51 0.30 2.94 98,760

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