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Google faces challenges as it expands

Google dominates the desktops of Internet users, according to a nationwide consumer survey on search engines.

The survey's findings indicate that 48% of search engine users say they use Google most overall, compared to 20% for Yahoo, 14% for MSN and 7% for AOL.

However, Google could face challenges as it expands beyond search into offerings such as comparative shopping, social networking, and e-mail services, according to Part 1 of a pre-IPO report on Google also released today by Standard & Poor's Equity Research Services.

According to the survey, which was commissioned by Standard & Poor and conducted by InsightExpress, an online market research firm, search engine user satisfaction is quite high, with most users (83%) saying they are extremely pleased with the search engines they use, and two-thirds of users (67%) have been using their search engines of choice for more than two years.

Google is the most widely used search engine, primarily because of the relevance and accuracy of its results. However, more than six out of 10 Google users (63%) indicated they would switch search engines if a better service came along.

Importantly for Google's free e-mail service called Gmail, less than one out every four search engine users would be very likely (8%) or somewhat likely (15%) to sign up for and regularly use a new personal e-mail service if it offered unlimited storage and the capacity to search old e-mails, and would search e-mails to target advertising to users.

Scott Kessler, Internet Software & Services Equity Analyst and author of the report, notes that Google is the Internet search leader, whose appealing offerings and opportunities are offset somewhat by notable challenges.

"For 2004, we project Google's net revenues will nearly double, but its margins will narrow somewhat due to increased investment by the company," says Scott Kessler, Internet Software & Services Equity Analyst, Standard & Poor's Equity Research Services.

"At the same time, we believe Google and its shares will also face risks relating to commoditization of the company's offerings, difficulties related to its introduction of new products and services, and competition from the likes of Yahoo and Microsoft.

Google also has a limited operating history, expects to invest heavily in new initiatives, is employing a largely untested price to process and distribute its shares. Based on comparisons to what we consider the company's closest peer, our preliminary estimate for Google's market value is $33 billion to $40 billion."

Part 2 of Standard & Poor's Equity Research Services' pre-IPO report on Google, which will address the anticipated Dutch auction process, as well as valuation in greater detail, is expected by August.

Source: Standard & Poor

Posted by nakul at June 13, 2004 08:30 PM | TrackBack