Depth: Traffic surges, ads drop sharply, how's Google doing in the outbreak?
As the new coronavirus epidemic rages around the world, people are increasingly relying on tech giants to meet many of their basic needs: keeping productivity through Apple, keeping reserves and rations through Amazon, contacting loved ones via Facebook, and searching Google for information about the outbreak, foreign media reported. But while there has been a surge in use of the products and services offered by the tech giants, what about Google's survival as revenues in core businesses such as advertising fall?
"This is an unprecedented moment," Sundar Pichai, chief executive of Google and alphabet, its parent company, wrote in an email to employees in early March. It is important that we deal with this matter with calm and responsibility, because many people are counting on us. "But demand for the search giant is unlikely to translate into revenue, as the outbreak has had a huge economic impact on Google's most important business advertising.
Google's revenues could plummet 18 per cent in 2020 and $28.6bn from the new coronavirus, according to estimates by investment bank Cowen and Co. as tourism, hotels and other industries slash advertising spending. Such a crackdown would not change the long-term health of advertising as a business for Alphabet, although analysts said it could change the composition of the company and prompt Alphabet to diversify further in other areas, including Original Content on YouTube, Waymo, the self-driving division, and its secret lab X.
In good times, Google's advertising business made an outrageous amount of money, generating $134 billion in advertising revenue in 2019, or 83% of Google's revenue, which the company uses to fund or support other teams and departments. But an unprecedented crisis like the new coronavirus outbreak could have a major impact on advertising revenues as companies cut budgets in the face of growing financial turmoil.
Andrew Frank, vice president and analyst at Gartner, a market research firm, has found evidence that travel and hotel companies are cutting or eliminating ads that appear in Google searches. "Two days ago, I was watching Marriott and Hilton ads," he said. If you just search for these two words on Google, they usually run paid search ads for their brand name. But they don't do it anymore, and some companies don't even advertise at all. "
Another area in which Google may be feeling the pressure is Waze. The popular crowd-sourced car navigation app is driven by advertising and user engagement, and Google bought it in 2013 for $1.3 billion. But restrictions in many states do not encourage citizens to drive unless they are "necessary," which is likely to mean a sharp drop in user engagement, not to mention a reduction in advertising spending.
U.S. President Donald Trump announced at a news conference in mid-March that nearly 1,700 Google engineers are developing a website to help people test for new coronavirus viruses.
His announcement came as a surprise to everyone, including Google itself.
But Mr. Trump's statement, while inaccurate, noted that Alphabet, with its vast technical and scientific resources, has the ability to play a huge role in helping society fight the outbreak.
Alphabet's life sciences company, Verily, launched a new coronavirus evaluation and testing site in California shortly after Trump's announcement, offering free online screening appointments and directing patients with symptoms to an undecloded test site. Google also offers its video conferencing tool Hangout Meet to all G Suite customers, regardless of their pricing plans, until July 1. In addition, Google has created an outbreak fund designed to support infected or quarantined temporary employees or suppliers.
Earlier this week, Google announced several updates to provide more resources on the new coronavirus, including a website that provides basic information about the new coronavirus, safety and prevention tips, as well as links to home-based work guides and "stress response tips."
YouTube has joined other streaming platforms in reducing the default video quality to save bandwidth. YouTube is currently doing this in Europe, but a spokesman confirmed that the company will default to the standard definition of all traffic worldwide around next month. In an effort to curb the spread of misinfo, the popular streaming service also announced earlier this month that it would change its rules to run ads only on limited channels that discuss new coronavirus outbreaks, such as news channels. This does not include deleting thousands of misleading videos and highlighting healthy and accurate information in a variety of ways.
Google is still in a good position to weather the new coronavirus outbreak, even as ad sales revenue is expected to decline. First, its growing Google cloud computing business, which has a wide range of customers including PayPal, Tagit, 20th Century Fox and The New York Times, is not expected to be affected by the downturn. From 2018 to 2019, Google's cloud computing business grew 53% year-on-year, generating $8.9 billion in revenue last year.
Charlene Li, founder and senior research fellow at Altimeter, a digital research and consulting firm, suggests alphabet take an althroid route during the new coronavirus outbreak. "In this crisis, they will be under enormous pressure not to re-gain financially in any significant way, " he said. He added that over time, Alphabet's website could provide marketing and advertising support to professional clinics that wanted to advertise.
Analysts agree that Alphabet should focus on business diversification rather than volatile advertising. "This could accelerate Alphabet's continued diversification, so it no longer relies solely on advertising because the limitations of Google's day-to-day business are becoming more apparent in such crisis situations," Frank said. "
That could mean investing more in original Content on YouTube, which you can access without ads through paid members. YouTube has about 2 billion users a month, but YouTube Premium and YouTube Music have only 20 million subscribers. Given that its budget is only a fraction of what competitors are investing in, the streaming platform is likely to invest more in developing original content. YouTube admits it spent hundreds of millions of dollars on original content in 2019. By comparison, Netflix spent an estimated $15 billion on original content, and Amazon spent $7 billion on video and music content last year.
The new coronavirus outbreak is so devastating that it makes you rethink the entire technical foundation of our infrastructure to see if there is a different way to do business around the world and are less vulnerable to such damage. At this point, Alphabet is not so different from the advertising-dependent business of its revenue. But unlike some companies struggling to survive, Alphabet has the financial strength to win.
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