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As Antitrust Concerns Mount, Google’s Ad Business Is Nearing Its Ceiling

By Ezra Doty, CEO, Quorum

Recent testimony in Google’s antitrust hearing included an internal email from May of 2019 stating, “We are short [redacted]% queries and are ahead on ad launches so are short [redacted]% on revenue vs. plan.” The email goes on to discuss possible ways to increase the volume of queries from Google’s existing user base, such as modifications to the user experience.

Since that time, Google’s average ad revenue per US user has grown from an estimated $173 in 2018, to $309 per in 2023. The company clearly figured out how to wring more revenue out of its users. But how much more is possible before they max out?why not focus on growing its user base?

The shortage of queries Google identified back in 2019 is tied to smartphones – one of the main platforms for internet search queries – having reached mass adoption by 2018. 

Since then, smartphone sales have been in decline. And Google has had to rely on vectors other than an increase in search volume for growth.

Searching for revenue

Google monetizes ad space served to people after they have searched for terms that indicate intent to buy products or services, such as “where to lease a Nissan Rogue,” “best snow blower,” “Disney World deals” and so on.

For years, Google added new users, which brought a new supply of query-driven ad space. Increasing spend by advertisers coincided with an increased supply of search behavior.

Prices in Google’s ad space auctions stayed relatively stable with supply and demand growth at the same time. With no additional supply of these queries, and continued new demand from advertisers, the prices spent per user/query continue to rise.

However looking at the volume of items consumed in the U.S. over that timeframe (using average pounds of wheat flour or number of cars sold/leased as a representation of consumption in the chart above), there is only a minimal difference in the amount of items actually being purchased.

In addition to query supply constraints, another driver of Google’s increased revenue per user in recent years is likely due to inflation, which rose by more than 24% between January 2018 and October 2023, causing households to significantly increase the amount that they are spending for the same goods and services.

Peak Google?

With very few potential users left to acquire, and inflation (hopefully) cooling off, it appears that Google is reaching a peak state with its advertising business, which explains the increasing dependence on new revenue sources outside of advertising such as Google Cloud that were highlighted during their recent Q3 earnings call.

Meanwhile, as Google continues to mine other forms of advertising monetization, media companies are beginning to rebuff further encroachment. Take Gannett’s recent lawsuit alleging that “Google controls how publishers sell their ad slots, and it forces publishers to sell growing shares of that ad space to Google at depressed prices.”

Similarly, a recent News/Media Alliance Study raised concerns around Google’s “pervasive unauthorized use of publisher content to power generative AI technologies” in response to Google introducing AI search features that surface core news content while at the same time removing the need for the user to visit the actual publisher website. 

While this strategy supports Google’s need to increase the amount of revenue generated per user, it directly limits publishers’ ability to earn income from content that they are paying journalists to create – further exacerbating concerns about the erosion of journalism, a field where employment has already been reduced by 26% since 2008.

And it also further exacerbates antitrust concerns around Google.

Maxed out on new user growth and reaching the limits of what advertisers can afford to spend with them per item sold, and amid increased scrutiny from lawmakers, shareholders and the greater advertising ecosystem, Google appears to be under extreme pressure to reinvent itself on an entirely new scale – a challenge it has never faced before.