Google Analytics: The Company's Insurmountable International Challenge

Google Inc. (NASDAQ: GOOG) has trouble in some of the largest markets overseas. As its share price rockets to more than $900 and reaches all-time highs, investors anticipate that its advertising revenue, its near-ubiquity of Android on smartphones and a possible sales breakthrough by YouTube will sustain a stock level that is much higher. However, for that to happen, the company must conquer several of the world’s largest national markets. And that has become nearly impossible.

Google’s forays into video, maps, news, email and dozens of smaller projects has earned it hundreds of millions of customers. But Wall St. has continued to ask what benefit these have. Google’s management has even questioned the usefulness of some of these projects. Several have been shuttered since Larry Page returned as chief executive officer.

Google’s upcoming earnings should offer clues about the search company’s recent success, and Page may articulate what he believes are important future plans. If history is any guide, his comments will be vague. Google will continue to add staff, he likely will say, and perhaps continue its driverless car initiative and work to generate energy on its own to power its technology systems. Not a single one of these, or other comments that might be anticipated, offers a word of how Google plans to move beyond the wild success of its original business.

Google, management may argue, has entered the hardware industry, but it is with almost no success. Its ownership of Motorola has yielded nothing. It remains an also-ran in a smartphone industry that continues to be dominated by Samsung and Apple Inc. (NASDAQ: AAPL). Google’s efforts to create its own phones and personal computers have been much less successful that it anticipated.

Google’s search market share in the United States and Europe runs from two-thirds to three-quarters of most national markets. That share is so high in Europe that the European Union has challenged its dominance there, which could force it to surrender some of its success.

The world’s largest nations by population are China and India, which, respectively have over 1.3 billion and 1.2 billion residents. These are followed by several third world nations, which include Pakistan and Nigeria. In ninth place by population is Russia at 143 million. Google can only claim the most modest market share in Russia and China, and that is unlikely to change. Without a much greater success in these nations, it is difficult to argue that Google’s expansion can increase substantially outside its present markets, particularly in terms of its critical advertising revenue stream.

In China, Baidu Inc. (NASDAQ: BIDU) has effectively been blocked Google. Some analysts would argue that actions of the central government have aided Baidu’s success. The cause does not mean as much as the result for Google. Baidu’s share generally is assumed to be more than 70%, and it is followed by local companies Qihoo 360 and Sogou. Baidu has begun to mimic Google beyond the search business by branching into apps, and likely its own operating system

Google’s search traffic in Russia falls well behind local favorite Yandex. CNET recently reported on the global popularity of search engines:

One of the reasons that Yandex is doing so well in the search world is that it has a massive Russian-speaking audience. The country has a population of nearly 142 million. According to Yandex, it generated 60.7 percent of all search traffic in Russia in October 2012. Besides Russia, it also operates in Ukraine, Kazakhstan, Belarus, and Turkey.

Google can boast better results in India. However, it has challengers there too, including Yahoo! Inc. (NASDAQ: YHOO), Microsoft Corp.(NASDAQ: MSFT) and several local companies.

Google may suddenly report that it has found a way to make billions of dollars on Android, YouTube or its business apps segment. For the time being, nothing points toward those directions. Google’s overall revenue may continue to move up impressively, but it is largely fenced out of important international markets.