By Richard Agnew
Google’s youthful founders Larry Page and Sergey Brin are already multi-billionaires, but as Richard Agnew discovers, their plans for the Gulf could net them even greater fortunes
|~|cov_147368_redux-200.jpg|~|WORD POWER “Information is a good thing; that’s the whole premise of the company"|~|Google’s youthful founders Larry Page and Sergey Brin are already multi-billionaires, but as Richard Agnew discovers, their plans for the Gulf could net them even greater fortunesThe Dalles, a city of just 12,000 people on the banks of the Columbia River in Oregon, attracts few outsiders, save the odd tourist hoping to spot the local mythical creature Bigfoot. In the last few months, though, reporters from all over the world have rolled up, on the trail of the activities of two other mythical figures, Larry Page and Sergey Brin, the 32-year-old co-founders of Google, the world’s number one internet search engine.
The media is gagging to know what exactly is happening in the huge, windowless buildings that cover an area the size of two football fields Google is building on the city’s outskirts, guarded on one side by the river and the rest by high fences. Such is the secrecy surrounding the site, almost nothing is known apart from the name of its owner and the company codename for the whole shebang: ‘Project 02’.
Most people expect that the buildings will house the world’s largest supercomputer, harnessing cheap electricity from the dams along the river to power rows and rows of servers linked to the internet. Google is already estimated to have more than 450,000 servers, clustered in data centres around the world. But, in one flip of a switch, Project 02 is likely to enable Page and Brin to further widen the growing chasm between Google and its rivals Microsoft and Yahoo! Simultaneously, it will be able to further propel the company’s international expansion.
Last month Google reported revenues of US$2.46 billion for the second quarter ended June 30, 2006, up a healthy 77% on the corresponding period in 2005 and an increase of 9% compared to the first quarter of 2006. Revenues from outside of the US contributed 42% of total revenues, the same as in the first quarter of 2006 and 39% in the second quarter of 2005. Significantly, had foreign exchange rates remained constant from the second quarter of 2005 through the second quarter of 2006, Google’s revenues would have been US$18 million higher.
As Dennis Woodside, Google’s director of emerging markets, told Arabian Business this week: “We’re looking at a range of emerging countries; any place we didn’t have operations a year ago. You can’t just serve the Western world, you need to think about everybody else. That’s why we’ve started to look at new markets all over the world and to develop services for them that are on a par with those available in the West. We’re fortunate our business and infrastructure is robust enough to allow us to do that.”
Google currently earns the lion’s share of its revenues through its Adwords service, which displays relevant adverts next to the results when users perform searches on its various sites. But, aware that the growth of this cash cow will eventually tail off, Google is dipping its toes into several potential new revenue streams. On 7 August it became the leader in the nascent web-video advertising market via a deal with Viacom to syndicate video clips from brands such as MTV and Nickelodeon to other websites and integrate ads into them. Google also tied up with another media giant News Corp, under which it will provide all the search and text-advertising technology on News Corp’s websites, including MySpace, the enormously popular social-networking site.
Google is also spending billions of dollars creating new products, such as spreadsheet and word processing programmes that web users can access online, which many see as a direct challenge to Microsoft’s dominance of the business software market.
But new business territories rather than new business tools are an even more tantalising prospect for internationally-minded Page and Brin. In the last few months alone Google has opened new offices in Turkey and Russia – Brin is a native of Moscow, incidentally– and the company recently unveiled plans to double the number of Chinese sites using its advertising services by the end of 2006. “I don’t know where [Chinese] revenue growth will be, but it will obviously be large,” Google chief executive Dr. Eric Schmidt told the media earlier this year.
Although the Middle East is not likely to offer growth on the same scale as China, the region is still part of Google’s strategic bid for worldwide web domination. The company plans to open three offices in the region over the next few months, responsible for developing a strategy to sign up Middle Eastern advertisers and users.
“We’ve looked at the number of queries we get from Arabic speaking countries and we’ve seen there’s phenomenal growth and the potential for significant sized markets to develop,” says Woodside. “We’ve decided we need to start investing there now. We need to be in these markets to understand what is going on, so that we can develop products for these users.”
Although few people in the region currently use Google to search and make their purchases, Woodside sees an opportunity to persuade firms to adopt search advertising to target international customers.
“There is a large tourism business in different markets in the Middle East, and we could be a high value platform for businesses living off tourism to reach a broader audience,” he says. “In Egypt, for example, dive shops have found Adwords to be a great way to attract tourists from Europe. They have relied on the tour operators, but now they can go direct to the users. There are a lot of small businesses out there that could do the same. We think the Middle East could become a significant advertising market.”
Egypt, obviously a major tourism centre, as well as home to Linkdotnet, the company which happens to manage Microsoft’s Middle East websites, is where Google has decided to start all this off.
The company recently appointed ex-EMC and Sun Microsystems executive Sherif Iskandar to head its Middle Eastern division, and is in the process of setting up an office in Cairo. Following that, the firm is also planning to establish regional offices in the UAE and Morocco - two countries from where it has seen usage rapidly increase, Woodside says.At the same time, Google is also in the process of localising its services – primarily, making them available in Arabic.
Its search engine, email service and Adwords software received that treatment some time ago, while its news site, Google News was launched in Arabic in May. Due to the region’s low penetration of credit cards, Woodside says it is also developing an internet payment system that would better suit the small Middle Eastern companies it hopes to attract.
Another potential move is the Arabisation of the Adsense service, which allows individual websites to display advertising from Google’s clients and take a cut of the fees. During the second quarter of 2006, Google’s partner sites generated revenues of US$997 million, or 41% of total revenues. This is a 58% increase over network revenues of US$630 million generated in the second quarter of 2005 and a 7% increase over first quarter 2006 revenues of US$928 million. However analysts say that the Arabisation of Adsense would only be really effective once internet uptake throughout the region increases.
“We are still thinking about how we develop products for the Arabic speaking population,” says Woodside. “We have hired Arabic speakers for our existing R&D centres, but it will help us to have people living in the market and come up with a strategy.”
Google has also had to go through this learning process in other new markets, but it hasn’t always been problem-free. After entering China, the company received a lot of bad press for complying with the government’s censorship policies – and Woodside admits the firm will have to “think that kind of issue through” when it comes to decide its Middle East strategy.
Another obvious challenge is that across the region, levels of PC ownership and subscriptions to high-speed internet services remain very low. According to Madar Research, there are currently 23 million people online in the Middle East, although they are expected to more than double by the end of 2008.
This means advertising on Google’s Arabic client sites would potentially be less valuable than elsewhere in the world, and perhaps goes some way to explaining why only a small fraction of the Middle East’s US$5 billion advertising budget is spent on the web.
Woodside admits it will take some time for the region’s online advertising market to mature. “At the moment we’re just focused on providing services in Arabic and localising the products,” he says. “Then, over time, we will help people to monetise their websites. The market will start to develop and we will turn to earning revenues through our ad platforms.”
The region’s problem of low internet adoption could also be where Google’s latest big idea – targeting mobile phone customers - comes into play. The search engine expects mobiles and wireless laptops to become a big driver of new business, and is reorganising the way it displays search results to suit their users. It is also testing a range of new search-related products that would be accessed solely on mobiles and other pocket-sized wireless devices.
“You only have to look at the global trends for mobile use and PC use to see where our business is going,” Deep Nishar, the company’s director of wireless products, told The Times recently. “In India, mobile-phone ownership outweighs PC ownership by a ratio of two to one. And there are five million more mobile-phone users coming online every month. By the end of this year there will be more mobile phones in India than in America.”
As mobile phone ownership grows in the Middle East, Google plans to team up with the region’s GSM operators to target their subscribers. “If people are choosing to spend their money on mobile phones, they won’t necessarily see the value proposition of the PC,” says Woodside.
“A mobile phone can help you in both your business and social life, and so do we. We have put a lot of investment into our mobile resources and we have deals in Russia and Poland with mobile operators there, so it makes sense that we will start that kind of relationship with mobile operators in the Middle East.”
Ultimately, he says these kind of services will hasten social and economic development, as well as helping to keep Google’s super-computers busy back home.
“People at Google believe that a lot of problems are caused because people can’t access information,” he says. “Information is a good thing; that’s the whole premise of the company. With the way the world is heading, there isn’t a lot of communications across cultures at an individual level. Perhaps we can help this happen.” ||**||