Google: Profiting From New Local Search Enhancements

by Erica Thinesen

After top travel review websites Yelp! (YELP) and TripAdvisor, owned by Expedia (EXPE), removed travel and location reviews from Google Places in 2011, Google decided to take matters into its own hands by creating a unique travel review website to post original content. Instead of building a travel site from scratch, Google acquired two well known travel and location review websites – Zagat in 2011, and Frommer’s, acquired just a few weeks ago.

Google+Local

Since social media has transformed how people find everything from tourist attractions to local restaurants and other amusements, it’s no surprise that large companies like Google want a piece of that revenue action. With the success of Google+, the company’s social network, capitalizing on the success of travel and location review websites just makes sense.

By offering a new local search feature under the name Google+Local, the company, in one swift move, will maintain its current  social media members by providing quick and easy access to online reviews while courting new members that want more than what other social media sites like Facebook (FB) currently offer. Users of Google+Local can look up and read reviews about local businesses and post reviews or make comments to existing ones to share their experiences with others. With the acquisition of Zagat and Frommer’s, Google already has millions of reviews in place which reduces the cost of starting up a new division from scratch.

In addition to adding new local search features to Google+, the company has also enhanced Google maps for its Android devices. Users can now research over 1 million public transit stops all over the world, download maps of ancient ruins in Mexico, and view additional information such as border lines when conducting searches using zip codes and city names.

With all these new features, users can rely on Google to find specific places, determine how to get there using public transportation and gauge how far these places are from other places in very little time. Not only does this make trip planning easier, it is also very convenient when relying on a mobile phone – for tourists visiting other countries, this could make traveling much more enjoyable and memorable. If travelers want to revisit a specific place, they can look it up in the Location History dashboard which keeps a record of recent visits.

Google’s Place in the Market

It’s worth taking a moment to analyze the potential impact of Google+Local, as this could provide investors clues as to the company’s plans for the future. In addition to providing consumers with the content they demand, Google now has more space to place ads, which will generate steady revenue for the company and its affiliates. This is great news for investors that worry the company has spread itself too thin in recent years. And, since the company owns the most popular search engine online, it can place its pages at the top of search results to generate even more revenue and exposure.

According to comScore, Google controls 66.8 percent of the U.S. search engine market. Microsoft (MSFT), which owns search engine Bing!, controls 15.7 percent of the market, while Yahoo! (YHOO) controls 13 percent.

With $3.67 billion in free cash flow according to the Google’s second quarter 2012 income statement, Google has plenty of cash on hand to enhance Google+ with this travel feature and much more going forward. Investors need to consider how Google uses its earnings to make its products and services even better for consumers. Since local searches have increased 67 percent since 2010, this is a wise investment on Google’s part.

Google earned $12.13 billion in revenue during the second quarter and spent $4.34 billion in COGS (Cost of Goods Sold). The company spent $3.88 billion in SG&A expenses overall, with $1.59 billion spent on research and development.  With a healthy balance of revenue and spending in the right areas, Google continues to impress.

Even though Google has created a huge online empire (not to mention a dedicated following of mobile phone fans with its Android OS), the company knows it must still contend with the competition. While Bing! has failed to show much promise since it entered the market in 2009, the company continues to improve upon other products, including a revamped Hotmail interface, still the most popular email service, ranked above both Gmail and Yahoo! Mail.

Improving on Existing Products/Services

The prospect of additional revenue from ads placed on local search results pages should make Google investors happy. By acquiring two well known and established travel and trip review websites, Google has positioned itself to become the “go-to” place for information and reviews from other consumers. Social media is here to stay – no one can deny this fact. How companies capitalize on this new media will determine how profitable companies will remain.

With increasing competition, standing out from the pack remains very important. Google has taken important steps in creating its social media presence by relying on its brand, adding new and useful features to existing products and services, and by acquiring other companies with similar reputations for producing quality content.

Google reigns over online content simply because it controls the most popular search engine. The company can set content standards, make changes to standards whenever it wants, and promote its own interests as it sees fit.

And while this may seem like a monopoly to some, consumers still have other options when it comes to finding information online. For example, instead of conducting a search for reviews about a specific place using Google’s search engine, consumers can go to Yelp! or TripAdvisor. Google’s hope is to engage people already signed into Google+ by providing location search options directly to them. With an estimated 100 million active accounts, Google has a large pool of consumers to draw from, which makes the company a solid competitor going forward.