I find the search business model strange.
What I find strange is that I am a fairly heavy search engine consumer, reasonably well-off, and yet I pay no money to the search engine. I have never clicked on a search ad. My search usage is subsidized by the vast sea of people who actually click on an ad.
And I am not alone. I am sure if I went to Google (the corporation) and asked them how they connected with products and services – I’d hear that they used Amazon.com, Ebay.com or Yelp.com or some other site. Anything but ads. It’s as if the engineering team of Windows had decided to use Macs.
My conjecture is that the people who don’t click on ads are a part of a small minority – I call them the “mac minority” (I’ll explain in a sec) – who use the search engine heavily, and yet are savvy enough to never click on an ad. This minority knows how to dig up information more effectively than a Google ad. This “mac minority” is also well-educated, more well-off than general population and heavier users of search – in other words, an attractive demographic for search engine companies. And yet, Google makes little money out of this demographic.
Hopefully, Google is paying attention to this fact. Most definitely, investors should pay attention to this fact. Because behind this fact lies a cautionary tale.
The “Mac Minority”, explained
Flashback to the year 2000. Microsoft’s Windows had a huge market share of the computing devices market. Apple’s Mac computers had a tiny market share – less than 2%. I call these Mac users a “mac minority”. This “mac minority” was well-off, educated and discriminating, and Apple consciously went after these users. For a while, Windows kept winning (because of its cheaper price, application ecosystem, its focus on enterprise, etc). But within 10 years, we have reached an inflection point (the mobile device revolution) that allowed more and more consumers to afford an Apple device – in other words, to behave like the aforementioned minority. And just like that, Apple now has more growth than Microsoft.
Ignore the “Mac Minority” at your peril
If the “mac minority” of the search user-base prefers to use something other than Google ads, we need to ask why that is the case (and why the rest of the users don’t). Maybe the majority of users don’t know that Amazon.com exists. Maybe they do know of Amazon.com‘s existence but find it cumbersome to type the URL. Maybe users find Amazon.com‘s user-interface confusing. I don’t know.
What I do know is that eventually these barriers will go away. In 10 years, a new generation of web-savvy internet users will be aware of Amazon.com. They will find it easy to type its URL. They will find the Amazon.com user-interface intuitive.
Bottomline: if the “mac minority” of the search segment is a hold-out, then Google should watch out for an inflection point that makes the majority of users behave like that minority. Because it will happen. Google has to focus on monetizing the “mac minority”, because otherwise the search ads business may be gone faster than they think.