Everyone knows that Google butters its bread with revenue generated by AdWords: paid, sponsored links that appear every time you search something on Google, the world's most popular search engine.
As Amir Efrati of the Wall Street Journal writes (June 3), however, the company has largely failed to crack the $20-billion local business advertising market, which has long been dominated by traditional media like TV, radio, newspapers and the Yellow Pages.
Now, the stakes are high for Google as other startups like Groupon and Yelp have already established a presence in the local-business market. Efrati notes that Google had previously discussed acquiring each of those companies but no deals materialized. Meanwhile, both Groupon and Yelp have recently gone public.
Nevertheless, Google managed to acquire more than half a dozen companies since early 2011 -- at a cost of about half a billion dollars -- in order to effectively court local businesses to purchase ads under its new model. "Google hopes to weave some of these acquisitions together with its current products into a portfolio of tools that can serve the needs of local-business owners," Efrati writes.
"The project combines several products and services aimed at small businesses under a single banner. It is based on a mix of internally developed software and recently acquired technologies that the company hopes eventually will bring in billions of dollars a year in new revenue," Efrati explains. (See the above graphic, prepared by the WSJ.)
"Central to the effort is Google+, the company's social network, which it hopes consumers will use to interact with local businesses that now have special Web pages on the network. Those Google+ pages will draw traffic from the company's Web-search engine. When shoppers visit these businesses, Google wants them to use their Internet-connected phones like a digital wallet, earning loyalty points and making payments at stores that sign up for Google's new services."
A lot of these tools exist in some shape or form on businesses' websites or branded apps (think Starbucks' loyalty and mobile payment app, for example), which until now have been reserved for large retailers and department stores -- not your local mom-and-pop businesses.
Google's hope, as Groupon and Yelp have done to some success, is to build a viable, mobile network of applications that will be a) useful and convenient for consumers (save time and money) and b) worthwhile for local businesses to advertise upon (increase sales and loyalty).
But first, of course, Google must prove the value of this new ecosystem to both parties.