San Francisco: Google's feud with the Chinese government may be the smallest of its challenges as the search leader contends with slowing growth, regulatory scrutiny and a shift in advertising spending.
While Mountain View, California-based Google has the biggest share of online search at home and in Western Europe, it has been leapfrogged by social network Facebook as the most popular US website.
Google's ventures in mobile, video and display ads have failed to match the success of its search model, and regulators may thwart efforts to expand through acquisitions.
As sales gains diminish, some investors are concerned that Google has begun to resemble Microsoft, which generates billions of dollars in cash from its mature flagship business yet has struggled to conquer new markets.
Google's sales increased 9 per cent last year after almost doubling in 2005.
"They were the new kid on the block and everyone thought they were great," said Daniel Morgan, a money manager at Synovus Financial in Atlanta, which oversees about $7.5 billion, including 27,720 Google shares, Bloomberg data shows.
"That kind of euphoric, love-at-first-sight status has changed."
Recently, after a two-month dispute with China over censorship issues, Google shut its mainland Chinese search engine and redirected users to its Hong Kong site. Google was second in the Chinese search market, behind Baidu.
Google shares, which doubled last year, have dropped 8.6 per cent in 2010, the sixth-biggest decline among the 75 technology stocks in the Standard & Poor's 500 Index. The stock is 24 per cent below its peak of more than $740 (Dh2,718) in 2007.
Google spokeswoman Jane Penner declined to comment.
Facebook Rivalry
One of Google's biggest challenges comes from Palo Alto, California-based Facebook. Last month, Facebook surpassed Google as the most visited website in the United States, accounting for more weekly visits than Google.com, according to research firm Hitwise.
Facebook's gains at Google's expense weren't lost on Levi Strauss & Co. The closely-held maker of blue jeans and Dockers pants is advertising on Facebook this year for the first time, while its budget for search, Google's mainstay, is staying about the same as last year, said Megan O'Connor, director of digital marketing.
Last month, the San Francisco-based company sponsored events at the South by Southwest music festival in Austin, Texas.
Levi advertised across Facebook for two weeks leading up to the event, targeting 18-34-year-olds who identified themselves as music fans, O'Connor said.
"We are looking at social as a new place for us to spend," O'Connor said.
The same goes for advertisers including Starbucks and JetBlue Airways, which are eager to get their marketing messages in front of Facebook's 400 million users and, like Levi, are spending more on social media while holding steady on search.
"Facebook is not an experiment for us anymore," said Chris Bruzzo, vice-president of brand, content and online at Seattle-based Starbucks.
"It is a key part of how we go to market."
Ford also is boosting spending on social networks at a faster pace than search.
"We provide a platform for marketers to create an authentic, two-way connection with their customers that has not been possible at scale before," Facebook spokesman Brandon McCormick said.
To catch up in social media, Google added a social- networking feature called Buzz to its Gmail e-mail, letting users share photos, comments and clips from its YouTube site. The site drew criticism over privacy, prompting Google to scale back some of Buzz's features.
Google, with almost $25 billion in cash and marketable securities, also bought Aardvark, a site that lets users pose questions and receive answers online. And its Orkut social network has gained wide followings in India and Brazil.
Even with rising competition, Google will benefit as advertisers shift spending to the web, where consumers are spending more time, said Jeff Donlon, an analyst at Manning & Napier Advisors.
"Google will keep making improvements to search and display, allowing advertisers to get a higher return on their investment," said Donlon, whose Fairport, New York-based firm manages more than $25 billion and owns about one million Google shares.
Android-era
Google has also made headway in efforts to expand into mobile and display advertising, where rival Yahoo! Incorporated took an early lead.
In mobile, Google is taking on Apple's iPhone with its Android operating system. Some 6.8 million Android-powered phones were sold in 2009, accounting for 3.9 per cent of the global market, according to researcher Gartner Incorporated.
Most analysts remain bullish on Google.
"They need to show how they're going to monetise things like Android, where they seem to be taking good mobile market share," said Richard Parower, manager of the $533 million Seligman Global Technology Fund at J.W. Seligman & Company.
"How can they turn that into operating profits?"
