), which is primarily known for its search advertising business, is
also trying to grow its display advertising business. Google has
hundreds of partnerships with other websites, and its partner
advertising product is known as 'AdSense'. AdSense is an agreement
involving Google providing advertising services to its partners and
then sharing revenues with them. Google competes with Yahoo (
), Microsoft (
), AOL (
) and Facebook in the search advertising as well as the
display advertising market.
One catalyst to the display ad business is the social buying
phenomenon with companies like Groupon, which buys ads through
AdSense. We estimate that AdSense accounts for around 5% of our
$603 price estimate for Google stock
. Our price is close the market price.
Social buying phenomenon on the rise
Social buying is one of the hottest online trends these days
where people share great deals in a group. Groupon, along with
LivingSocial, are the leading companies to catch up with this
trend. Groupon partners with businesses to offer consumers
incredible savings on products and services. Social deals
create a win-win situation for both the consumers and the
businesses. Consumers benefit from highly discounted deals while
businesses benefit from a more focused and inexpensive advertising,
and at the same time they increase their customer base.
However, the barriers to entry in this market are low, and
players like Google, Yahoo, AOL and Facebook have jumped to tap
into the growing social buying phenomenon - Google 'Offers' and
Facebook 'Deals' are such examples. We touched upon this
phenomenon, and how competition among these players has
intensified, in our previous note titled
Yahoo Enters the Local Marketing Arena
How Groupon is benefiting Google?
We believe that the Groupon's advertisement spend on AdSense is
substantial. This can be determined from the fact that Groupon's
competitor LivingSocial spent $2.4 million on AdSense in June 2010
alone. Moreover, LivingSocial has a much smaller reach than Groupon
since it has a presence in far fewer countries and cities than
Groupon. Additionally, Groupon's attractive business model means
that its ads carry higher user click through rates, as many users
tend to click on the discounted offers. Hence Groupon's ads create
higher monetization opportunities for Google AdSense program.
We estimate that AdSense program's revenue per page view (
) could increase from around $1.70 per 1,000 page views in 2010 to
around $2.20 by the end of Trefis forecast period. However,
although Groupon's advertising spend on AdSense seems substantial,
the benefit to Google stock is limited since AdSense contributes
little to Google's stock value.
See our full analysis and $603 price estimate for