Sleeping Giant

Today we're talking about India. Of course, India isn't sleeping. Its economy is growing at an incredible clip, but its search market has yet to impress. India sill lags behind the world at large in search activity. It contains over 15% of the world's population, but executes just 2% of the world's searches. (Source: Market Watch) What I find striking about these numbers is the great potential for internet growth in the country, as well as the great opportunity for companies like Google (with 81% of India's search market share) that are well positioned to reap the benefits.

Top Search Properties in India
June 2008
Total India -- Age 15+, Home/Work Locations
Source: comScore qSearch

                                                  Searches      Share of
                                                    (MM)        Searches
Total Internet                                     1,242          100.0
Google Sites                                       1,011           81.4
Yahoo! Sites                                         117            9.4
Ask Network                                           24            1.9
Microsoft Sites                                       22            1.7
Rediff.com India Ltd                                  18            1.5
FACEBOOK.COM                                          10            0.8
People Group                                           9            0.8
CNET Networks                                          5            0.4
Wikipedia Sites                                        5            0.4
AOL LLC                                                3            0.2

First of all, I'm assuming that continued internet penetration in India is all but inevitable. Like any social network or communication device, the internet becomes more valuable and useful as more people use it. Facebook, which captures nearly all of the 18-25 demographic in the US, is several times more valuable to its owners and useful to its users than a comparable networking site that happens to have far fewer users. Similarly, a fax machine is just a box of plastic and metal until enough people make sending faxes a real possibility. To use a cliché (but a good one) the tipping point for internet usage in India could come relatively soon, and for reasons beyond the aforementioned network effects. (Would anyone doubt that the economic growth will lead to more computers and internet infrastructure?)

When the internet growth accelerates, one could also expect the search market to accelerate. (I challenge anyone to decouple the internet market from the search market.) As I have said before in this blog, Google has several markets like India, in which it has incredible brand awareness and market share, but has yet to experience stellar revenue numbers. When these markets do decide to take off, it's only natural that Google will stand to benefit.

It's for this reason alone that Google's organic revenue growth (which has dwindled ever-so-slightly) is not in trouble. If any one of Google's investments in India, China, Brazil, or Russia starts kicking in, you'll see the robust organic revenue growth you had always before expected from the search giant. This growth might not come in smooth fashion, but Google has the brand positioning in enough countries to fuel growth in the long term as these markets mature from their current states of infancy.

I don't mean to overestimate Google's growth opportunities. The law of large numbers will catch up with Google. To sustain 30% growth in the long term is quite nearly impossible. However, Google is still growing at an impressive rate when the ad market is showing glaring signs of softness. Google trades at a trailing P/E of just over 32, so the market seems to be somewhat cautious on the company, which is something we haven't been able to say in a long time. Coming out of the economic downturn, Google will have the force of increased market share behind it and will see its revenue growth accelerate once again. Whether this will happen in the next few months or the next few years, I do expect to see this earnings jump and a huge jump in the stock price.

...But I could be wrong ;)