Here’s Why Google is Still King of the Internet

Late Thursday, Google (NASDAQ:GOOG) announced a blow out in third quarter earnings, including a 33% rise in revenue compared to last year.  Shares of the tech giant surged more than 5% higher on Friday. With investors having something to cheer about besides Apple (NASDAQ:AAPL), the S&P 500 closed nearly 2% higher on Friday as 77% of the index’s components traded above their 50-day moving averages.  Google continues to dominate the internet, leaving Yahoo! (NASDAQ:YHOO) and AOL (NYSE:AOL) scratching their heads.

Google-owned sites generated revenues of $6.74 billion, or 69% of total revenues, in the third quarter of 2011. This represents a 39% increase over third quarter 2010 revenues of $4.83 billion.  Google’s presence in the online ad space is growing.  According to research from EMarketer Inc., the firm estimates that Google should take 76% of the US market this year, up from 70% in 2009.

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As the 5-year chart below shows, Google (NASDAQ:GOOG) has outperformed Yahoo! (NASDAQ:YHOO) and AOL (NYSE:AOL).

A possible deal may be in the works to combine the two struggling internet businesses.  CEO Tim Armstrong has been meeting with Yahoo! shareholders about a potential acquisition.  Barron’s reports that “Sources say Armstrong has discussed how to carve up AOL and what the separate piece might be worth.”  However, Mark Mahaney, a leading Internet stock analyst with Citigroup (NYSE:C) claims, “ It’s very hard to see either of those companies becoming sustainable growth companies again.”  The internet has changed quite a bit with Google and Facebook reshaping the landscape.  Businessweek explains, “But unlike Google or Facebook, Yahoo and AOL earn revenues the old-fashioned way—by employing rafts of reporters and maintaining costly ad sales teams to make sure the articles and deals keep flowing. It’s a model with lots of competition.”  A perfect example of this was seen earlier in the month when Yahoo! joined hands with Walt Disney (NYSE:DIS) owned ABC to source the network’s news content – amongst other news, a “highly interactive” version of ABC’s Good Morning America program would appear on Yahoo’s internet portal.  Yahoo said that ABC would be the premier news provider on Yahoo News. The two organizations boast of a combined viewership of about a 100 million viewers.

Going forward Yahoo has its work cut out to maintain its number two position among the  US search engine market.  In September, Yahoo’s US market share declined from 16.3% to 15.5%.  Meanwhile, Google retained its top position with 65.3%.  AOL increased slightly from 1.3% to 1.5%.  Interestingly, AOL has the goal to become number 3 in the rankings.  CEO Tim Armstrong considers this goal to be ambitious because “being the No. 3 player at that table is a unique place to occupy.” However, this goal certainly scales down Armstrong’s slogan last year to “Beat the Internet”. AOL’s muted web advertising plans coincides with the delayed introductions of international editions of the Huffington Post.  Baidu (NASDAQ:BIDU), often referred to as the Chinese Google, is also looking to expand its internet empire by teaming up with Microsoft (NASDAQ:MSFT).

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