As Google’s Ad Revenue Slows, Alphabet May Soon Regret Its Anti-Patent Strategy

By Gene Quinn
April 30, 2019

“As competition increases and shoppers continue to flee from Google search as the primary starting point to find products, Alphabet will find it very difficult to derive significant sums from its patent portfolio, thanks to its own efforts to cripple the value of patents in the United States.”

It is time for Alphabet to wake up.

This morning’s edition of the Wall Street Journal carried a front-page article describing how the once mighty and untouchable online-advertising operation at Google has begun to struggle thanks to increased competition. With a disappointing revenue report that shows Google ad revenue slowing, and an inability or refusal to answer questions yesterday on the earnings call, Alphabet stock is currently heading for its worst trading day.

Google accounts for over 99.5% of Alphabet revenue, so a slowdown in advertising revenue should be and is alarming. Online advertising revenue is where Google, and therefore Alphabet, derives its revenue.

One Trick Pony

“For all its myriad arms and efforts to diversify, Google remains essentially an old-fashioned billboard operation with a high-tech gloss– and now faces more rivals,” Rob Copeland of the Wall Street Journal wrote today.

Copeland is exactly right. Google has been a one-trick-pony for years, and despite efforts to diversify, nothing has worked. Google even refuses to split out YouTube revenue in its reports, leaving analyst to wonder and guess. According to Copeland, most analysts guess that YouTube accounts for 15% of Google revenue, but no one is sure.

Behind all the secrecy must lie grave concern—at least if the executives at Google are as smart as everyone assumes them to be. No technology giant has ever stayed on top in a dominant position forever, and many once dominant tech companies no longer exist.

To a large extent, IBM seems like an exception because they have been around for many generations, but if you are familiar with IBM history you know that they have gone through good times and bad times and were weeks away from needing to declare bankruptcy at one point before the licensing of their patent portfolio started to bring in significant sums of money.

Even Microsoft, which had practically cornered the market on computers, fell from its dominant position. Today, Microsoft enjoys a lofty status as one of the elite tech companies in the world, but they too have had their ups and downs, and failures when they attempted to diversify. But like IBM, Microsoft brings in billions of dollars a year licensing their patent portfolio.

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The Dangers of Devaluing Patents

Alphabet has a big problem that IBM, Microsoft and even Apple and many others did not face as they encountered their inevitable downturn and episodic revenue challenges. Thanks to an enormously successful campaign to weaken patent rights, Alphabet has rendered its patent portfolio worth less, if not worthless. So, as competition increases and shoppers continue to flee from Google search as the primary starting point to find products, Alphabet will find it very difficult to derive significant sums from its patent portfolio, thanks to its own efforts to cripple the value of patents in the United States.

I’m not sure why, but when I search for information on products I’m interested in purchasing, I find Google search increasingly unhelpful. Perhaps it is due to the increased number of paid advertisements that sometimes seem to completely populate the first page, or perhaps there is some glitch or design flaw with Google Shopping. Whatever the case may be, it is entirely believable that savvy Internet users are not relying on Google search for at least some, if not many, product searches. If that is in fact the trend, where will Alphabet and Google be?

Obviously, the earnings report from Alphabet does not suggest the company is in any immediate jeopardy, but it shouldn’t come as a surprise to anyone that Amazon and others are attempting to eat into Google’s dominance. The online advertising business is huge. Google’s problem is that, since they control it, and that is really their only business, as other tech companies enter the space with a purpose and a plan it will come at the expense of Alphabet/Google’s growth at first, and then subsequently at the expense of Alphabet/Google’s revenue in general.

A Perfectly Predictable Path

“Some current and former employees lament what they call the slow degradation of Google’s entrepreneurial culture,” wrote Copeland. And that is precisely why attempts to diversify have failed. It is also precisely why the road forward for Google and Alphabet require strong patent rights. Established, mature companies, particularly companies the size of Google—with over 100,000 employees—lose the ability to innovate because innovation requires taking risk. Large entities can research and develop and then hand off technologies to entrepreneurial risk-takers, but absent risk-taking and entrepreneurial spirit, innovation cannot and will not happen.

If the executives at Alphabet and Google are as smart as we are led to believe they are, the path they will choose to go forward is clear and perfectly predictable. The playbook for a dominant technology giant that is starting to see stiff competition and has been unable to successfully diversify itself is to transition into a technology innovator that researches, develops, patents and licenses innovations to others. Alphabet and Google can continue to sell online advertising, and perhaps work to make a better search engine, but a transition into a company that respects patent rights, needs strong patent rights, and licenses those patent rights, is inevitable if Alphabet and Google want to succeed long-term.

 

The Author

Gene Quinn

Gene Quinn is a Patent Attorney and Editor and President & CEO ofIPWatchdog, Inc.. Gene founded IPWatchdog.com in 1999. Gene is also a principal lecturer in the PLI Patent Bar Review Course and Of Counsel to the law firm of Berenato & White, LLC. Gene’s specialty is in the area of strategic patent consulting, patent application drafting and patent prosecution. He consults with attorneys facing peculiar procedural issues at the Patent Office, advises investors and executives on patent law changes and pending litigation matters, and works with start-up businesses throughout the United States and around the world, primarily dealing with software and computer related innovations. is admitted to practice law in New Hampshire, is a Registered Patent Attorney and is also admitted to practice before the United States Court of Appeals for the Federal Circuit. CLICK HERE to send Gene a message.

Warning & Disclaimer: The pages, articles and comments on IPWatchdog.com do not constitute legal advice, nor do they create any attorney-client relationship. The articles published express the personal opinion and views of the author and should not be attributed to the author’s employer, clients or the sponsors of IPWatchdog.com. Read more.

Discuss this

There are currently 11 Comments comments.

  1. concerned April 30, 2019 8:03 pm

    A lot of smart people thought the sub prime mortgage fraud could be perpetuated forever and then the entire country almost collapsed financially. And a lot of cute people think the stealing of other people’s patented property can go on forever or prevent their ideas form obtaining legal protection.

    Same principle: There are consequences in doing things that deep down a person knows is wrong. The only question is when does it catch up to the person?

    It took sub prime mortgages 8 years to finally hit the fan via a national crisis. I am not sure when the patent mess gets corrected, probably later than sooner, unless a national crisis comes expectantly.

    Great article!

  2. Anon April 30, 2019 8:59 pm

    Sounds all too abstract.

    🙂

  3. JAnon April 30, 2019 11:35 pm

    Conversely, Google is usually willing to pay much more for prep/pros compared with IBM, who notoriously low-ball their outside counsels for prep/pros. Perhaps it does not invalidate the overall point, but at least from this perspective, Google values patents a whole lot more than IBM.

  4. Ternary April 30, 2019 11:59 pm

    Gene, this is absolutely by design. The Google founders always knew that this moment would come. Microsoft also knew their moment of reckoning would come. What they wanted to do, and what they did, is buy themselves time and to counter/prevent the effect of a company with a new technology suddenly turning their market inside-out. Google is no Intel or Qualcomm, working against Moore’s law. And they know that.

    Like most large companies, their revenue stream is too large and dependent on basically a single or limited number of products to allow a sudden change. (look at the current problems of Boeing and GE. Airbus’ mistake with the 380) One of very few options for protection is to limit/prevent others to launch a new revolutionary product or service based on novel technology that will threaten their market. (the famous Andy Grove inflection point.) It is hard to recognize an inflection point. (only the paranoid survive). That is why diminishing if not destruction of the US patent system as a breeding ground of new companies was a deliberate strategy of self-protection by tech giants. And in hindsight it has been a fairly easy and effective process, mainly based on mis-information and prejudice against certain technologies. The quick successful destruction of our patent system in a short 7 years must have been a surprise to even the staunchest opponent of patents.

    I would not be surprised if foreign entities have played a role in misinformation campaigns in this highly effective destruction of the world’s recognized and admired leading patent system and economic engine, the former envy of our adversaries and allies alike.

  5. Benny May 1, 2019 5:18 am

    I’m reading this article on a Chrome browser. Google’s databases pick up my interest in IP and target advertising accordingly when I visit other pages. This page displays an advert for Ambercite, a patent search service. Apparently Google are still delivering the goods to advertisers, who, sensibly, do not expect me to be using Bing. Google no longer depends on patents to be effective – they depend on having the largest database through standardization. This works to the advantage of users and advertisers, but to the detriment of anyone else trying to enter the field, who will be unable to build up a user user base big enough to obtain useful data. If Google is losing out, they can only lose to one of the other big 5 data companies.

  6. Anonymous May 1, 2019 6:15 am

    It is whispered that the tech giant is behind weakening of patent system not only in the US but also other countries like India, especially for computer related (CRI) patents. The result is that future technologies will be in hands of at least one of our neighbours (I am from India) where the tech giant is not allowed to enter and hence has not been able to destroy their patent system.

  7. Anon May 1, 2019 8:21 am

    Benny,

    You clearly did not get the point of this article.

    I see by this post of yours (and another on a different thread) that you woke up in full denial mode today (reflective of the typical Efficient Infringer kool aid drinker).

    I have to wonder if you realize that your posts serve as an example of how not to treat IP protection.

  8. wistful May 1, 2019 8:41 am

    There are some claiming that it is Google’s pervasive deplatforming of many “conservative” voices, and their obvious cherry picking of search results.

    I know a “conservative” who says he will never use Google again.

    The same thing happened to Dick’s sports when it changed its gun policies. Their revenue has not recovered.

    When companies become political, their shareholders suffer.

    And yes, they have done more damage to the US economy than it is even possible to calculate.

  9. David Sarokin May 1, 2019 8:43 am

    “Alphabet has rendered its patent portfolio worth less, if not worthless”

    Whaaaat are you talking about??? This is your headline and the very heart of your argument, but you don’t explain it even a tiny bit. If it’s true, it’s big news. If there’s no basis for saying it, then it’s just BS and shouldn’t be here.

  10. Carrie Hafeman May 1, 2019 9:45 am

    Gene: I agree with this article. I would think that Google would want to use a NEW strategy and use patents to extract licensing revenue, or at least use them to lower their largest expenses. Besides the Amazon competition, their biggest expenses are Youtube, but mostly traffic acquisition costs to have Google search on phones – mostly Apple phones. Their traffic acquisition costs are at the mercy of Apple. The Financial Times recent article said investors are worried due to these increased costs, and said their traffic acquisition costs were 6.45 billion. One would think that Google might embrace the idea that patents could be used to help them negotiate better licensing deals – specifically patents that relate to Apple.

  11. Jack Smith May 2, 2019 10:07 am

    Constant dollar have 19% top line growth. Nothing to worry about.