Google's 10th Year Poses Major Strategic Challenges

In a single decade, Google has emerged from its humble beginnings as a Stanford University research project and become one of the most recognized brands in the world, as well as a competitor to technology giant Microsoft.

The brainchild of Sergey Brin and Larry Page can't rest easy in 2008, however, as they celebrate the 10th anniversary of Google's incorporation. Google is branching out with various side projects, potentially including a television offering and an online service giving people access to their own medical information.

Goal No. 1, though, is fending off a variety of potential challenges that might disrupt its dominant position in the online advertising marketplace, says Karsten Weide, director of IDC's digital media and entertainment program.

"Google's top priority is to diversify their revenue sources," Weide says, explaining that because Google relies on search ads for 99.1% of its revenue, the company is vulnerable to disruptions in the online advertising market.

The most immediate challenge here is advertising contained within online videos -- that is, online commercials, according to Weide. Google's acquisition of YouTube?was designed to shore up a weakness in video advertising, but this is an emerging market that is still in flux, and billions of dollars will go to the eventual winner, he says.

Advertising on YouTube is scarce because the site isn't "brand-safe" -- advertisers stay away out of fear that content is illicit or stolen, Weide says. Pirated content also makes commercial content providers wary of YouTube. A resolution to this power struggle "will perhaps come this year [2008], but it may take a while."

If it takes too long, new distribution avenues like Hulu, a video-on-demand site currently in beta, could benefit at Google's expense.