Search Engine Share Stable: Why We Shouldn't Be Surprised

By Gary Kim July 15, 2011

Search engine rankings in the United States remained remarkably stable in the month of June, according to comScore. The firm's latest July report shows that Google’s and Yahoo’s share remained the same from May at 65.5 percent and 15.9 percent, respectively. Microsoft’s Bing search service rose from 14.1 percent to 14.4 percent. Without a full percentage point change here, it’s fair to rate Bing’s growth as flat, too.Search Rankings See Little Movement, ComScore Says | eWEEK Europe UK

Those findings point out that most markets are relatively stable, once established. That is not to say new products cannot disrupt market shares when a new product category is created. There was lots of share change in the auto market when SUVs were introduced, and much of the displacement was felt in the van category. But shares stabilize in a new pattern over time.

The mobile device market has been convulsing since about 2008, largely driven by Apple's entry into the handset business.

But most markets, one is tempted to say virtually all, stabilize over time. Fundamental market dynamics should suggest why that is the case. In any competitive market, theory and practice suggests that better products (as measured by consumer buying) displace worse products. Products with sufficiently better value will tend to gain more share as a resut, while weaker products disappear.

It doesn't take a degree in economics to suggest that, over time, a few firms will dominate just about any industry, for the simple reason that consumers are going to buy products they deem to have the best combination of value, compared to price. Also, over time, the profitability of the most-successful firms will rise, compared to weaker rivals, giving the most-profitable firms greater ability to enhance product features and experience.

One example of this is the impact of market share on profitability. The PIMS project (Profit Impact of Market Strategy)of the Strategic Planning Institute is a large scale study designed to measure the relationship between business actions and business results. The project was initiated and developed at the General Electric Co. from the mid-1960s and expanded upon at the Management Science Institute at Harvard in the early 1970s. Since 1975 The Strategic Planning Institute has continued the development and application of the PIMS research.

The comprehensive profiles of over 3,000 strategic experiences tend to consistently indicate that market share and profitability are directly related. A rule of thumb is that the firm with the largest market share has profitability twice that of the second-largest firm, measured by market share. The number-two firm can be predicted to have profit margins about double that of the number-three firm. As with all rules of thumb, the precise values can vary from market to market. 

But that should explain why the big get bigger over time, in a stable market. The largest firms simply have more free cash to invest, as well as the ability to weather a major market downturn, compared to the smallest firms, and often compared to their closest rivals. The biggest firms have the most ability to acquire smaller firms, either to acquire more share, gain more scale, acquire new product lines or expertise that will tend to reinforce their leading positions. 

Competition, in other words, leads to concentration in any market. That's why anti-trust enforcement ultimately is deemed necessary in virtually all large markets.

Gary Kim is a contributing editor for TechZone360. To read more of Gary’s articles, please visit his columnist page.

Edited by Rich Steeves

Contributing Editor

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