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A major change took place this morning. It has the potential to change the way we use the Internet, and the way the Internet’s most important company makes money.
The search algorithm at Google (NASDAQ: GOOGL) is the company’s secret sauce. It’s the competitive advantage through which Google generates the vast majority of its revenue.
And the major change I’m talking about – dubbed “mobilegeddon” by the media – is a big update to the way Google’s search algorithm ranks websites. The new version places a much greater emphasis on the mobile friendliness of a particular website.
Does the new Google search algorithm have the potential to affect Google stock? You bet.
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Considering that Google generates 90.5% of its revenue from products that are at least indirectly related to its search dominance, it’s incredibly risky for Google to make major changes to its golden goose. But Google isn’t a company that wants to simply rest on its laurels and watch the cash flow in.
These days, it’s all about mobile. And Google knows it.
ComScore recently published data showing the mix of desktop Google searches versus searches originating from a mobile device. Though only 24.1% of Google searches in 2012 originated from a mobile device, this number rose to 55.6% in 2015.
The data suggests that within five years more than two-thirds of all Google searches will originate from a mobile device.
“Mobile optimization” involves configuring a website so that it is easily viewed on a smartphone or other mobile device. Because this concept is fairly new relative to the Internet as a whole, there are plenty of websites that don’t display well on small screens.
Surely you have been surfing the Web from your smartphone and come across a website that looks terrible, requiring you to zoom in and out or navigate from one side of the page to the other just to access basic functions.
This is exactly what Google is trying to eradicate with its new algorithm changes.
Google has tremendous power over the Internet. Most major companies these days have an entire team of people doing search engine optimization work for their websites and brand presence.
It used to be that a website could mention several keywords across all of its pages to improve its search ranking. Google caught on and adjusted its search algorithm to raise the importance of other factors to adjust how pages are ranked. Google’s previous algorithm update increased the importance of using a social media presence and sharing engaging content.
This latest update will force websites to get on board with mobile optimization. And it is doing this by essentially saying, “Do you want your page to rank high in Google searches? Then optimize your page for mobile devices or we’ll cut off your traffic.”
Clearly Google has seen into the crystal ball and decided that it needs to more or less force the Internet to optimize itself for mobile.
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Here’s why Mobilegeddon is so important to Google’s stock.
As I mentioned above, Google generates just over 90% of its revenue from advertising activities that are tied to search and its dominant role on the Internet. But Google – like Facebook (NASDAQ: FB), Twitter (NASDAQ: TWTR) and countless other companies – doesn’t make as much money from each mobile advertisement as it does from each desktop advertisement. So they have to look good and work well.
This move is all about shifting how Google ranks pages and how the Internet shares content to focus on mobile first. If it pays off, Google will surely have found better ways to monetize its services on tiny screens. If it doesn’t, investor confidence that Google can maintain its comfortable market position will surely begin to erode.
It will likely take time to see how the major change to Google’s search algorithm affects the stock. But if you notice right away that the traffic on your website has fallen off a cliff, you can bet it’s because Google has dinged your page for not being mobile friendly.