Google 2011 Annual Report Download - page 39

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opportunities, or are not effectively brought to market. As search technology continues to develop, our
competitors may be able to offer search results that are, or that are seen to be, substantially similar to or better
than ours. This may force us to compete in different ways and expend significant resources in order to remain
competitive. If our competitors are more successful than we are in developing compelling products or in attracting
and retaining users, advertisers, and content providers, our revenues and operating results could be adversely
affected.
Our ongoing investment in new business strategies and new products, services, and technologies is
inherently risky, and could disrupt our ongoing businesses.
We have invested and expect to continue to invest in new business strategies, products, services, and
technologies. Such endeavors may involve significant risks and uncertainties, including distraction of management
from current operations, insufficient revenues to offset liabilities assumed and expenses associated with these
new investments, inadequate return of capital on our investments, and unidentified issues not discovered in our
due diligence of such strategies and offerings. Because these new ventures are inherently risky, no assurance can
be given that such strategies and offerings will be successful and will not materially adversely affect our
reputation, financial condition, and operating results.
We generate our revenues almost entirely from advertising, and the reduction in spending by or loss
of advertisers could seriously harm our business.
We generated 96% of our revenues in 2011 from our advertisers. Our advertisers can generally terminate their
contracts with us at any time. Advertisers will not continue to do business with us if their investment in advertising
with us does not generate sales leads, and ultimately customers, or if we do not deliver their advertisements in an
appropriate and effective manner. If we are unable to remain competitive and provide value to our advertisers, they
may stop placing ads with us, which would negatively affect our revenues and business.
In addition, expenditures by advertisers tend to be cyclical, reflecting overall economic conditions and
budgeting and buying patterns. Adverse economic conditions can have a material negative impact on the demand
for advertising and cause our advertisers to reduce the amounts they spend on advertising, which could negatively
impact our revenues and business.
Our revenue growth rate could decline over time, and we anticipate downward pressure on our
operating margin in the future.
Our revenue growth rate could decline over time as a result of a number of factors, including increasing
competition, the challenges in maintaining our growth rate as our revenues increase to higher levels, and the
increasing maturity of the online advertising market and the other markets in which we participate. We believe our
operating margin will experience downward pressure as a result of increasing competition and increased
expenditures for many aspects of our business. Our operating margin will also experience downward pressure if a
greater percentage of our revenues comes from ads placed on our Google Network Members’ websites compared
to revenues generated through ads placed on our own websites or if we spend a proportionately larger amount to
promote the distribution of certain products, including Google Chrome. The margin on revenues we generate from
our Google Network Members is significantly less than the margin on revenues we generate from advertising on
our websites. Additionally, the margin we earn on revenues generated from our Google Network Members could
decrease in the future if we pay an even larger percentage of advertising fees to our Google Network Members.
We are subject to increased regulatory scrutiny that may negatively impact our business.
The growth of our company and our expansion into a variety of new fields implicate a variety of new
regulatory issues, and we have experienced increased regulatory scrutiny as we have grown. In particular, we are
cooperating with the U.S. Federal Trade Commission (FTC), the European Commission (EC) and several state
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