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Despite Looking beyond Ads, GOOGL Isn’t Neglecting Core Business

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Alphabet is preparing for life after advertising

Although the way Alphabet (GOOGL) has been investing recently suggests that it’s preparing for a future beyond advertising, the company isn’t neglecting its core advertising business. Alphabet is investing in fields such as autonomous driving and cloud computing as it seeks to grow its non-advertising revenue.

Currently, over 80% of Alphabet’s revenue comes from its advertising sales, which flow through its Google unit. Facebook (FB), Twitter (TWTR), Snap (SNAP), and Yelp (YELP) are equally or more reliant on advertising budgets.

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Google is creating new advertising products

Google has continued to create new advertising products as it looks to both grow and defend its share of the digital advertising market. In March, Google stepped up its challenge to Yelp and Groupon (GRPN) for local advertising dollars by launching a local advertising program in its Waze traffic app. Businesses are expected to spend a total of $151 billion in local advertising in the United States this year, according to BIA/Kelsey. About 35.3% of local advertising budgets are expected to be spent in digital channels.

In a move that could boost its campaign for local advertising dollars, Waze recently entered into a data-sharing partnership with Waycare, a provider of artificial intelligence–based traffic management.

Alphabet is excited about advertising opportunity ahead

As well as developing new advertising products, Google is making big investments in traffic to strengthen its advertising business. In 1Q18, the company spent $6.3 billion on traffic acquisitions, a rise of ~38% year-over-year.

“We’re excited by the still sizable opportunity in search advertising led by mobile. At 26% year-on-year revenue growth in our Sites business, we continue to benefit from our investments to enhance the user and advertiser experience,” Alphabet’s chief financial officer, Ruth Porat, said on a recent call to discuss the company’s latest quarterly results.

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