Despite Google (s goog) asserting its new search update Google Instant has had a minimal effect on revenue, it hasn’t stopped Morgan Stanley from upping its revenue estimates significantly for 2011, based largely on the strength of Google Instant. Morgan Stanley, which calls Google Instant potentially the biggest user-facing innovation for Google search since Page Rank, raised its estimates for 2011 by $1.5 billion to $26.4 billion and increased its target price for Google to $730, up from $700. The firm also added Google Instant to its list of best ideas.
The reason comes down primarily to Morgan Stanley’s belief in Google Instant to increase searches and drive user loyalty and market share. Google Instant, if you recall, speeds search results to users as they type, offering suggestions about what a user is searching for. Google showed off how Instant is moving to the Omnibox on the Google Chrome browser. The investment bank also believes that with the growth of mobile, Google Instant on mobile devices may prove more important than on a desktop. Morgan Stanley also suggests increased holiday e-commerce will drive revenue. “Simply put, we don’t believe consensus fully appreciates the long-term benefits of Google Instant and accelerating growth of mobile,” wrote analyst Scott Devitt, in a research paper.
This jibes with Om’s feelings on Google Instant and its potential to aid especially mobile users, who need for faster results and potentially more restrictions on data plans. It would also seem to validate Google’s increasing capital expenditures.
So is Google Instant worth $1.5 billion to the company’s bottom line? It’s hard to know so early on, and it’s more of a fun exercise at this point. Even Morgan Stanley said it could be overestimating its impact. Devitt said comScore (s scor) has actually reported fewer clicks since the launch of Google Instant, and search engine marketers have also reported limited impact from Google Instant. But Devitt said the early data is either incorrect or incomplete and doesn’t fully reflect the potential impact of Google Instant.
He believes Google’s assertions that Instant will drive searches by up to 5-7 times and can shave off 2-5 seconds per search. In fact, Devitt said that the early success of Google Instant may have helped fund Google’s recent 10 percent employee raise based on Google CEO Eric Schmidt’s comments made at the Web 2.0 Summit about pursuing the raises after investing in core technology. Devitt said Google Instant should drive revenue growth through the first half of 2011 as Google rolls it beyond the 38 countries that have access to it now. While he believes a competitor like Bing (s msft) can negate some of Google’s advantage, it will take a lot of money to replicate the technology, Devitt said.
Related content from GigaOM Pro (subscription req’d) about Google, and its Mobile Efforts: