The Last to Fall
Is it just me or is listening to a Google earnings call like a form of Chinese water torture? Would someone please provide a fucking direct answer to the questions! Granted some of the questions aren’t much better but come on:
“We think quality is great”. “We have been successful in Germany”. “Users can edit word documents online now”. “Our aim is to help users”. “Happy birthday Omid”. Enough already! I can’t take it! Give me some Barry Diller, OIBA and an excel spreadsheet!
It is true that Google is the most fantastic media firm ever created. And that it is perhaps the greatest financial success of any company of all time. But they still operate in the same world and under the same laws of gravity as the companies they compete against.
Henry Blodget, mistakingly called a bear on Google, makes a great case for why it inevitably has to slow down at some point. My guess it is when people stop refinancing their mortgages or more correctly, use search less than they do now as a starting point for searching for a mortgage.
The most amazing thing to me was that the growth was driven by core search revenue on google.com. In fact that is what drives nearly all the cash flow. Surging international revenues have contributed some, but growth in US revenue is still continuing to blow away expectations. (Side note: why was all the talk about other Google products when the collective community still has zero idea about why core search is continuing to grow so fast at Google and not others?)
Understanding the core search revenue is key to knowing when Google itself will slow. I don’t think they will derive any meaningful profit from other products in the next two years. So let’s take a re-look. I think the fact that at some point bids stabilize to a fair value and marketers discover all the keyword phrases appropriate for their category still holds. From there, improvements in conversion rate and growth in online commerce will buoy the industry but at more ‘normal’ growth rates.
People have been wrong about the timing of that maturation. Myself included. But at some point it inevitably has to come.
If you look around the online ad industry at the moment, traditional display advertising at AOL is actually shrinking (growth is solely from ad.com and the search deal with Google). MSN revenue is flat. Yahoo has fallen from grace. To me, it is simply a matter of time before Google has to be subject to the same laws of the land. Their supremacy and superior execution have given them a time reprieve but I think the argument has to be about the ‘when’ rather than the ‘if’ the same laws are applied to Google. How is that being a bear on Google?
