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Peak Google: The Company's Time At the Top May Be Nearing Its End
HughPickens.com writes Farhad Manjoo writes at the NYT that at first glance Google looks plenty healthy, but growth in Google's primary business, search advertising, has flattened out at about 20 percent a year for the last few years. Although Google has spent considerable resources inventing technologies for the future, it has failed to turn many of its innovations into new moneymakers. According to Manjoo, as smartphones eclipse laptop and desktop computers to become the planet's most important computing devices, the digital ad business is rapidly changing and Facebook, Google's archrival for advertising dollars, has been quick to profit from the shift. Here's why: The advertising business is split, roughly, into two. On one side are direct-response ads meant to induce an immediate purchase: Think classifieds, the Yellow Pages, catalogs or Google's own text-based ads running alongside its search results. But the bulk of the ad industry is devoted to something called brand ads, the ads you see on television and print magazines that work on your emotions in the belief that, in time, your dollars will follow. "Google doesn't create immersive experiences that you get lost in," says Ben Thompson. "Google creates transactional services. You go to Google to search, or for maps, or with something else in mind. And those are the types of ads they have. But brand advertising isn't about that kind of destination. It's about an experience." According to Thompson the future of online advertising looks increasingly like the business of television and is likely to be dominated by services like Facebook, Snapchat or Pinterest that keep people engaged for long periods of time and whose ads are proving to be massively more effective and engaging than banner advertisements.
In less than five years, Facebook has also built an enviable ad-technology infrastructure, a huge sales team that aims to persuade marketers of the benefits of Facebook ads over TV ads, and new ways for brands to measure how well their ads are doing. These efforts have paid off quickly: In 2014 Facebook sold $11.5 billion in ads, up 65 percent over 2013. Google will still make a lot of money if it doesn't dominate online ads the way it does now. But it will need to find other businesses to keep growing. This is why Google is spending on projects like a self-driving car, Google Glass, fiber-optic lines in American cities, space exploration, and other audacious innovations that have a slim chance of succeeding but might revolutionize the world if they do. But the far-out projects remind Thompson of Microsoft, which has also invested heavily in research and development, and has seen little return on its investments. "To me the Microsoft comparison can't be more clear. This is the price of being so successful — what you're seeing is that when a company becomes dominant, its dominance precludes it from dominating the next thing. It's almost like a natural law of business."
In less than five years, Facebook has also built an enviable ad-technology infrastructure, a huge sales team that aims to persuade marketers of the benefits of Facebook ads over TV ads, and new ways for brands to measure how well their ads are doing. These efforts have paid off quickly: In 2014 Facebook sold $11.5 billion in ads, up 65 percent over 2013. Google will still make a lot of money if it doesn't dominate online ads the way it does now. But it will need to find other businesses to keep growing. This is why Google is spending on projects like a self-driving car, Google Glass, fiber-optic lines in American cities, space exploration, and other audacious innovations that have a slim chance of succeeding but might revolutionize the world if they do. But the far-out projects remind Thompson of Microsoft, which has also invested heavily in research and development, and has seen little return on its investments. "To me the Microsoft comparison can't be more clear. This is the price of being so successful — what you're seeing is that when a company becomes dominant, its dominance precludes it from dominating the next thing. It's almost like a natural law of business."
"According to Thompson the future of online advertising looks increasingly like the business of television"
Wishfull thinking by the television advertisers. They would like to turn the Internet into television but that's not going to happen and surely facebook is the one trick pony.
Burson-Marsteller: PR firm at centre of Facebook row
agreed, ddg is my default as well. i also like the bangs feature, so I can type into my browser's search bar "alexander hamilton !w" and it takes me immediately to the wikipedia page for alexander hamilton without needing to deal with any annoying click throughs.
Personally I think that Microsoft has been doing quite well lately, but no matter what they do, people seem to find something wrong with it.
Microsoft has gotten themselves in trouble.
One of the big things they did wrong was kill binary compatibility for software running on XP at the same time they killed XP.
This effectively forces a re-buy of all your hardware, because any new hardware you buy can no longer run the old software.
Totally ignoring the fact that for all middleware-based vertical market software (which is, in effect, "all of it", mostly written in dialects of VB to glue a bunch of Microsoft and third party DLLs together) it's an added "rewrite everything from scratch" overhead, it ignores buying cycle.
Typical accounting for computer hardware is an accelerated depreciation schedule, which is a 3 year schedule. This effectively means that every year, you intend to replace 1/3 of your computer systems (without an accelerated depreciation, as allowed by the IRS, this turns into a 5 year schedule, which means 1/5th or 20% get replaced).
The changes in binary compatibility at the same time the OS changed means that you have to do a full re-buy to handle adding people, or simple because old systems need replaced.
While this is great for Microsoft (they get a 3X - or 5X - bump in the number of licenses the y get to sell for everything), and it's great for computer vendors (same bump, in order to sell hardware capable of running the new OS), and it's great for vertical market consulting developers ("hey, we get to do the same job we did ~10 years ago over again for more $$$, and it's an emergency, so we can charge usurious rates!") ... it's a pretty big hit.
Larger businesses can pretty much stomach this hit, because they have reserve.
Small and medium businesses, however, are cash flow-based, and have to have money on hand. Which is why they were still using XP in the first place: they needed to be able to do incremental replacement a a survival requirement, since they pretty much can only afford to replace a machine every month or so, rather than fully re-buying, or even replacing the 1/3 or 1/5 of their machines all at the same time.
Sadly, you can't glue things together to make a vertical market app with all the software living on the back end (as it does with Office365), which makes that a completely unsuitable alternative.
So:
(1) Microsoft missed the boat on Office365 because that's not actually how 50% of the people use their products: they don't use them stand-alone, or at least, they *also* use them as components in vertical market systems, if they use them standalone too.
(2) Microsoft missed the boat on bringing people forward onto the new OS, due to inability to use a new OS system as a fungible replacement for a Windows XP system; they really needed this to keep working as they EOL'ed XP.
(3) They assumed their primary market was education/corporate, rather than SMB (Small and Medium Businesses); most estimates put the Microsoft market at 72%+ SMB, since bigger businesses have options, which are generally corporate mandates. These include Lotus's suite, Google Docs, and other options, up to and including in-house supported OpenOffice, among others.
So you're really quite wrong about them doing well.
They've been trying to reinvent themselves on a lot of fronts (tablet OS company, Phone OS company, SAS company, Cloud provider company, etc., but they lack a really coherent vision for their existing base market which they could then leverage to enter and successfully compete in their new frontiers (either via "whole product" offerings, or via "Halo effect" offerings).
So, I think Microsoft must turn their ship, or they're in for some really rough times ahead.
It's one thing to shoot yourself in the foot once, perhaps even twice; it's another thing entirely to reload and continue firing.
People must or Bayer, Excedrin, Motrin, or Tylenol wouldn't exist. There is literally the exact same pills with a different name right next to them at a lot lower price.
Yes it's an anecdote! Were you expecting original research in a Slashdot comment?
Are you sure you know what exponential means? The simplest exponential equation has the form:
f(t) = a^t
The critical feature is that the functional variable (t) is in the exponential term.
The formula for annual growth rate, whether it's advertising revenue, interest, an economy or population is:
f(t) = x_0 (1 + r)^t where r is the growth rate. For 20% annual growth r = 0.2. The equation is most definitely exponential. Note also that expecting 6% / year growth, 1% / year growth or even 0.1 % / year growth is also exponential. Ask a biologist or physicist sometime whether exponential growth can last forever.
Show me a company that _only_ reports financial data every T=100 years and I'll bow to your wisdom. Companies report annually, all of them. They are required to do so in fact, so using the Government mandated "T=1" the term "exponential" is absolutely false.
Ok, I'm genuinely curious, how does that have anything to do with it?
If you start with a company revenue of 100 at T=0 then:
1) In additive growth: T0=100, T1=120, T2=140, T3=160
2) In exponential growth: T0=100, T1=120, T2=144, T3=1.728
Merely reporting at intervals of T(n) where n=1 per year doesn't turn #2 into #1. According to their latest 10-K filing their revenue for the last three years was (in millions):
2012 46,039
2013 55,519
2014 66,001
Which is an exponential growth rate of 19.73%, so close enough to 20% for conversational purposes.
If
.2)^x
.2)) * x]
Rx = revenue in year x
R0 = revenue in base year (year 0)
then 20% growth means: Rx = R0 * (1 +
represented as:
Rx = R0 * exp[(log(base e)(1 +
Which is exponential growth as seen at Wolfram where lambda = log(base e)(1.2) (and every mathematician I have ever known). Not sure what you mean when you say exponential growth, but it's not the mathematical definition.
Your soap box is quite misinformed.