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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."
Maybe I'm crazy, but 20% yearly revenue growth for a company Google's size seems pretty healthy.
"but growth in Google's primary business, search advertising, has flattened out at about 20 percent a year for the last few years"
So if I understand the summary, google only grows with 20% each year and that is a bad thing?
I would start to worry if it was reduced by 20% every year.
Harald
Uh.. Microsoft essentially had a couple of products they thought (the monopoly on which) would last forever. Google (and the other large modern internet companies) are much more aware of the current state of what's going on (because they're responsible for it). Microsoft just panics and throws money at stuff no-one wants. Crappy phone OS, nokia, Zune, silly compromise-heavy tabtops (see what I did there?) etc. They produced an awful OS, held a straight face when everyone else said "meh, no thanks" which cost them a lot. If they've learnt anything it's at the expense of a lot of missed profit. Google have always spent a lot on R doesn't come across as panicking to stay relevant like Microsoft. Now Microsoft is giving away their new OS, open sourcing their dev tools, suffering increasingly against Google Docs (and other free office apps). If I had stock in Microsoft I'd be concerned that they don't have a plan. I don't see Google as being in the same boat as they have a more much stable history in profiting from innovation, even if not every project they attempted turned out 100% positive.
So, it's not that Google stopped growing, it's that it's growth stopped growing. So we're looking at the 2nd derivative now to determine the peak? Or do the MBAs merely like sensationalism just like their fellow journalists?
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.
You mean like how Google, after it dominated search, didn't dominate web-based e-mail, and online videos?
If Pandora's box is destined to be opened, *I* want to be the one to open it.
If I'm reading the article correctly, the information that says that ads in the Facebook style are far more effective than Google's comes from...a study by Facebook. Gee, that seems totally unbiased and could in no way be slanted by them to help them convince potential advertisers to sign up. All of this seems very bizarre after reading -- for years -- about how the Facebook ad model is so deeply flawed.
Wood Shavings!
- Godai
I'd wager that Windows and Office *are* 'utilities' in the sense that they will be around almost forever, and generate the usual mountain of cash each quarter (although that mountain will slowly grow smaller over time). MS's success doesn't depend on popularity, it depends on businesses 'having' to have it.
Facebook and Apple both rely on being 'cool', which is a very treacherous business to be in. How many consumer products of any sort survive changing tastes over 20 years?
I'd bet 3:1 that in 20 years, MS will larger than Facebook or Apple - my guess, MS is 2/3rds its size, Apple and Facebook are near non-existent.
Unfortunately, with buyouts, name purchases, etc, the odds are about 10:1 any such wager would actually be handing the money back to both bettors as 'technically unresolveable', so I'm not making any actual bets here.
Yes the article says "growth in Google's primary business, search advertising, has flattened out at about 20 percent a year" But a constant growth RATE year after year is not flat. It is exponential growth. It is compounded growth where each 20% increase is an increase over and above the 20% increase of the previous year. Where else can you get a 20% compounded interest rate on your savings?
"He took a duck in the face at 250 knots." -- William Gibson, Pattern Recognition
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. I haven't heard anything particularly bad about their current iteration of their phone OS, other than the anemic app selection, but the OS itself is top notch. Everybody I know who has a Surface Pro seems to think they are amazing, the only general complaint being that they are too expensive. But I guess that you have to pay a lot of money if you want a proper digitizer built into the lightest laptop on the market. Microsoft has started to give away their OS on cheap devices because it's really the only option that works. You can't charge $50 or even $25 for a Windows license that sells to the end consumer for under $250. It just doesn't make the product competitive. This is a market that didn't exist 5 years ago, so of course they are going to have to make adjustments.
Anthropic principle: We see the universe the way it is because if it were different we would not be here to see it.
"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
> spent a lot on R
I actually typed something like "R and D and" with the ampersand, but clearly that's asking too much.
i assumed you meant lobbying republicans, which is also true.
I'll agree that Google's ads don't work on my emotions. Other advertising on the web, the kind that load up giant flash videos that cause my browser to hang for 30 seconds, play unwanted audio, obscure the content I'm trying to read, and otherwise ruin my browsing experience - those types of advertising definitely do hit me at an emotional level, but I'm not sure it's the type of emotion the advertiser wants from me. It's the kind of emotion that makes me run adblock so I don't have to deal with them anymore. I think I prefer Google's far less emotional ads.
For every post, there is an equal and opposite re-post.
One of the big things they did wrong was kill binary compatibility for software running on XP at the same time they killed XP.
Wait, what? Microsoft hasn't done this. Most XP software works fine on later windows. It's the earlier software which doesn't work well. Some games (Civ2, egads!) won't run even in XP Mode. I presume some actual business programs are the same. Game developers may be more likely to do wacky things to the machine, but they don't have a monopoly on it — especially when it comes to the inept copy protection schemes that you often see in commercial software. But most of the software I've been using since Windows 2000 still works just fine on Windows 7, for example.
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.
But I have stuff like that running on my Windows 7 amd64 system on a regular basis. WTF are you on about?
"You're right," Fisheye says. "I should have set it on 'whip' or 'chop.'"
>. has failed to turn many of its innovations into new moneymakers.
It doesn't matter how many don't end up bringing major revenue. It only matters that a few do. Of Google+ is a complete failure and Android has 75% of the market, Google wins big. Their newsgroup site shuts down while Gmail huge is a huge success, Google does quite well.
They can well afford to invest $10 million each into trying ten different things if just one those goes on to make $250 million.
If Google becomes THE autonomous car company, it doesn't matter that they also experimented with ten other things that didn't bdo great - and even the ones that don't do great sometimes make a little money.
While it does match the marketing lingo, the word "exponential" has specific mathematical meaning which does not even come close to your advertising driven use of the word.
Uh, steady growth at 20% per year IS exponential growth.
Vt = V0 * 1.2^t
Google's sales would be expected to double every 3.5 years.
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.
Your original post said: While it does match the marketing lingo, the word "exponential" has specific mathematical meaning which does not even come close to your advertising driven use of the word.
That is untrue. Google's growth, at the moment, precisely agrees with the mathematical definition of exponential growth.
Is Google the ONLY company experiencing exponential growth at the moment, of course not. That doesn't make your statement true.