If a company has access to hundreds of millions of profiles, can figure out an effective way of delivering targeted ads, and can effect a fundamental shift in the way most people find content on the web (i.e., a shift from keyword search to social search/sharing), then Google's advertising revenue could fall significantly. The obvious existing threat is Facebook. Facebook ads are not good enough yet, but could be relatively soon. I think the question for Google is whether it can catch up on social before Facebook catches up on search and ad targeting.
Ask HN: What will happen to Google when somebody disrupts AdWords?
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Re: Ask HN: What will happen to Google when somebody disrupts AdWords?
#22Short answer: As long as the portion isn't dominant in your portfolio, and you re-evaluate it at least twice a year and rebalance, its all good.
Longer answer, looking at Googles rates of return on capital is like watching a very, very, fast train driving along straight track. Google's nominal operating mode burns a lot of money, that burn rate leaves them vulnerable to down turns. What the most likely scenario is not that they get disrupted so much as others meet them at parity but run at an operationally much more efficient way. Say that M$/Bing inexorably creeps up into a neck and neck race with Google in terms of search reach, and the combination pushes down advertising rates. The spending brakes go on at the 'plex, the company changes, the bean counters rise in power beyond reasonable measure, and the company 'flips'. Out go the creative, inventive, people and in come the 'lifers' who know how to make their job look important without actually doing anything. The mechansim which makes this happen is really hard to avoid since from the board room things look fine, even after they aren't fine. And there is a fine balance of disbelief that is held between the employees and their condition that, once disrupted, cannot be re-established. Cisco, HP (Tandem), Sun, and Intel are all places where I've known folks who lived through the flip. Nothing is the same afterwards, if you can't re-invent yourself like Apple did, it gets a lot harder.
That being said, there is (as others point out) usually some time to cover for that.
I cannot stress enough however that financial planning is serious business and you should take your time with it. I believed them when they said if I started putting money in my 401K in 1986 that it would be worth multiple millions by now thanks to the 'miracle' of compound interest. They missed the part about the 'miracle' of the nations worst economic debacle deleting that value in a heartbeat. I don't believe them any more :-(
Re: Ask HN: What will happen to Google when somebody disrupts AdWords?
#23AdWords is a natural monopoly, so it is unlikely that someone will ever create a successful competing keyword driven advertising network. In order to generate high prices for the search ads, Google needs to have multiple bidders competing against each other for each keyword. Advertisers will only bid if there is lots of inventory to buy (lots of searches on those keywords). 10% of the search market does not generate…
Best comment so far, the search monopoly guarantees AdWords.
The only way to do this is by breaking search and this is incredibly difficult.
Google is a single pony like Exxon is with oil.
Re: Ask HN: What will happen to Google when somebody disrupts AdWords?
#24If a company has access to hundreds of millions of profiles, can figure out an effective way of delivering targeted ads, and can effect a fundamental shift in the way most people find content on the web (i.e., a shift from keyword search to social search/sharing), then Google's advertising revenue could fall significantly. The obvious existing threat is Facebook. Facebook ads are not good enough yet, but could be rel…
I heard these arguments before but nothing happened so far, facebook has still one of the worst return rate in the industry.
Re: Ask HN: What will happen to Google when somebody disrupts AdWords?
#25What happens when Adwords gets disrupted? Well, first, it will take a long time for the competitor to establish itself. Businesses don't change overnight. Second, even if the competitor manages to steal ALL of Google's income overnight, Google has billions in the bank. There will be years for them to find a way to recover, or, in the absolute worst case, years for you to reinvest.
Stock prices may change dramatically whether or not Google remains a going concern. Any share investment involves risk.
Re: Ask HN: What will happen to Google when somebody disrupts AdWords?
#26I've wondered this myself - what happens when ad blocking technology becomes integrated into mobile devices, or the general public starts to use it because the newest, shiniest browser now bundles it by default?
Re: Ask HN: What will happen to Google when somebody disrupts AdWords?
#27Not to make a "I think there is a world market for maybe five computers" type argument, but I don't think it's Adwords being disrupted that you should worry about. As long as people use Google to search for things, particularly goods and services, Adwords will be an effective way for businesses of all sizes to reach their target audience at a perfect time (when they're actively searching for what you're selling) and the auction system adwords uses automatically helps maximize profits across different keywords/categories.
That being said, not sure what your investment goals are, but if you're looking for the long term I'd suggest something more along the lines of a few broad ETFs that cover a few different markets, rather than trying to place a bet on only a handful of high flying companies... basically, are you looking to invest or gamble? Either is ok, but they are different...
edit: seeing a couple other comments, I'll admit that adblocking being included automatically in a browser that gains dominant marketshare is something that would be terribly disruptive to a lot of businesses, google included. What's interesting there, is it would essentially destroy a tremendous amount of revenue for large and small companies across many industries without offsetting it with a new profit center. It wouldn't be like cars replacing carriages, it would be like teleporters you can assemble at home with $5 of drugstore components replacing the auto industry. I guess consumers would win, but they'd probably have to start paying for gmail and google maps access...
Re: Ask HN: What will happen to Google when somebody disrupts AdWords?
#28Google will buy them out.
Just like Yahoo (the established player at the time) bought Google out in the early 2000s, right? http://news.cnet.com/8301-10784_3-6071461-7.html
And then how Yahoo failed to compete with AdWords because of corporate politics, worries about existing revenue streams, etc.? http://www.wired.com/wired/archive/15.02/yahoo.html
Disruption doesn't only happen from a head-on challenge. Effective disruption is often not considered relevant until its way too late, and often couldn't be acquired even if seen. Consider how Craigslist destroyed the newspaper classifieds business, and that buying Craigslist would not have helped a newspaper at all.
Re: Ask HN: What will happen to Google when somebody disrupts AdWords?
#29What happens when Adwords gets disrupted? Well, first, it will take a long time for the competitor to establish itself. Businesses don't change overnight. Second, even if the competitor manages to steal ALL of Google's income overnight, Google has billions in the bank. There will be years for them to find a way to recover, or, in the absolute worst case, years for you to reinvest.
There will be years for them to find a way to recover, or, in the absolute worst case, years for you to reinvest. No, there wouldn't be years for him to reinvest. If it was revealed that Google's best days where behind them -- i.e. revenue was shrinking and they were dipping into their cash reserves to keep things rosy -- then investors would sell, sell, sell and drive down the stock price in a relatively short perio…
There tends to be a tipping point when stock prices drop, from what I saw. But there are years of warning signs and slow decline before this happens. If you were watching RIM, for example, their trouble started when the first iphone came out, but it took years for it to reflect strongly in their stock prices. Nokia was in a similar state -- they had problems for years, but it was only recently that their stock dropped heavily. It was declining, but there were warning signs in the company long before.
However, it should be mentioned stock prices already go up and down like mad. Diversify, regardless of how solid a company is.
Re: Ask HN: What will happen to Google when somebody disrupts AdWords?
#30What happens when Adwords gets disrupted? Well, first, it will take a long time for the competitor to establish itself. Businesses don't change overnight. Second, even if the competitor manages to steal ALL of Google's income overnight, Google has billions in the bank. There will be years for them to find a way to recover, or, in the absolute worst case, years for you to reinvest.
Not only would they have to steal ALL of Google's income, they would have to steal ALL of Googles network. Highly unlikely at any point in the future. Not to mention the google search product IMO is better than any other available.
No, they'd have to steal just enough income from Google to slow its growth rate. Google's high P/E ratio is based on an expectation of rapidly increasing revenues over time. If its revenues became flat, its stock price would plummet.