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The math’s not pretty on digital advertising’s future revenues? (2017)

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Re: The math’s not pretty on digital advertising’s future revenues? (2017)

#131

Post by darawk »

MarkMc wrote: post #114
darawk wrote: post #67

Earlier quoted context omitted.

None of the growth oriented items he listed are even remotely capable of justifying 2x the multiple of other media companies.

I'm not too familiar with other media companies so I don't know what the correct multiple should be, but here's my math on Google: 1. Over the past 13 years world GDP per capita has grown about 3% per year. So it's reasonable to think that the people who are currently connected to the internet will on average be 30% richer in 10 years 2. The average amount of time that people spend on the internet could grow 20% in 1…

> 1. Over the past 13 years world GDP per capita has grown about 3% per year. So it's reasonable to think that the people who are currently connected to the internet will on average be 30% richer in 10 years

A bit more from compounding, but ya. However, that's priced into every company's multiple.

> 2. The average amount of time that people spend on the internet could grow 20% in 10 years

And you think Google will capture all of that?

> 3. The amount of advertising Google can show per hour might be 20% higher in 10 years

Why?

> 4. Google might improve its ad algorithm 10% per year - ie. 160% over 10 years.

10% more profitable every year for 10 years? I'm not going to say that can't possibly happen, but you'd have to walk me through the physics of exactly how you think that's possible. Do keep in mind that Google makes money by showing people ads. They can increase their profits by:

1. Showing more ads per user

2. Getting more users

3. Charging more for ads (to do this, they'd have to improve efficacy, which, by the way, they don't capture all of because part of the surplus efficiency the advertisers will want for themselves)

4. Reducing their costs

I don't really see room for 160% growth no matter how you divide it amongst these things, unless, as the author of the original article pointed out, Google captures brand advertisers.

Re: The math’s not pretty on digital advertising’s future revenues? (2017)

#132

Post by harry8 »

Wowfunhappy wrote: post #128
harry8 wrote: post #127

Earlier quoted context omitted.

Do you really, honestly, truly believe they don't track you if you pay them not to? Genuine question.

Um, yeah, I do, unless there's evidence to the contrary. Do you really honestly truly believe Google is outright lying?

Absolutely.

Re: The math’s not pretty on digital advertising’s future revenues? (2017)

#133

Post by scarface74 »

adventured wrote: post #103
scarface74 wrote: post #75

Earlier quoted context omitted.

The difference is that Google’s profit can easily be cut off by an ad blocker. Facebook’s ads are “organic” and are viewed mostly on mobile within an app - meaning harder to block.

Google controls search, Android, the Play store and Chrome. The most popular search engine, the most popular mobile OS, the most popular app store and the most popular browser. No, its profit can't be easily cut off. They control the environment in all regards and have the leverage to dictate terms to nearly everyone. That's why they'll do ~$130 billion in sales this year, despite the popularity of ad blockers. A tin…

1. Search - doesn’t make any money if people aren’t viewing ads.

2. Chrome - doesn’t make any money except for having Google as the home page - see #1

3. Android is the “most popular” but Android users are far less affluent and valuable to advertisers than iOS. On top of that, the largest market in the world is China and Google has no presence.

And according to information that came out during the Oracle lawsuit (that Google didn’t dispute), Android has only made Google $31 billion since its inception.

https://www.reuters.com/article/us-oracle-google-lawsuit-idU...

4. Play Store - even though the Play Store is on more phones. Again, Android users are not as affluent on average and spend much less than iOS users

https://techcrunch.com/2018/07/16/apples-app-store-revenue-n...

5. As far as ad blockers - again since the most affluent users in development countries are using iOS devices where there is a native ad blocking framework, ad blocking is being used by the most coveted demographics.

https://martechtoday.com/state-mobile-ad-blocking-200622

Re: The math’s not pretty on digital advertising’s future revenues? (2017)

#134

Post by darawk »

manigandham wrote: post #70
darawk wrote: post #68

Earlier quoted context omitted.

a) That doesn't follow at all. How do you get from less effort to higher moat? b) So what? You're going to value a moat at a 100% premium NPV?

Less work to generate more money as an industry compared to Disney, that's why they have better valuations. The moat has nothing to do with that and is formed by their scale, which is almost impossible to break at this point. This is valued highly when it defends a multi-billion profit machine that nobody else can match.

> Less work to generate more money as an industry compared to Disney, that's why they have better valuations.

That speaks to margins, not moat. Margins are already incorporated in the 'earnings' number. High margins do not factor into your multiple.

Re: The math’s not pretty on digital advertising’s future revenues? (2017)

#135

Post by village-idiot »

manigandham wrote: post #73
disishhsha wrote: post #43

Earlier quoted context omitted.

> Half of the world's population still isn't online so there's plenty of room for growth in the future too. The offline half doesn’t have that much money to spend, right? Making some assumptions and approximating, would it be wrong to say that potential gains from bringing new people online ≈ global GDP growth? Currently that’s in the low single digits.

Low single digits is fine when you're among the biggest companies on the planet. We're talking about 10s of billions in profit. Amazon is now getting into the space and is a strong contender to become #3 biggest player.

Size is not insurance against failure. Go ask Novell.

Re: The math’s not pretty on digital advertising’s future revenues? (2017)

#136

Post by arthurofbabylon »

joshuamorton wrote: post #106
arthurofbabylon wrote: post #89

Earlier quoted context omitted.

I think you’re fundamentally misinterpreting the value of creativity here. While audience data is valuable for marketing existing shows, it currently has almost no value for creating new shows. Just take a look at YouTube creators. Some guy in Australia who ignores data and makes things with mud and plants produces content more popular than almost anything else. Sure, Google owns the platform, but they remain reliant…

>While audience data is valuable for marketing existing shows, it currently has almost no value for creating new shows. Netflix's success story entirely contradicts this. Netflix's whole strategy with their originals is to create lowish cost things that appeal to market segments that they know exist but currently don't have shows anywhere (one of their big bets here is international/non english audiences).

Your point only highlights my own. The Netflix strategy is to try new things out, largely sans data, and then turn the dial up on things that perform well.

Re: The math’s not pretty on digital advertising’s future revenues? (2017)

#137

Post by joshuamorton »

arthurofbabylon wrote: post #136
joshuamorton wrote: post #106

Earlier quoted context omitted.

>While audience data is valuable for marketing existing shows, it currently has almost no value for creating new shows. Netflix's success story entirely contradicts this. Netflix's whole strategy with their originals is to create lowish cost things that appeal to market segments that they know exist but currently don't have shows anywhere (one of their big bets here is international/non english audiences).

Your point only highlights my own. The Netflix strategy is to try new things out, largely sans data, and then turn the dial up on things that perform well.

No, it's exactly the opposite. They, with data, identify niche markets that don't currently have programming, and create programming to fill those voids.

Re: The math’s not pretty on digital advertising’s future revenues? (2017)

#138

Post by zozbot123 »

judge2020 wrote: post #126
zozbot123 wrote: post #109

Earlier quoted context omitted.

I wouldn't. Google search is garbage these days (if only because it's pretty much a monoculture, and that leads to SEO arms races) and their other services can easily be replaced by paid equivalents that are far less likely to be a single point of failure.

> other services can easily be replaced I agree with you regarding services that are entirely technology-based (GDocs, Drive, etc.) but so much of Google is the definition of a monopoly (in the sense of "hard to enter the market"): - You can't replace Gmail without keeping your Google account open so that any old emails get forwarded to your new address (although this is a problem with any old mail server) - Google M…

> don't care enough about the content creator to download another app just to watch their content.

The HTML5 video tag exists - you don't need "another app", though you might need another video host. There's very little inherent difference between YT and any other popular, large site. They host videos? Video is not that much more bulky than other website content anyway. (At least if you avoid gold-plating the service with 720p, 1080p, even 4K video streaming, which is just silly when the "content" is some cats doing whatever.) Websites come and go.

(And of course OSM data can be used to provide turn-by-turn routes, even with on-device processing. What makes you assume that this is not a thing?)

Re: The math’s not pretty on digital advertising’s future revenues? (2017)

#139

Post by darawk »

throwawaymath wrote: post #80
darawk wrote: post #67

Earlier quoted context omitted.

None of the growth oriented items he listed are even remotely capable of justifying 2x the multiple of other media companies.

Why do you say that?

Where's it going to come from? Here's the options I see:

1. More users. This is pretty tapped out for Google. Yes, more people will come online in developing countries, but those people will also gain access to say Disney content. So, world GDP growth is already largely priced into the multiple's of other companies too.

2. Higher ad density. I don't see a lot of opportunity for Google to substantially increase it's ad density. Reasonable people might differ here, but I think they're already fairly dense.

3. Higher ad quality / spend efficiency. This cuts both ways for them. Right now advertisers spend a lot of money on AdWords inefficiently. If Google can optimize their spend, they'll pay less in aggregate, but they may be willing to pay more per ad. Which, in turn, will allow the ad density to be more globally efficient, if Google can replace the lost volume with other advertisers who will also pay more. There is probably room here, but it's speculative, and I don't think the growth potential is enormous.

4. Reducing costs. Google's gross margins are already tremendous (63%), you could cut their costs to zero and you wouldn't even double their profit.

Re: The math’s not pretty on digital advertising’s future revenues? (2017)

#140

Post by aasasd »

ethbro wrote: post #122
aasasd wrote: post #108

Earlier quoted context omitted.

Personally I didn't even know Google and Facebook tried to produce something. What was that? I've only heard about YouTube's programs for creators, with workshops, free studio time and such.

This article was from a little over a year ago, and detailed what Google and Facebook were producing. I think your ignorance of their offerings (and I couldn't name anything either!) says what we need to know about their success.

I'm sorry, but by "this article" you mean ... ?
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