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Google, Microsoft, Stall Points, and Growth

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Re: Google, Microsoft, Stall Points, and Growth

#21

Post by manigandham »

This is written by someone who isn't in the advertising business and doesn't understand the dynamics of that industry. Extrapolating from stock prices doesn't cut it.

Google is not going anywhere anytime soon, it's the defacto unspoken leader in online advertising and the closest competitor these days is Facebook, and even they have a very hard time getting to parity. Google owns so much of the adserving stack and online ecosystem that it borders on ridiculous. Any issues they might face with shifts in advertising would be the same challenges anyone else will face, but Google has more talent, money and scale to solve these problems.

Re: Google, Microsoft, Stall Points, and Growth

#23

Post by [deleted] »

skj wrote: post #6
papaver wrote: post #3

i would say i felt similar lackluster when i interviewed (engineering position) there a few years ago. probably one of the worst interviews i've had, completely mechanical. literally all human emotion removed from it. the interview consisted of purely how well one did on the 5 sessions of solving problems. not a single session even bothered to take into account personality. the last interviewer explained they did't w…

> not a single session even bothered to take into account personality. So you'd prefer that the interviewers set up situations for unconscious biases to take hold? That would hurt the quality of engineering at Google.

[deleted]

Re: Google, Microsoft, Stall Points, and Growth

#24

Post by millstone »

manigandham wrote: post #21

This is written by someone who isn't in the advertising business and doesn't understand the dynamics of that industry. Extrapolating from stock prices doesn't cut it. Google is not going anywhere anytime soon, it's the defacto unspoken leader in online advertising and the closest competitor these days is Facebook, and even they have a very hard time getting to parity. Google owns so much of the adserving stack and on…

The article compares Google to Microsoft. Microsoft, too, had a dominant position in a lucrative market (and still does, with revenues ~50% higher than Google). Microsoft also underwent a decade of a flat stock price.

Their revenue kept growing during this period. It grew by a lot! But their P/E declined, from the 40s to 12 or so. This is because all of the action (iPod, Google Search, iPhone) was happening outside of MSFT. The "growth genie" was gone, and they transitioned from a growth stock to a value stock, and (as perceived) an innovative company to a company protecting its cash cows.

The article discusses whether Google will undergo the same fate. Being the undisputed leader in online advertising is an enviable position; the question is whether Google can grow to be more than that.

Re: Google, Microsoft, Stall Points, and Growth

#25

Post by megablast »

manigandham wrote: post #21

This is written by someone who isn't in the advertising business and doesn't understand the dynamics of that industry. Extrapolating from stock prices doesn't cut it. Google is not going anywhere anytime soon, it's the defacto unspoken leader in online advertising and the closest competitor these days is Facebook, and even they have a very hard time getting to parity. Google owns so much of the adserving stack and on…

> Google is not going anywhere anytime soon

And this article never said it was. Did you even read the article, or just jump into to defend Google?

Re: Google, Microsoft, Stall Points, and Growth

#26

Post by mbesto »

chrisjlee wrote: post #22

This person doesn't know how to read a stock chart ( https://d23f6h5jpj26xu.cloudfront.net/2ihthwrngo9lfq_small.j... ). They clearly ignored the years where 2007-2012 when that would be considered a flatline. That is a huge flatline.

Did you choose to ignore the financial crisis of 2007-8?[0]

[0] - http://en.wikipedia.org/wiki/Financial_crisis_of_2007%E2%80%...

Re: Google, Microsoft, Stall Points, and Growth

#27

Post by millstone »

frozenport wrote: post #13

Claims of MS decline are not serious, they ignore that the beaste has been making billions in profits every year.

Microsoft is enormously profitable! And though their growth may have stalled, that simply means that their growth stopped accelerating - not that they stopped growing. Being a Microsoft is pretty great!

That said, Microsoft did decline. Not in revenues (which grew), but in relevance. Their new products were perceived as chasing market leaders: Zune, Bing, Windows Live etc. Their strategy for their most popular products seemed ill-defined: remember Windows.NET and Office .NET? And this was reflected in their P/E, which did decline, from the 40s to the low teens. Most tellingly, at some point, people stopped being afraid of Microsoft, which may be the most telling. Microsoft competes with everyone, but its competitors don't worry about Microsoft any more.

This would not be a terrible fate for Google, but it's not ideal and far less than they're capable of. For that matter, it's less than what Microsoft is capable of!

Re: Google, Microsoft, Stall Points, and Growth

#28

Post by ChuckMcM »

skj wrote: post #5
ChuckMcM wrote: post #2

It is an interesting analysis. I've followed Google's numbers pretty closely since I left in 2010 to track trends from the outside that had started becoming apparent on the inside. Basically there is a limit on how "good" you can be at search advertising, and other companies are relentlessly investing there and so as Microsoft, for example, has quarters of growing ad value both in CPC and volume. Google has declining…

> Google has declining CPC ... now they get fewer and fewer gains with the investments they do. Keep in mind that the declining CPC is coupled with increased revenue, caused by the amount of ad inventory they're moving. So, your second statement is not supported by your first. (disclaimer: googler, but not in ads or anything related)

That is correct, revenue is increasing, but that increase is coming through increases in ad inventory on the core sites, and paying for more traffic (aka Paid Distribution) as more and more people don't bother to switch off 'bing' or 'yahoo'[1] on two big platforms (Windows and Firefox).

There is a limit on how much traffic you can buy, there is a limit on how many ads you can put on your pages before those ads push people away. And when those work arounds lose their effectiveness (my guess is Q3/Q4 2016) then revenue will be flat year/year. If people decide that Google isn't a "Growth" stock, they will reprice their value based on current revenues rather than projected revenues, and call for the elimination of everything that cuts into profits. As the original article points out, there are many previous examples.

[1] Currently also Bing :-) but will no doubt change when the agreement expires.

Re: Google, Microsoft, Stall Points, and Growth

#29

Post by ChuckMcM »

nrao123 wrote: post #12
ChuckMcM wrote: post #2

It is an interesting analysis. I've followed Google's numbers pretty closely since I left in 2010 to track trends from the outside that had started becoming apparent on the inside. Basically there is a limit on how "good" you can be at search advertising, and other companies are relentlessly investing there and so as Microsoft, for example, has quarters of growing ad value both in CPC and volume. Google has declining…

Google's revenue formula is: CTR x CPC x # of Searches. If number of searches & CPCs are under pressure then they will continue to tinker with CTRs by changing ad formats & screwing with the user experience: https://cgviews.wordpress.com/2014/10/22/google-changing-ad-... https://cgviews.wordpress.com/2014/10/14/changing-google-ad-... https://cgviews.wordpress.com/2014/01/15/google-ad-changing-... https://cgviews.word…

Agreed, but the formula is more like (CTR x CPC x # Searches) - Paid Distribution. And "yield optimization" (which is code for increasing CTR) is all about tricking the clicks.

The two negative forces this employs then is that if they bump their CTR and yet people who click don't buy, this further depresses CTRs as advertiser value the clicks less and less. And by paying to send them search traffic that money is paid if you search for "new car insurance" (very valuable) or "Pythagoras theorem" (basically worthless).

Re: Google, Microsoft, Stall Points, and Growth

#30

Post by manigandham »

millstone wrote: post #24
manigandham wrote: post #21

This is written by someone who isn't in the advertising business and doesn't understand the dynamics of that industry. Extrapolating from stock prices doesn't cut it. Google is not going anywhere anytime soon, it's the defacto unspoken leader in online advertising and the closest competitor these days is Facebook, and even they have a very hard time getting to parity. Google owns so much of the adserving stack and on…

The article compares Google to Microsoft. Microsoft, too, had a dominant position in a lucrative market (and still does, with revenues ~50% higher than Google). Microsoft also underwent a decade of a flat stock price. Their revenue kept growing during this period. It grew by a lot! But their P/E declined, from the 40s to 12 or so. This is because all of the action (iPod, Google Search, iPhone) was happening outside o…

It seemingly can as it actively has ventures in several out of band ventures and is encroaching in all the areas Microsoft already is, while having search/advertising as a massive foundation which MS doesnt have.

And yes, advertising will continue to grow, native/video/mobile are all still growing at double digits and Google is slowly rolling out their products to extract even more value here. The ad industry is going through another revolution and Google, while not innovating, has plenty of growth potential still left.

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