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Is Google's business model sound?

I read an article the other day about Google's stock being overinflated, and the author commented "didn't we do 'survival through selling ads' five years ago?"

Is Google's income sustainable? Or is there an "emporer has no clothes" factor in there that could seriously yank the carpet out from under them if the wrong person says "boo!"?

I've never dabbled in adWords or any of the Google ad stuff, that's why I'm asking - are the people using them seeing actual value for their money?

Philo
Permalink Send private email Philo 
January 30th, 2006 9:20am
Philo -

Is part of your job at Microsoft finding ways to undermine Google's image...?

I'm just curious, because you seem a tiny bit obsessed.  Actually your focused determination to find something wrong with them just gives them more credibility, to my mind, but I'm muppet.  :-)
Permalink Send private email muppet 
January 30th, 2006 9:22am
I think it's sustainable if they can get a handle on click-fraud.
Permalink Send private email example 
January 30th, 2006 9:23am
Nope - I have a serious track record for hating any pet rock. I respect Linux as a solid operating system; I object to OSS fanboys who only like it as "not Windows"

Google as a search engine is great - I use it all the time. You guys know I use gmail. Google as "the Microsoft killer" I think is a lot of people expressing wish fulfillment. I'm also tres tired of the whole "it's from Google, it's gotta be awesome" sploogefest (though I do think the Google Pack is defusing that to some degree)

For this post, I think Google as a company with a market cap larger than IBM is overvalued. I'm just wondering how overvalued it is.

Philo
Permalink Send private email Philo 
January 30th, 2006 9:29am
I have to admit that I have no idea how good/not-good Google Ads are in terms of revenue generated for both advertisers and sponsors.  It seems to be working as it's not gone away yet.

As far as everything Google does being great, I guess I agree that it's a lot of hype.  Gmail and Google search are the only "Google apps" I use, and the only ones that impress me.
Permalink Send private email muppet 
January 30th, 2006 9:31am
I agree with Philo (not because I want to work in MSFT).
Google seems to be making services, but where are the products that use these services.
Adwords is a great concept and service, but why dont they have a product that utilises it to provide contextual information ? A product that displays links (not ads) related to a context. Why is that missing ?
No revenue model ?
You must be kidding if there is no revenue model there. People dont want to see ads, they want information. So what's the harm in providing that and getting money from the publisher?

Seems like every service of theirs is geared towards ads (including gmaps and gmail). The more Google's revenue depends on advertising, the deeper is the grave they're digging for themselves. I hate ads. HATE. HATE. HATE.
Permalink Send private email Vineet Reynolds 
January 30th, 2006 9:44am
"Adwords is a great concept and service, but why dont they have a product that utilises it to provide contextual information ? A product that displays links (not ads) related to a context. Why is that missing ? "


Errr.. that would be the function of the sites that display the google ads in the first place, or the sites that just show up in Google Searches alongside the ads (ie, the whole  internet).

Um.. duh?!
Permalink Send private email muppet 
January 30th, 2006 9:46am
I said contextual information, not contextual advertising.
There is a difference.
Permalink Send private email Vineet Reynolds 
January 30th, 2006 9:47am
The advertising model's come up now and then on ?BoS. Search-based ads are ok IMHO - I use them, but like many  I dropped content-based ads like a hot rock as there was no discernable value and rorting the model is so easy (that's not to say it happens of course).
Permalink trollop 
January 30th, 2006 9:48am
I think that idea is that content is expanding at an exponential rate so your free inventory is always growing.

They made the advertising acceptable and easy so they can take advantage of the content expansion.

This is where most of Yahoos revenues come from as well.

So why would it stop? Content is still exponentially increasing, especially as they tap new content streams.

They could get gready and piss people off. Implosion is what usually happens to companies, like microsoft and the republicans.

Copyrights could block them. They do make their money using and displaying content they don't own. Is that legal?
Permalink son of parnas 
January 30th, 2006 9:52am
Vineet -

Your contextual links are in the search results.

If what you're saying is that you want words to be hyperlinked to other sites based on the context (words not linked by the author but linked by some Google API), then I'd find that pretty annoying.
Permalink Send private email muppet 
January 30th, 2006 10:07am
> if they can get a handle on click-fraud.

Or if they have a hand in click-fraud ;o)
Permalink  
January 30th, 2006 10:52am
I think it's a sound business model.

Whether the market has a sound valuation is a different question.  Over the long term I'd imagine it will settle down to something sane (i.e. that which has some relationship to anticipated revenue).
Permalink Send private email a cynic writes 
January 30th, 2006 11:25am
As I've just received my first $100 from Google for representing material largely from Google news queries that in itself is from Google indexing news sites I hope the Google business model stays up in the air a little longer.

I'm still suspicious that Ad Words campaigns always seem to reach their budgetted figure.
Permalink Send private email Simon Lucy 
January 30th, 2006 12:08pm
its definitely a good business model.  advertising in general isn't going to go away soon.

OTOH I also believe that google stock is rather overvalued.
Permalink Send private email FullNameRequired 
January 30th, 2006 2:43pm
"Is Google's income sustainable?"

I don't see why not.  Advertising is about eye-balls and Google has all the eye-balls.  Can you make an entire business selling advertising?  Certainly.  The entire television market is based on that. 

"are the people using them seeing actual value for their money?"

I don't use them personally, but yes, people are seeing actual value. 

Google's stock is overinflated, however.
Permalink Send private email Almost H. Anonymous 
January 30th, 2006 2:47pm
Also, Google is no Microsoft killer.  I think it's interesting that Microsoft *could* completely overtake Google's advertising business and put them under.  Assuming, of course, Microsoft ever managed to product something compelling.  I don't see Google ever doing the same to Microsoft.
Permalink Send private email Almost H. Anonymous 
January 30th, 2006 2:49pm
Google ads bought in over $2bn last year. That is a lot of money and a perfectly sound business model.

Now had your question been, "Is the Google share price justified" that would be a different matter.
Permalink Send private email Stephen Jones 
January 30th, 2006 4:43pm
Granted I asked two questions. :)

Is the $2B revenue sustainable though? Isn't almost all of it tied to ad revenue through Google?

As I mentioned, are Google's customers seeing $2B+ benefit from the money they're paying? Or are there a lot of people thinking "this will pay off real soon now"?

(again, I don't know - that's why I'm asking)

philo
Permalink Send private email Philo 
January 30th, 2006 4:54pm
Google's chief weakness is not so much that all its revenues come from advertising, more that all of its advertising revenues derive from one ad format.  The novelty factor is a huge factor in ad format success - there's typically a honeymoon period of two to five years before people start to learn to tune a new format out, and it recedes back into the other formats.

Sure, this could be the ad format that bucks the rule.... :^/
Permalink Jp 
January 30th, 2006 6:02pm
I suspect it will be.  the *thing* about googles ad format is that (a) it doesn't try to force itself on us and (b) the ads shown are directly related to the search we just performed.

compare that to television advertising, radio advertising, billboard advertising, the 'old' style web advertising.....the closest equivalent we've ever had is magazine advertising and even that was pretty hit and miss.

I cannot think of another form of advertising that actually relates itself as conveniently as possible to something the user is specifically interested in *right at that moment*.
Permalink Send private email FullNameRequired 
January 30th, 2006 7:40pm
Fair enough - the ads on Google's own site probably have staying power (although they could raise an interesting conflict of interest - if the search results are *too* good, there's less incentive for the users to look at the paid placements, not good enough and they start going elsewhere).

But I think that the extended ads program (AdSense?) will fade given time.  It'll still be profitable, just not insanely so.
Permalink Jp 
January 30th, 2006 7:59pm

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