Author Topic: GOOGL - Google  (Read 343940 times)

goldfinger

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Re: GOOGL - Google
« Reply #20 on: May 21, 2011, 02:28:47 PM »
Quote
If Google can accelerate every person's use of the Internet, they will accelerate the overall interaction with Google (through use of Google services and websites that use Google ads and analytics) and make more money.  Developing Android, Chrome and Chrome OS are ways to accelerate the use of the Internet.  That's why Eric Schmidt has said that Android pays for itself.  Much of the new ad revenue that has come online, so to speak, and that will come online has made Android a phenomenal investment.

Look I have been in this business for 2 decades. I have retro-engineered some Google products for some tactical reasons in the past. A lot of companies want to directly or indirectly increase internet use. Maybe a third of the Silicon Valley is dedicated to that or some of that to some extent somewhere in business models.
What makes users go back to Google products? A combination of psychological presence, functional presence and completeness, product relevance, technological excellence and accessibility. When I speak of diversion wars I mean maintaining relevance and completeness.
However, for many things, I can switch out of Google now. Recently I complemented some searches I made with Bing. I was truly impressed by the results. Many users I know spend their time on Yahoo (legacy) and Facebook (new exciting stuff). That is it! If they get access to search from any of the two and are led to believe that the results are close to as good as with Google they will just not think twice.
I am not attacking or criticizing Google. I am just saying that competitive pressures are higher than estimated most of the time.


txlaw

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Re: GOOGL - Google
« Reply #21 on: May 21, 2011, 02:33:28 PM »
My thoughts on these products being mildly moat enhancing come from analogies in the search market to date.  Google was able to dominate search with zero interest in the OS and Browser markets.  Google's market share in search hasn't grown since the wide adoption of Android or the introduction of Chrome. 

Inverting the process, Microsoft's browser has steadily lost market share over time, whereas Chrome and Firefox have steadily gained over time.  Switching the default search engine is so much easier than switching the whole browser, and yet while people are abandoning IE, the effect on search choice has been muted.

I don't see how Google enhances its moat all that much by introducing client-side applications and operating systems, when it's been shown that you can win without them, and you can lose with them.

There are two ways that these projects are moat enhancing.

First, as Liberty argues, establishing a beach head on all devices that need an OS layer is vital to ensure that companies like Microsoft don't have the ability to break GOOG's services or displace them by replacing with their own easy to access services.

Remember, MSFT notoriously tried to: (1) implement a shitty version of Java that would cause Java itself to be abandoned; and (2) dominate in the browser market by taking advantage of the QWERTY factor (see the browser wars).  MSFT did this because  they were afraid that these two technologies would eventually displace or lead to the decreased profitability of the MSFT ecosystem.  "Embrace, extend and exterminate" was the motto at Mr. Softee.

GOOG engineers are keenly aware of this threat and need to make sure that their products are not broken or fail to reach full potential due to not being in the OS layer at all.

Second, developing these projects are moat enhancing because the core Google service, search/augmented reality/AI, is enhanced by playing a large part in the OS layer due to the virtuous cycle aspect of the service.  The more information you soak up, the better your service gets.  The better your service gets, the more information you soak up.

And having client side apps helps too.  Take Google Maps/Google Earth.  Location data is fundamental to AR and AI, and it's obvious that these services make Google more intelligent.

On the revenue enhancement side, if Google doesn't learn how to make Android seriously profitable for themselves, then it's because they've lost.  I come to this conclusion in a few different ways, but the main ones are 1) there's already a profitable and proven business model for Android, 2) monetizing Android only matters if you win, 3) you can't subsidize forever.

Android is already profitable.  

Android has brought in revenue that would not otherwise have accrued to Google.  That's why Eric Schmidt has said that Android pays for itself.  And that's what makes Android so difficult to deal with.  Mobile device manufacturers get to use Android as the OS for their new devices and they get part of the rev share that results from that.  It's a win/win for manufacturers and Google, who have to compete with Apple.

Additionally, we have to remember that there is a temporal element to the monetization of search and other Google services.  Google benefits if you can interact with Google services at any time with ease.  In fact, any time you need to do something, if Google can help you out with that, they have a share of your attention, which they may be able to monetize.

Android, Chrome, and Chrome OS help increase Google's time share on a per capita basis by helping consumers take full advantage of the Internet.

I wouldn't be surprised if MSFT eventually switches to the same biz model for Win Phone.

1 - iOS exists.  It is hugely popular and hugely profitable.  You can trace iOS's roots back to the iPod and iTunes, which is how I prefer to see the evolution of this business model.  iOS is the king daddy of media delivery, and Apple manages to both make a huge profit on the hardware, and make a huge and passive profit on the software (media).  If Google can't replicate this same system with Android, they will always be playing catch-up to Apple's media machine.  The scary part is the hold on consumers gets stronger every day: as in, why switch to Android? I would have to repurchase all of my apps, music and movies that I own in iTunes.  Scary view of media "ownership", and a very attractive moat for Apple.

I would agree that Apple's media platform, ITunes, strengthens Apple's moat.  

However, I would not characterize iOS as tracing its roots to iTunes.  Rather, I see it as a consumer-facing OS layer that traces its roots to OS X, and that represents Jobs and Co's understanding of how things are evolving in a world where ubiquitous connectivity is the norm.  Take a look at Lion, the next version of the MacOS.  You will see that iOS and OS X are converging.

----

The biz model is simply different for Apple.  Both iOS and Android are profitable for their companies.

txlaw

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Re: GOOGL - Google
« Reply #22 on: May 21, 2011, 02:48:42 PM »
Quote
If Google can accelerate every person's use of the Internet, they will accelerate the overall interaction with Google (through use of Google services and websites that use Google ads and analytics) and make more money.  Developing Android, Chrome and Chrome OS are ways to accelerate the use of the Internet.  That's why Eric Schmidt has said that Android pays for itself.  Much of the new ad revenue that has come online, so to speak, and that will come online has made Android a phenomenal investment.

Look I have been in this business for 2 decades. I have retro-engineered some Google products for some tactical reasons in the past. A lot of companies want to directly or indirectly increase internet use. Maybe a third of the Silicon Valley is dedicated to that or some of that to some extent somewhere in business models.
What makes users go back to Google products? A combination of psychological presence, functional presence and completeness, product relevance, technological excellence and accessibility. When I speak of diversion wars I mean maintaining relevance and completeness.
However, for many things, I can switch out of Google now. Recently I complemented some searches I made with Bing. I was truly impressed by the results. Many users I know spend their time on Yahoo (legacy) and Facebook (new exciting stuff). That is it! If they get access to search from any of the two and are led to believe that the results are close to as good as with Google they will just not think twice.
I am not attacking or criticizing Google. I am just saying that competitive pressures are higher than estimated most of the time.

I don't disagree that competitive pressures are high.  There is room for more than one big dog in the search/AI/AR space.  In fact, in the past I have characterized Google search as Coke, Bing as Pepsi, and Wolfram Alpha as Dr. Pepper.  Facebook, no doubt, will be gunning for Google as well.

And there's room for other competitors for other Google services.

However, the pie is greatly expanding for this market.  To quote Patrick Byrne (aka Wacky Patty): Its like swimming around in Lake Michigan and asking did you bump into each other. The world is so much bigger than anyone gets. Its so enormous.

Android is helping Google capture market/time share, and this market/time share is already being monetized.  Therefore, to say that Android, Chrome, and Chrome OS are merely defensive products is incorrect.  That's why I disagreed with the article.

goldfinger

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Re: GOOGL - Google
« Reply #23 on: May 21, 2011, 03:00:41 PM »
Quote
If Google can accelerate every person's use of the Internet, they will accelerate the overall interaction with Google (through use of Google services and websites that use Google ads and analytics) and make more money.  Developing Android, Chrome and Chrome OS are ways to accelerate the use of the Internet.  That's why Eric Schmidt has said that Android pays for itself.  Much of the new ad revenue that has come online, so to speak, and that will come online has made Android a phenomenal investment.

Look I have been in this business for 2 decades. I have retro-engineered some Google products for some tactical reasons in the past. A lot of companies want to directly or indirectly increase internet use. Maybe a third of the Silicon Valley is dedicated to that or some of that to some extent somewhere in business models.
What makes users go back to Google products? A combination of psychological presence, functional presence and completeness, product relevance, technological excellence and accessibility. When I speak of diversion wars I mean maintaining relevance and completeness.
However, for many things, I can switch out of Google now. Recently I complemented some searches I made with Bing. I was truly impressed by the results. Many users I know spend their time on Yahoo (legacy) and Facebook (new exciting stuff). That is it! If they get access to search from any of the two and are led to believe that the results are close to as good as with Google they will just not think twice.
I am not attacking or criticizing Google. I am just saying that competitive pressures are higher than estimated most of the time.

I don't disagree that competitive pressures are high.  There is room for more than one big dog in the search/AI/AR space.  In fact, in the past I have characterized Google search as Coke, Bing as Pepsi, and Wolfram Alpha as Dr. Pepper.  Facebook, no doubt, will be gunning for Google as well.

And there's room for other competitors for other Google services.

However, the pie is greatly expanding for this market.  To quote Patrick Byrne (aka Wacky Patty): Its like swimming around in Lake Michigan and asking did you bump into each other. The world is so much bigger than anyone gets. Its so enormous.

Android is helping Google capture market/time share, and this market/time share is already being monetized.  Therefore, to say that Android, Chrome, and Chrome OS are merely defensive products is incorrect.  That's why I disagreed with the article.

Understand now. Your points make total sense. You are right!

VAL9000

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Re: GOOGL - Google
« Reply #24 on: May 21, 2011, 03:37:53 PM »
Like I said, I think that this stuff is mildly moat enhancing, but I don't think that the examples that have been brought up are terribly significant in terms of defending AdWords and AdSense (which I consider the castle).  I give credit to preemptively defending against technical restrictions and adding to the pile of data that Google can mine to improve its search.  But I can't say that I agree with the idea that aggressively pursuing the mobile operating space is really about making search/context that much better, or defaulted to Google on those devices.  The payoff is tiny compared to what's possible.

And to be sure, Android's "profitability" is a joke.  This isn't a business worth caring about in its current state.  What I can tease from Schmidt's cryptic statement is that if you assign the ads clicked on by Android users to the Android business unit, then it's profitable.  This seems like a weak attempt to appease people that you shouldn't need to appease.

However, I would not characterize iOS as tracing its roots to iTunes.  Rather, I see it as a consumer-facing OS layer that traces its roots to OS X, and that represents Jobs and Co's understanding of how things are evolving in a world where ubiquitous connectivity is the norm.  Take a look at Lion, the next version of the MacOS.  You will see that iOS and OS X are converging.
iOS isn't anything without the App Store, so you can't really break them up.  The App Store is iTunes for software.  Hence, I trace the business model roots back to iTunes (not the software roots, which I think is what you're getting at, which on that we can agree).  iOS and OS X converging makes a lot of sense and will further strengthen the ecosystem as well as Apple's moat.

I think the major difference we have is not in what Android does..  I agree that it does all of the things you say that it does.  My main point is that Android isn't a moat.  It's a castle.  If Google misses the opportunity to make Android hugely profitable then it will be a loss for everyone.  Part of the reason why I hate myself for buying Apple devices is because I can see the hole that I'm digging myself into.  Pretty soon I'll have more to lose by switching from Apple than to gain - even if the go-to-device were free.  The world needs a serious competitor to the Apple ecosystem, otherwise the freedom that we enjoy today on our PCs will be seriously jeopardized in the "post-PC era".
« Last Edit: May 21, 2011, 05:44:19 PM by VAL9000 »

txlaw

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Re: GOOGL - Google
« Reply #25 on: May 22, 2011, 10:42:06 PM »
And to be sure, Android's "profitability" is a joke.  This isn't a business worth caring about in its current state.  What I can tease from Schmidt's cryptic statement is that if you assign the ads clicked on by Android users to the Android business unit, then it's profitable.  This seems like a weak attempt to appease people that you shouldn't need to appease.

There's really nothing cryptic about Schmidt's statement.  Google's goal is to organize and make accessible the world's information, and to play a major part in AI/augmented reality.  They monetize this core service they are providing to the world by gaining users' attention so that they are able to serve up advertisements to the users.  Things they do that increase Google's timeshare with consumers will increase revenue. 

The concept of a "loss leader" applies here.  Android is not profitable if you think of profitability in a very simplistic manner.  Take, for example, the typical movie theater business.  The actual showing of movies is mildly profitable or just break even for the theater.  They make most of their money on concessions and advertising.  But showing movies is a necessary step for being in the movie theater business.

Android can be thought of as a loss leader that makes tons of money for Google by increasing consumers' use of the web.  What is good for the web is good for Google.  And Android, like iOS, absolutely has increased consumers' use of the web during their day.

Have you ever wondered what the hell Google is trying to do with its ultra high speed fiber to the home project?  It's not just because they love to burn money for cool stuff and to demonstrate to the public just how much innovation we've missed out on due to the machinations of the old line telecom industry.  Google intends to light a fire under the telecom and technology world and accelerate people's use of the cloud because Google is not just a "search company," it's also a cloud infrastructure provider.  There probably won't be direct cash returns from the Google fiber project, but in the long run, there will be immense returns if they can show just how much better the Internet could be in the US for consumers.

If Google misses the opportunity to make Android hugely profitable then it will be a loss for everyone.  Part of the reason why I hate myself for buying Apple devices is because I can see the hole that I'm digging myself into.  Pretty soon I'll have more to lose by switching from Apple than to gain - even if the go-to-device were free.  The world needs a serious competitor to the Apple ecosystem, otherwise the freedom that we enjoy today on our PCs will be seriously jeopardized in the "post-PC era".

The world will be much better if Android never becomes hugely profitable in the sense that you seem to be arguing for (i.e., licensing fees a la Windows).  Android should remain essentially free for manufacturers to adopt and adapt for various uses. 

The openness and low-cost nature of Android will increase its penetration into the market and will eventually allow Android to compete with iOS on the user experience front.  Even Woz has said that he thinks Android will eventually become the dominant mobile device platform.

Android doesn't need to be monetized directly because, as I said before, what's good for the web is good for Google.

Liberty

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Re: GOOGL - Google
« Reply #26 on: May 22, 2011, 11:47:57 PM »
Here's a detail from the 2010 GOOG AR that I found interesting: 48% of revenues are from the USA, 52% from the rest of the world. Nice geographical diversification.
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VAL9000

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Re: GOOGL - Google
« Reply #27 on: May 23, 2011, 06:16:52 PM »
There's really nothing cryptic about Schmidt's statement.  Google's goal is to organize and make accessible the world's information, and to play a major part in AI/augmented reality.  They monetize this core service they are providing to the world by gaining users' attention so that they are able to serve up advertisements to the users.  Things they do that increase Google's timeshare with consumers will increase revenue. 

The concept of a "loss leader" applies here.  Android is not profitable if you think of profitability in a very simplistic manner.  Take, for example, the typical movie theater business.  The actual showing of movies is mildly profitable or just break even for the theater.  They make most of their money on concessions and advertising.  But showing movies is a necessary step for being in the movie theater business.
Maybe the statement itself isn't cryptic, but the assignment of revenues is.  I like the theater analogy so let's go with that.  In the theater business, Android is the movie theater and search is a movie.  Google plays the part of both theater builder/operator and movie producer.  What Schmidt is doing is assigning the profitability of the movie production business to the movie theater that it was played in.  I think it's a flawed assignment because it assumes that if they didn't build these theaters, these movie goers would stay home instead.  I don't think that's true.  I think the number of total searches that Android's existence truly accounts for is somewhere between 0% and 100% of the searches performed on Android.  That is, the assignment is flawed to the degree that the number of users who, in the absence of Android, would have purchased a smartphone anyway and searched on Google anyway (Keep in mind, Google owns 97% of the mobile search market, so this isn't a trivial amount).

It's not that Android isn't profitable if looked at this way, it probably is. I think Android has been good for Google.  I just don't really agree with this kind of arbitrary revenue assignment.  I don't see Chrome or FireFox or IE getting credit for their various search enabling contributions to Google's bottom line.  To me, the whole statement seems disingenuous - why would Google need to justify Android at all?

The world will be much better if Android never becomes hugely profitable in the sense that you seem to be arguing for (i.e., licensing fees a la Windows).  Android should remain essentially free for manufacturers to adopt and adapt for various uses. 
I don't think I suggested anywhere that this should be the model.  I said that Google should look to Apple for the model of how to monetize Android.  Apple's model obviously doesn't include any software licensing.

The model that I'm suggesting is to provide a platform where commerce can take place.  Android runs on phones and tablets, and it's also the basis for GoogleTV.  The potential that I see here is in media (music, movies, applications) - whether it's cloud streaming or standard rights-driven, or if it's free or ad-supported.  Google's opportunity with Android is to create a market and a platform that fosters creativity and commerce, and for doing so they are justified in making a profit.  Like Apple, Google can sit between the customer and the media provider, sucking up little percentages of transactions..  except with Android they have the considerable advantage of being device independent and more widely adopted.  Currently, the solution for the customer is sub-par.  The whole process of buying media is fragmented and under-served.  Google doesn't really have their game together on the media side.  It's disappointing but I think they can fix it.  To use the theater analogy, to turn a good profit in the movie theater business, Google needs to get its concession stands in order.

txlaw

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Re: GOOGL - Google
« Reply #28 on: May 23, 2011, 08:06:19 PM »
Maybe the statement itself isn't cryptic, but the assignment of revenues is.  I like the theater analogy so let's go with that.  In the theater business, Android is the movie theater and search is a movie.  Google plays the part of both theater builder/operator and movie producer.  What Schmidt is doing is assigning the profitability of the movie production business to the movie theater that it was played in.  I think it's a flawed assignment because it assumes that if they didn't build these theaters, these movie goers would stay home instead.  I don't think that's true.  I think the number of total searches that Android's existence truly accounts for is somewhere between 0% and 100% of the searches performed on Android.  That is, the assignment is flawed to the degree that the number of users who, in the absence of Android, would have purchased a smartphone anyway and searched on Google anyway (Keep in mind, Google owns 97% of the mobile search market, so this isn't a trivial amount).

The movie theater example was used to demonstrate how a loss leader works.  I could have used the razor and blades model or the selling of burgers at cost to sell high margin fries and beverages as examples, as well.  Let's not get too cute with the analogy.

Look, the real question is whether consumers would use Google search, browse the web, watch videos on YouTube.com, or watch videos on third party sites powered by YouTube as often if there were no iOS or Android.  I don't think they would.  

It's pretty well known that when you reduce the latency of a website, people will be more likely to use the website more often.  The reduction of latency across the web, in general, has gotten people to use the web far more often than they used to.  It's not just the proliferation of content that has caused increase use of the Internet.  It's also the faster speed at which we are able to access the info, apps, and media that has caused us to use the Internet more and more.  

The demand for/interaction with Google services goes up when the web is made easier and cheaper to use, and Android does that.

It's not that Android isn't profitable if looked at this way, it probably is. I think Android has been good for Google.  I just don't really agree with this kind of arbitrary revenue assignment.  I don't see Chrome or FireFox or IE getting credit for their various search enabling contributions to Google's bottom line.  To me, the whole statement seems disingenuous - why would Google need to justify Android at all?

Assigning credit to Chrome and Firefox is warranted, and if you were to ask Google people why they developed the Chrome browser or why they supported Firefox, they would say they did it to make the web better.  There's no question in my mind, at least, that Chrome and Firefox have made the web experience much better.  IE?  The only reason it has gotten better is because of Firefox and Chrome.  

Better web, better for Google.  Not just for search but for all Google services.

I don't think I suggested anywhere that this should be the model.  I said that Google should look to Apple for the model of how to monetize Android.  Apple's model obviously doesn't include any software licensing.

The model that I'm suggesting is to provide a platform where commerce can take place.  Android runs on phones and tablets, and it's also the basis for GoogleTV.  The potential that I see here is in media (music, movies, applications) - whether it's cloud streaming or standard rights-driven, or if it's free or ad-supported.  Google's opportunity with Android is to create a market and a platform that fosters creativity and commerce, and for doing so they are justified in making a profit.  Like Apple, Google can sit between the customer and the media provider, sucking up little percentages of transactions..  except with Android they have the considerable advantage of being device independent and more widely adopted.  Currently, the solution for the customer is sub-par.  The whole process of buying media is fragmented and under-served.  Google doesn't really have their game together on the media side.  It's disappointing but I think they can fix it.  To use the theater analogy, to turn a good profit in the movie theater business, Google needs to get its concession stands in order.

I don't consider applications media, but I suppose if you are going to take the position that iTunes is a platform, then you have to characterize apps as media.  I don't think that really makes much sense, though.  iTunes is merely a storefront that is integrated very tightly with the iOS platform.

There's really no reason why anyone should have to buy their media or apps from a platform provider such as Google or Apple, where the platform provider gets some cut of the revenues.  You might argue that buying through the platform providers allows for a less fragmented experience.  But why does this less fragmented experience have to come from either Google or Apple?  

I'd love to see Spotify come to the US and take market share away from iTunes.  I like having Netflix as my main source of professionally created video rather than iTunes.  Both these services reduce the fragmentation that you're talking about.  

YouTube.com is a great service that provides a "platform" for user generated video.  It happens to be owned by Google, but that didn't have to be the case.  

Amazon is actually trying to be a major storefront for Android apps.  I don't think it would be so bad if Amazon succeeds because Amazon will be much better than either Apple or Google at allowing the best apps to rise to the top.

You're right that Google does not have its game together when it comes to partnering with content owners.  But that's really not their expertise.  It would be nice for shareholders if they could expand on that (and they're trying), but if all they get out of Android is the expansion of their core mission, we will do just fine.
« Last Edit: May 23, 2011, 08:27:19 PM by txlaw »

DCG

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Re: GOOGL - Google
« Reply #29 on: May 24, 2011, 05:49:08 AM »
Oh no...this thread has been lvlt'd.
« Last Edit: May 24, 2011, 11:45:17 AM by DCG »