| 
  • If you are citizen of an European Union member nation, you may not use this service unless you are at least 16 years old.

  • You already know Dokkio is an AI-powered assistant to organize & manage your digital files & messages. Very soon, Dokkio will support Outlook as well as One Drive. Check it out today!

View
 

google

Page history last edited by PBworks 15 years, 8 months ago


 

Google

 

 

How does google make money?

 

In 2005 Googles revenues were over $6 billion on which they earned about $1.5 billion in net income. (much less than companies like Exxonmobile which made over $25 billion profit.)

 

Google makes most of its money through the sale of ads. In fact, of the company's $6.2 billion in revenue in 2005, over $6 billion is from the ads. Ads which cost from a few pennies, to a few dollars per click. Google has over two-hundred million visitors a day (someone, somewhere uses Google to search for something on the Internet)

 

2 main sources of revenue:

 

AdWords

AdSense

 

 

How did google do it?

 

Google didn't make money until it started auctioning ads that appear alongside the search results. Advertising today accounts for 99% of the revenue of a company whose market capitalization tops $100 billion.

 

 

Now, research is showing that Google's auction methodology, invented internally and so important for its success, is far more innovative than auction experts once believed. While superficially similar to earlier types of auctions, it is a "novel mechanism" that "emerged in the wild," write the authors of The High Price of Internet Keyword Auctions, a new study by Benjamin Edelman of Harvard University, Michael Ostrovsky of Stanford University, and Michael Schwarz of the University of California at Berkeley. Google's AdWords became so successful after its debut four years ago that some of its key features were quickly adopted by Yahoo! Inc. (YHOO ), then the search-ad leader.

 

MATHEMATICAL RIGOR

Close-mouthed Google has opened up about AdWords since the three economists cracked its code last November. It freed Hal R. Varian, a Berkeley economist who consults for Google, to publish some of his findings about the auction methodology. And on Feb. 22, Google gave an interview to BusinessWeek in which for the first time it named the technical leader of the project: Eric Veach, a veteran of Pixar Animation Studios (PIXR ) whose Stanford doctorate was in computer graphics, not economics. "Without his mathematical rigor we wouldn't have been able to do it," said vice-president of product management Salar Kamangar, himself a biology major, who was Employee No. 9 at Google and led the nontechnical side of the project.

 

Some of Google's innovations are only now being matched. For instance, Yahoo gives the top spot on its search results page to the advertiser who pays the most per click. But Google maximizes the revenue it gets from that precious real estate by giving its best position to the advertiser who is likely to pay Google the most in total, based on the price per click multiplied by Google's estimate of the likelihood that someone will actually click on the ad. Anil Kamath, chief technology officer of Efficient Frontier Inc., a search-engine marketing firm in Mountain View, Calif., estimates that Google earns about 30% more revenue per ad impression than Yahoo does. Kamath says Yahoo is likely to follow Google's lead soon. Asked about that, a Yahoo spokesperson says the company is "currently evaluating" making more use of the "click-through rate" in placing ads. Last fall, Microsoft Corp.'s (MSFT ) MSN embraced Google's approach, tweaking it to increase ads' relevance, when it began auctioning search ad space.

 

What makes Google's auction so different? Auctions come in two main flavors. In a typical first-price auction, participants put in sealed bids, then the winner pays his or her bid. But the danger is the high-bidder ends up regretting having won, an effect known as the winner's curse. A second-price auction lessens winner's curse because the highest bidder gets the prize but pays only the minimum necessary to win, namely the second-highest bid, plus perhaps a penny.

 

Kamangar, Veach, and colleagues chose a second-price auction. But not knowing theory, they designed one that differed in a key respect from the one economists had studied. In the economists' version, bidders always have the incentive to tell the truth. In Google's auction they don't, say Edelman, Ostrovsky, and Schwarz, since in some cases, by understating the top price they're willing to pay, advertisers could get a slightly lower position on the search page for a lot less money. They conclude that naive advertisers who told the truth could overbid. Google's system has pluses for advertisers, too, says Varian. It's easier to understand than the academic version. And it's proven to work on a large scale.

 

AdWords Select, as it was called at its February, 2002, debut, was actually Google's third crack at an ad auction. The first two were flawed, but Google founders Larry Page and Sergey Brin kept pushing. Even the current system isn't perfect. Advertisers complain that it's too much of a "black box." Still, if the best measure of innovation is commercial success, Google's AdWords was a grand slam. Says Kamangar: "Third time's a charm."

 

 

 

 

Growth Issues & HR

 

How will google keep its edge in Innovation as it grows? How does Human Resourcesreltate to the strategy of the firm?

 

Google facing employee overload — Google may be overstocking itself with new employees. Jordan Rohan, an RBC Capital Markets analyst, told News.com, “Half the company has been hired in the last 12 months. That’s chaotic. The new employees find it difficult to figure out how to get things done.” Facing an employee glut, Google may not have the corporate expertise to structure the next for their new worker bees.

Simultaneously, Google is undergoing a talent drain, with some of its best and brightest striking out on their own. (The most recent: Salman Ullah.) Even John Doerr, an original Google investor and board member, is worried that the company’s culture may not survive the changes. Larger, more lumbering and less talented by the day: Is Google finally ready to become a regular corporation?

 

Valuations and Internet Companies

 

 

internet bubble ?

 

 

 

2007 Performance

 

 

2007 was another big year for Google with the company growing to become America’s fifth largest listed stock (by market cap) whilst continuing its march towards world domination.

 

According to figures from comScore Google traffic increased 22.42% this year across its main web properties (excluding non-US sites and acquired sites such as YouTube). The star performer for the year was Google’s personalized start page service iGoogle which increased traffic in the 12 months to November by 267.64%. Other strong performers included Google Book Search up 54.66%, Gmail up 53.6% and Google Maps up 51.57%.

 

It would appear that users aren’t using Google to buy goods, with Google’s worst performer in 2007 being Google Product Search (shopping), down a whopping 73.26%. Google Scholar search dropped 32.14% and perhaps oddly in a year that Google added YouTube videos to its index, Google Video search dropped 11.82%.

 

Google’s core search engine still remains the most highly trafficked part of Google with other products a long distance behind. Google’s most popular products in order of traffic for 2007 were: search, image search, Gmail, Google Maps and Google News.

 

 

goognumbers.jpg

 

googgrowth.jpg

 

 

 

 

 

Volumes of information and data each day

 

 

Google Processing 20,000 Terabytes A Day, And Growing

 

Posted: 09 Jan 2008 10:30 AM CST

googleogo7.gifA recent white paper by some Google engineers puts some numbers around the massive amount of computation that Google does every day to index the Web, process search results, and serve up ads, among other things. As oflast September, Google was processing 20,000 terabytes of data (20 petabytes) a day. This large-scale computing capability is a big part of Google’s competitive advantage over Yahoo, Microsoft, and everyone else.

Niall Kennedy reports the breakdown of how Google’s large-scale computing has grown, and estimates that hardware cost for each large-scale computing job (known as MapReduce) is about $1 million. The number of such jobs grew nearly an order of magnitude (10X) between 2004 and 2006, and then another order of magnitude a year and half later. See the chart below:

google-mapreduce-chart.png

 

 

 

 

 

Challenge to Wikipedia

 

Google’s Knol, a challenge to Wikipedia?

knoltop1.pngGoogle is working on a product called “Knol” — a sort of competitor to online, nonprofit encyclopedia Wikipedia.

 

While Wikipedia lets anyone edit its articles, Google’s Knol is encouraging “people who know a particular subject to write an authoritative article about it” (official announcement here).

So why is Google doing this? Well, Wikipedia has posed a threat: Wikipedia entries frequently show up as top results in Google searches, redirecting Google searchers to Wikipedia instead of to any other site on the web.

 

We have no choice but to be skeptical, considering Google’s many so-far-fruitless efforts to challenge incumbent online competitors.

 

Google’s Knol will place author’s names next to their Knol article pages, which Google thinks will help users make better use of web content. Instead of a collaborative editing process, like what happens on Wikipedia, Knol authors will compete to have the most popular page on a topic. Users will be given the option to grade each page, to help clarify which author is best. (See below; a larger Knol screenshot here.)

 

knolscreenshot.png

Knol is Google-centric at its core. Its pages will be hosted by Google. Authors of Knol pages will be able to run Google ads and get some part of the revenue they generate — Google will get the other part. Google will also offer a Knol-specific search option.

 

Google will also apparently favor Knol pages over Wikipedia pages: “A knol on a particular topic is meant to be the first thing someone who searches for this topic for the first time will want to read.”

 

But this seems like a crass, commercial move that will marginalize the hard work of millions of Wikipedia volunteers, and breach the principle of objectivity that Google has more or less followed for delivering search results thus far.

 

Maybe Knol’s focus on giving individual authors a say will convince experts to contribute? That same idea was implemented awhile back for Google News. “Sources” could respond to news articles about in which they are mentioned. As far as we can tell, these “sources” haven’t used Google’s service.

 

Knol lets you create a web page, then put your content on it. This is akin to Google Base — remember, Google’s classified ad pages. Many thought it would destroy Craiglist and other online classified sites. It hasn’t.

 

Then there’s Google Checkout, the online payment system that was supposed to destroy incumbent Paypal. That effort has seen top engineers leave and, from what we hear, is at a stand-still.

Then there was OpenSocial, the developer platform that was supposed to make Facebook’s developer platform irrelevant. OpenSocial itself may become irrelevant, as Facebook licenses out its developer platform to other social networks, like Bebo.

 

 

 

 

 

 

Links

 

1. Who is google? http://www.google.com/about.html

2. History + financing: http://www.google.com/corporate/history.html

3. Discussion: http://digitalenterprise.org/cases/google.html

4. Financial report http://investor.google.com/pdf/2004_AnnualReport.pdf

5. article in 1999 talking about Google business plan

6. Discussion with the founders in 2002: http://edcorner.stanford.edu/authorMaterialInfo.html?mid=1081&author=149

7. More discussion about how Google makes money: http://edcorner.stanford.edu/authorMaterialInfo.html?mid=1531&author=205

8. Business Week Article

 

 

 

 

Google Search Tips:

 

 

Google Shortcut Finds Pages That Have...
nokia phone the words nokia and phone
sailing OR boating either the word sailing or the word boating
"love me tender" the exact phrase love me tender
printer -cartridge the word printer but NOT the word cartridge
Toy Story +2 movie title including the number 2
~auto looks up the word auto and synonyms
define:serendipity definitions of the word serendipity
how now * cow the words how now cow separated by one or more words
+ addition; 978+456
- subtraction; 978-456
* multiplication; 978*456
/ division; 978/456
% of percentage; 50% of 100
^ raise to a power; 4^18 (4 to the eighteenth power)
old in new (conversion) 45 celsius in Fahrenheit
site:(search only one website) site:websearch.about.com “invisible web”
link:(find linked pages) link:www.lifehacker.com
#...#(search within a number range) nokia phone $200...$300
daterange:(search within specific date range) bosnia daterange:200508-200510
safesearch: (exclude adult content) safesearch:breast cancer
info: (find info about a page) info:www.websearch.about.com
related: (related pages) related:www.websearch.about.com
cache: (view cached page) cache:google.com
filetype:(restrict search to specific filetype) zoology filetype:ppt
allintitle: (search for keywords in page title) allintitle:"nike" running
inurl:(restrict search to page URLs) inurl:chewbacca
site:.edu (specific domain search) site:.edu, site:.gov, site:.org, etc.
site:country code (restrict search to country) site:.br “rio de Janeiro”
intext:(search for keyword in body text) intext:parlor
allintext: (return pages with all words specified in body text) allintext:north pole
book(search book text) book The Lord of the Rings
phonebook:(find a phone number) phonebook:Google CA
bphonebook: (find business phone numbers) bphonebook:Intel OR
rphonebook:(find residential phone numbers) rphonebook:Joe Smith Seattle WA
movie:(search for showtimes) movie:wallace and gromit 97110
stocks:(get a stock quote) stocks:ncesa
weather:(get local weather) weather:97132

 

 

Financials:

 

 

 

 

 

 

 

 

How to value (think about) internet companies

 

An internet channel (like YouTube) is very similar to a TV show (like Friends, Seinfeld), in that they bring in viewers and attract an audience.  So, like a TV show such as "Friends", the producers, writers, directors of the show should not be particularly concerned with commercializing the show. They do not need to think about the business model, but rather they just need to make sure they create an excellent experience for the consumer.  Then, someone else can come along, and figure out how to make money off of the audience.  Imagine if you were the guy who came up with the TV show "ER", or "24"with Jack Bower", or "Alias", "Lost", etc... if you were the guy coming up with these great shows (that will attract audiences), you shouldn't also be expected to find a way to wrap these shows in advertising, and to deliver them to millions of viewers.  No, instead, you are in charge of coming up with the most amazing consumer experience, and making sure that viewers will love your show.  This is a great parallel with what is happening with internet sites.  

 

But, where does Google fit in?  They are like the TV networks of old...like ABC, NBC, CBS...in that they have the infrastructure in place to commercialize an audience.  They have the advertising and the ability to wrap content in advertising.  Google, Yahoo, MSN seem to be the big 3 of online advertising...and they are out there shopping for content that people want to watch, so they can wrap that content in advertising (just like what the big 3 TV networks do).   So, what is the implication to small start-ups...well, it means that (contrary to what your business school prof says), you do not really need a business plan, or any real plan for how your website is going to make money.  You just need to develop a very user-friendly and necessary tool that millions of people will want to use on a daily basis (not easy to do all by itself).  If you can do that...you have essentially come up with a hit TV show, and the big networks will compete to see who can buy you....think Facebook, MySpace, Twitter, etc....all of those internet based "companies" with valuations that business school profs scratch their heads trying to understand.

 

The business of TV has changed now that there are 100's of channels.  Rather than concentrating advertising across just a few channels, you now spread around to many more.  The audience is fragmented, and so, the value of advertising to any one channel is much less, making it much more difficult to reach an audience with just one show.  But, along comes the super bowl, which is a show that most households in America tune in to watch...and what happens to the value of advertising?  It skyrockets.  Why?  Its valuable because millions of people choose to watch it...so, advertisers get a chance to show one add to millions of people.  On that day, there are sill 100's of choices about what to watch, but most people choose to watch that one show.  So, its possible to charge a fortune for ads.

 

An internet application = TV show (content).....and a really good application is like the super bowl....its worth allot of money because it attracts a huge audience (if someone could just figure out how to wrap it in advertising).

 

Business Model = TV station / network...with advertising network, and business knowledge....these are your Google's, Yahoo's, and Microsoft's of the internet world.

 

But, then if this is true, shouldn't Google's valuation be based on a similar multiple as a TV ad network?  If it was just based on today's revenues, then "yes", an internet company with an advertising model should be valued similarly as a TV network.  But, Google has greater future expectations built into its price, because investors don't know what Google will do next. They are afraid of missing out, and not owning a piece of tomorrow's profits.  (Apple is also benefiting from this).  If you do one amazing thing after another, then people begin to expect amazing things, and your value reflects this.  But, what happens if you stop doing amazing things?  Stock price should plummet back ot valuation similar to rest of industry.  This explains why Google is moving into Google-"space"...mapping the stars, and mobile, and TV, and newspaper advertising...etc...because they continuously need to amaze, dazzle, and bewilder investors.  Never mind that their core business model is simply an advertising one. 

 

Value like a TV network

 

There still are many areas in which Google can amaze investors (and seek to dominate the online world).  One interesting trend is the convergence of television and internet.  Ten years from now, it would be reasonable to expect the two technologies to come together, combining the control and choice of the internet with the graphics and display of the television.  If this were to happen, then Google would be in a prime position to benefit.  This would seriously disrupt the old tv model, and Google could become the new network player, displacing ABC,NBC, CBS, FOX, etc... But, rather than seeing Google's stock skyrocket on this news, shouldn't the rational investor just see this as more proof that Google should be valued similarly to the tv networks themselves? 

 

There wouldn't be than many more ad dollars to spend.  In total, the size of the "pie" wouldn't get any bigger.  There would still be the same number of companies wanting to spend money on advertising.  In the end, no additional money would be spent by car companies, shampoo companies, or insurance companies.  The money spent might go up some, but it wouldn't skyrocket just because Google was now in charge (rather than Fox).   From the car companies perspective, it just wouldn't matter.

 

Questions

During the San Francisco gold rush, I heard people made money selling pickaxes to gold miners.  This seems to be what google is doing.  If you go to a typical internet website, and look at the google ads surrounding the site, you will see that 90% of the little ads are from other websites.  People set up websites and hope to make money with Google ads.  In order to attract an audience, they buy ads with Google. The little circle continues, and Google gets rich selling ads.  An interesting analysis that I'd like to see completed would be to strip away all internet-to-internet advertising and just see the total amount of ad dollars that are coming in from non-internet sites (from car companies, P&G, etc).  How much money is actually coming in?  And, how much is just going in circles?  (with Google making a % cut each time the money circulates).   My guess is that most of the money is from one internet site to another.   Just like in Vegas, the only winning hand is the dealers.  the "house" has the best odd of success.  Unless there is a majority of new money coming in from the outside, then the internet-internet advertising cycle seems like a net looser to me.

 

 

Money going in circles:

 

Circular Money: Facebook And Yahoo Advertise Their Advertising Platforms On Google

 

 

 

 

 

 

TV is a better ad-format

The biggest spenders on advertising are car companies, beer companies, shampoos, etc.  But how often do you really see Bud Light ads on the internet?  When was the last time you saw a well produced and effective internet advertising campaign?  The truth is that ads on TV are much more developed, and TV is a better format for advertising. 

 

So, TV advertising (networks) should be valued higher than internet (advertising networks).

 

 

 

The effect of google

Its interesting that Google's lofty share price is fueling the boom in internet.  Because the share price is $600 plus, they have cash to buy innovation, and to buy audience (like purchasing YouTube for the audience, not for the business of making money). 

 

 

A gutsy move....for hedge fund investors only....

Although Google's share price (and market cap) is larger then IBM, but google makes less revenue, has less profit, has less employees.  So, the reason for Google's large market cap is the expectations of what Google will do next.  Because they always amaze, people do not want to miss out on the next great thing.  But what happens to the stock price if Google stops amazing investors?  Then, the market cap should be based on actual ability to make money today (and in the future).  The reason for the lofty valuation is that Google just seems to have massive amounts of promise for the future. They seem to have momentum, and since it appears as if they might do something amazing next, thats why they are valued way above their actual ability to make money.  My thought is, however, that the company will eventually come to be seen as just another company (like IBM, Microsoft, etc), and when that happens, the stock price will plummet, and will again be based on some multiple of earnings, profits, or people.

 

If I had the money, or the ability to wait it out, I would take a short position (bet against Google).  I wonder, however, if some very large hedge fund could take a massive short position on Google, and force it back to a realistic valuation?  I believe that if someone like George Soros (who "broke the bank of England") were to become convinced, that it could be done.  But, if this happened, what would be the effect throughout the rest of the internet-land?  No more building applications in the hopes that Google would buy your audience...?

 

 

 

 

 

 

 

More about Google

 

More than just an online search company, Google is at its core the most successful internet advertising businesses now in existence. In 2006, annual revenue had increased an astonishing 23-fold from 2002, from US$ 440 million to $ 10.6 billion. Over 99% of Google's 2006 revenue came from advertising sales. The company uses its core search technology capabilities to place ads on its eponymous search engine as well as through a network of third-party websites. What has made Google's "paid search" advertising business so successful is that it is performance-based (advertisers only pay when someone clicks) and ads are contextual (e.g., a DVD ad typically shows up when someone searches for "DVD").

 

Internet advertising is the fastest growing segment of the advertising market, but still only represents 7% of total U.S. advertising dollars -- so there is room for further growth. In order to tap these opportunities Google has used the financial success of its paid search business to expand in many different directions related to advertising.

 

 

  • The company has moved to consolidate the online advertising business by acquiring DoubleClick in 2007. This move gives Google the capability to manage online display ads (e.g., banners and pop-ups), a medium that has not been the company's historical strength.

 

  • Google has moved to expand beyond the realm of online advertising by acquiring dMarc (radio) and partnering with cable satellite provider DISH Network. The company has also innovated products for the mobile phone--a burgeoning advertising channel--and outdoor kiosks and billboards.

 

  • Gmail, Google Maps, and Google Earth are among the most prominent of Google's non-search products, which have given the company new outlets for its targeted advertisting (gmail) and an entree into the local advertising business (google maps), putting it directly in competition with the local yellow pages publishers.

 

But Google faces real obstacles. The online advertising industry is maturing in North America and Europe, where Internet connectivity exceeds 70%. Its core paid search products have been accused of click fraud as well as privacy and intellectual property violations; the recently acquired YouTube online video site is at risk for the latter. (It is also being sued by Viacom for distribution of copyrighted video material.) Additionally, Google's acquisitions of DoubleClick and YouTube have also made it an anti-trust target. As of late September, Microsoft argued to Congress that the DoubleClick merger would be anti-competitive given Google's dominant position in search.

 

 

Google and Social Networking

 

October 30 2007

Details Revealed: Google OpenSocial To Launch Thursday

Michael Arrington

170 comments »

 

 

Details emerged today on Google’s broad social networking ambitions, first reported here in late September, with a follow up earlier this week. The new project, called OpenSocial (URL will go live on Thursday), goes well beyond what we’ve previously reported. It is a set of common APIs that application developers can use to create applications that work on any social networks (called “hosts”) that choose to participate.

 

What they haven’t done is launch yet another social network platform. As more and more of these platforms launch, developers have difficult choices to make. There are costs associated with writing and maintaining applications for these social networks. Most developers will choose one or two platforms and ignore the rest, based on a simple cost/benefit analysis.

 

Google wants to create an easy way for developers to create an application that works on all social networks. And if they pull it off, they’ll be in the center, controlling the network.

 

 

What They’re Launching

OpenSocial is a set of three common APIs, defined by Google with input from partners, that allow developers to access core functions and information at social networks:

  • Profile Information (user data)
  • Friends Information (social graph)
  • Activities (things that happen, News Feed type stuff)

 

Hosts agree to accept the API calls and return appropriate data. Google won’t try to provide universal API coverage for special use cases, instead focusing on the most common uses. Specialized functions/data can be accessed from the hosts directly via their own APIs.

Unlike Facebook, OpenSocial does not have its own markup language (Facebook requires use of FBML for security reasons, but it also makes code unusable outside of Facebook). Instead, developers use normal javascript and html (and can embed Flash elements). The benefit of the Google approach is that developers can use much of their existing front end code and simply tailor it slightly for OpenSocial, so creating applications is even easier than on Facebook.

Applications can have full functionality on profile and/or canvas pages, subject to the specific rules of each host. Facebook, by contrast, limits most functionality to the canvas page, allowing a widget on the profile page with limited features.

OpenSocial is silent when it comes to specific rules and policies of the hosts, like whether or not advertising is accepted or whether any developer can get in without applying first (the Facebook approach). Hosts set and enforce their own policies. The APIs are created with maximum flexibility.

 

Launch Partners

Partners are in two categories: hosts and developers. Hosts are the participating social networks, and include Orkut, Salesforce, LinkedIn, Ning, Hi5, Plaxo, Friendster, Viadeo and Oracle.

Developers include Flixster, iLike, RockYou and Slide.

 

What This Means

The timing of OpenSocial couldn’t be better. Developers have been complaining non stop about the costs of learning yet another markup launguage for every new social network platform, and taking developer time in creating and maintaining the code. Someone had to build a system to streamline this (as we said in the last few sentences in this post). And Facebook-fear has clearly driven good partners to side with Google. Developers will immediately start building on these APIs to get distribution across the impressive list of hosts above.

And they’ll do it soon, too. It’s clear that the developers who arrived early to the Facebook Platform party won easy customers. Those that came later had to fight much harder. Developers found their new gold strike, and they will soon all be there, mining away.

 

Comments (0)

You don't have permission to comment on this page.