That was my immediate first thought. Sure, they'll crash some day, and who knows how many ups and downs there will be before then? Trying to time the market to take advantage of that is not going to be easy.
I mean, the other way of looking at it is that the market is always "right" for mysterious reasons and we mere mortals (often) get our predictions wrong.
I don't see much merit in this thesis. Google and Facebook are the gatekeepers to attention. Taxes, regulation and antitrust action may reduce their gross margins, but where else is the value going to go?
As TikTok and other companies become more popular, you'll see the US government more protective of FB and Google. An abusive duopoly with Western alignment is better than a social media monopoly from China. The continued rise of TikTok actually simultaneously reduces government's will to act on big US tech.
Neither FB or Google are in China; so the Chinese government's ability to hurt those companies are limited.
How is that analysis different than myspace 15 years ago (or whenever)?
social media platforms are extremely durable until the next hot new thing comes along.
There is a new generation you need to engage every ~5 years or so, and they see facebook as the platform to talk with grandma.
FB made some genius acquisitions with instagram and whatsapp, but eventually they are going to fail to acquire the challenger, and when that happens the fall can be swift.
Facebook surpassed MySpace in monthly user count by April 2008. MySpace hit its peak in December 2008. This wasn't a "migration" from MySpace to Facebook. It was Facebook out growing MySpace.
But that doesn't necessarily mean it could happen again.
"The percentage of US adults who use social media increased from 5% in 2005 to 79% in 2019."
Facebook grew at a time when social media usage was also growing. We don't have a huge, untapped pool of users from which to fuel a "Facebook killer". There was also a significant difference in how the sites we originally used, so there was interest from a lot of early users in using both.
My feeling is that any site that might eventually supplant Facebook as the dominant social media force would need to grow in an underserved market before expanding into the general market, and do it in such a way that Facebook doesn't notice and come crush them first.
What strikes me is that the peak year for MySpace and the year Facebook surpassed it was also the year that smartphones started to take off. Facebook, being the far "simpler" site, would have been much more usable in early smartphone browsers. And smartphones were a huge part of the growth of social media. So it suggests that not only does a Facebook competitor need an untapped market to serve, it needs a platform on which it can create a significantly better experience than what Facebook can do.
Unfortunately, Facebook is ahead of the game on this issue. Why do you think they spend so much money on Oculus and VR? There are leaked memos from Zuckerberg that explicitly spell out this strategy. They are taking over the platform early to avoid ceding the space to a future competitor.
Agreed. IBM never really lost the mainframe market. And Microsoft never really lost the desktop market. Sometimes the incumbents stay there until their domain disappears.
My guess is that this is super unlikely in the age where Google pays billions to be a default, or where people don't even know what URL is, and browsers are set up to automatically search anything you (mis)type into the address bar.
Most people probably don't even have a conception of what search engine is, and that it's not just a part of the browser or their phone, but it's an independent service.
> Sure, they could be displaced by a better search engine, but that's a whole different kettle of fish.
I don't see how that's remotely possible. The capital costs are just too high. Currently there is only one other formidable English language search engine (Bing - all the other search sites like DuckDuckGo use Bing), and it's been a distant also-ran for over a decade now.
If anyone has any plausible scenario where Google looses their search supremacy, would love to hear it.
It is hard to imagine how google loses raw search superiority, but the more likely scenario is that they lose their dominance somehow:
(1) social networks provide better basis on which to give answers/results to users, so FB “replaces” google.
(2) advances in deep learning make googles secret sauce not so critical, and lots of competitors provide good enough search results (and VC funding makes the build out of the massive data enters possible (I.e. the u er/Lyft scenario)
Side question: is google’s dominance really built on search these days? If they shut down the search engine, would it have a significant effect on their bottom line?
> Side question: is google’s dominance really built on search these days? If they shut down the search engine, would it have a significant effect on their bottom line?
One scenario I can think of is where search becomes less and less important for the web. Through years of consolidation you may appear in a landscape where there are well known monopolies on every front, and consumers don’t need to discover the internet anymore. You would go to amazon for e-commerce, FB for social media, Uber for transport, Wikipedia for knowledge, etc etc. That world kind of exist today, but I am assuming there will be a future world where the internet will be lot more consolidated
> social media platforms are extremely durable until the next hot new thing comes along.
This is exactly why I sold my Facebook shares a few months ago. The next Instagram might not sell to Facebook so cheaply, or the sale might well be blocked by regulators.
Having said that, I still have a large position in Twitter because the brand seems a lot more durable.
MySpace peaked at 75M monthly users, which is a rounding error to FB's 3B monthly users. That fact alone is major, the network effects for both FB and GOOG makes them very hard to replace in and off itself. For instance, a competitor would have to capture practically all of the connected world population to takeover Messenger. Their sheer size and importance makes them unavoidable for most other-party web platforms cementing their position. Pile on to that the fact they both have 12 digits war chests capable of buying any upcoming competitor (for instance Instagram) or trying to crush them, this comparison to MySpace which comes up every time with this discussion is fallacious. There are reasons why the web is "Winner takes all/most" and is now centered around a handful of companies with sectorial monopolies, I have a hard time to see how a component of FAAAM could fail naturally any time soon.
I don’t think the conspiracy theory is necessary. Both Facebook and Google have been very successful at avoiding existential threats. YouTube and Instagram being great examples.
Weak argument as this is America's Saudi Aramco. Wait Saudi Aramco is America's Saudi Aramco, this analogy has limits.
My point is that digital data is a commodity that has been found and being excavated at high margins and will be protected by their countries, just because some other countries are trying to do the same thing.
So while California and the European Union are making it more expensive to do this, DC and Beijing are only protecting the golden goose.
Legislative changes and protections that raise the cost around monetizing user data can debilitate them heavily. Just watch for those. But on autopilot these companies will be fine as they convert quarterly revenue into a big cash warchest instead of reinvestment fuel.
> Weak argument as this is America's Saudi Aramco.
Microsoft (or Apple) is America's Saudi Aramco, if we're speaking of important & highly profitable corporations.
They're vastly more profitable than Google or Facebook, and far more sustainable (in terms of market position, regulation, anti-trust, etc). In fact, Microsoft ($52b) will soon have as much operating income as Google ($35b) and Facebook ($26b) combined, and will soon surpass Apple ($65b; which has barely grown its operating income in four years and has weak prospects for income growth).
To make matters worse, Google is stagnating and losing their hold on the ad market (while being pursued for anti-trust). Google also suddenly lost their leadership, Larry & Sergey cast Alphabet adrift after creating that mess, said good luck and adieu (to run & hide from the legal tsunami). Microsoft by contrast is booming, has a solid regulatory context, and has one of the world's best CEOs at the helm.
Here is Microsoft's income growth: $22b -> $35b -> $43b -> $52b
If I were a nation, I'd rather own Microsoft than Aramco, much less Google & Facebook. Easy choice.
Aramco has a collapsed future and they're trapped in low oil price hell indefinitely. Microsoft is probably going to $75-$80 billion per year in operating income in five years, on their way to $100 billion this decade. As far as individual corporate entities goes, nothing like the Microsoft profit machine has ever existed before (Apple comes the closest, and they're stuck in a zero growth smartphone market). Apple's cost of revenue is 61.8% of sales; Microsoft's cost of revenue is 31.7% of sales, their operating income margin is a wild 37.4% (given their scale it's something beyond extraordinary).
Microsoft's IPO created tens of thousands of millionaires, and that was in the 80's. Microsoft is many things, a lot of them very ugly, but it for sure is impressive, too.
Seeing how Microsoft accounts for only a portion of the second most profitable sector, I'd imagine the whole lot of top tech companies in the U.S. would be considered essential for national interest.
---
Then I found "The World's 10 Most Profitable Companies" (2019).
- Saudi Aramco - $110.9 billion
- Apple - $59.5 billion
- Industrial & Commercial Bank of China - $45 billion
- Samsung Electronics - $39.8 billion
- China Construction Bank - $38.4 billion
- JPMorgan Chase & Co. - $32.4 billion
- Alphabet - $30.7 billion
- Agricultural Bank of China - $30.6 billion
- Bank of America Corp. - $28.1 billion
- Bank of China - $27.2 billion
From their summary:
> Saudi Aramco is by far the world's most profitable company.
> Most of the global leaders in profits are based outside the U.S.
> State-owned Chinese banks are among the profit leaders
..So I guess Saudi Aramco is still America's Saudi Aramco.
Check out Saudi Aramco’s gross income, and look at the price they actually sell oil at.
Its insane what is possible in the commodities market.
And to think there are so many players that aren't publicly traded, and it has been this way for a century? There are some extremely wealthy people out there we have no clue about.
> will soon surpass Apple ($65b; which has barely grown its operating income in four years and has weak prospects for income growth)
At what point does a company get to say "hey, we probably don't need to grow income much more"? At $65b Apple would qualify as the 72nd highest GDP in the world if it were a country[1], my understanding is even now they have more income than they can feasibly spend. It just doesn't make sense to me that they're getting penalised for not growing their income at this point.
Executives and the board negotiate stretch goals of stock based compensation for themselves based on marketcap or revenue targets.
It is inconsequential for them to create and sell these shares as the market keeps absorbing it at any marketcap.
The rest of the shareholders like the idea of capital returned back to them no matter what price they bought in at.
And finally the legal system will support private litigation regarding the CEO being expected to do things that make the most returns for shareholders.
So if you have a whole marketplace of people trying to navigate this incentive structure, there is a selective evolution towards a few that create this growth machine successfully. And when they dont share prices will fall thats it.
I wouldn’t short Google or Facebook, but out of the big tech companies (FB, Google, MS, Apple, Amazon, And Netflix) I would bet on the others. The exception being Netflix, given their very high debt they could get in a serious squeeze if intrests go up. All other companies are essentially debt free.
I’d never short anything, but I really don’t see the value of google. I used to love their services, but now the only one I use is maps, and that’s not because of privacy concerns, it’s because their competition is just better.
I used to have gsuite for my personal e-mail, file/photo and office stuff. I’ve been using the cheapest office365 business plan for a year and a couple of months now. Not because I was concerned about privacy, but because google made it harder for me to use their services as a private consumer on a business plan. On the flip side of this is my job in the public sector of Europe, where we’re using more and more cloud solutions, but don’t use google cloud or gsuite because of their poor business-to-business support and failure to work with EU legislation.
Privately google search used to be the best in my native language, but these days I find myself doing !g less and less on DuckDuckGo, again not really because of privacy concerns but because the whole first page of my google search results are commercials for places that I’m not going to use. Just try searching for something baby related on google and see what happens. We have some very good public health sites with tons of info, run by our government, first results on DDG but burrowed deep below a heap of advertisements on google. Professionally we’re moving to the new Edge rather than Chrome because it’s easier for IT operations and support to control it, even though the google enterprise tools aren’t bad, they are just not as good.
All of this is completely anecdotal of course, but I’m always worried about investments into companies that don’t make stuff I’d personally or professionally want to use. Then again, most of my investments like in green energy companies, so I’m probably just too conservative for tech investments and you likely shouldn’t take my advice.
Office365 business essentials, same price, more disk space, and since we use Azure/office365 at my place of work the administrative skills correlate between the two.
Costs about the same, but you pay for a year instead of a month at a time.
OneDrive isn’t really better on iOS than google drive and google photos, even with the weird way google photos work on gsuite, but stuff like word and one note are really nice compared to what you get at google docs. The change was mainly because using gsuite privately turned out to be such a hassle for photos.
> google search used to be the best in my native language, but these days I find myself doing !g less and less on DuckDuckGo, again not really because of privacy concerns but because the whole first page of my google search results are commercials for places that I’m not going to use.
Of course we're discussing anecdotal evidences here, and Google searches have deteriorated for me, too, but for a lot of things DuckDuckGo fails to find the most relevant results and I tend to use !g quite often (~20% of the time). This might be due to SEO fighting making Googles results less relevant, but DDG is not steeled against this either.
I agree on your general point, though; Google has lost a lot of competitive headway. On the other hand, however, it still has a lot of market penetration: YouTube is the largest video platform by far, Google search is "the internet" to a lot of people and while Android is technically a free OS, it practically belongs to Google. Also, there's still gmail, and for people to take the effort of switching mails takes quite some convincing.
Your personal perception of a company's products isn't really correlated in market stock value of a company. Just because you personally switched products it doesn't mean that the companies are struggling or having issues - just think of all the thousands of articles announcing Apples, Microsofts, IBMs or whoever elses doom because they managed to muck up product strategy for a few years.
Remember how there was a time where everyone here said that Microsoft's products are complete trash, Windows 8 is a failure, the company is doomed to failure and no self-respecting person would ever use their products and would never invest in it? And the stock kept growing and growing and growing.
Investing based on your personal product usage is about as sensible as using Las Vegas casinos as a way of increasing your wealth.
Microsoft’s growth didn’t come from Windows. It cane from Azure and Office. But no matter how bad Windows was, what was the alternative for most people in the market Linux?
People don’t buy Windows. OEMs and to a lesser extent big enterprise.
Apple was almost doomed because of bad strategy. Jobs was a once in a lifetime event.
I’m well aware of this, but I’m not comfortable investing into something I can’t personally see a reason to buy. I doubt google is going anyways, but I would never invest with them. This strategy has never failed me, though I obviously may have missed out on opportunities.
I will note that there is a difference between what everyone says, and what everyone does. Microsoft may have taken a lot of heat over the years, but it’s remained one of the best tech partners to non-tech enterprise corporations and organisations for decades.
Google is headed for choppy waters starting in 2021, however shorting now would be a terrible idea.
They still have some growth left as they optimize their workforce for WFH and cut costs elsewhere. Worst case they can still push their ad delivery in more “annoying” ways, but that’s more of a break glass in case of emergency situation.
It’s also unclear how damaging their antitrust result will be.
I'm not seeing anywhere in the linked thread where they describe why they don't think these arguments are already priced in? If these companies had no risks, their stock of course would be much higher.
(Disclosure: I work for Google speaking only for myself)
I keep seeing the argument is full of talented and “smart people” (tm) as a competitive advantage. While I don’t doubt that the actual engineers are some of the smartest people in the world, their leadership and product managers are so rudderless, it seems like it’s wasted.
Despite years of trying, they are still a one trick pony - advertising - where 90% of their revenue comes from.
Same thing at Google. I think the biggest difference between the prestigious/high-paying tech companies and programmers at more conventional companies, is that at the former you find basically no dead weight engineers. At least, I never saw any at Amazon or Google.
Isn’t a engineer “dead weight” if they work on a project that ends of getting canned a year later? I would say that any engineer that worked on one of the many messaging apps that Google has created was dead weight.
That's more of a failure of leadership. If the engineers are in the galley rowing, they can all be great contributors to the forward motion of the boat, but it may still crash into rocks nonetheless. You can redeploy "deadweight" engineers who are good engineers but the project fails for business/political/leadership reasons. You can't redeploy actual deadweight engineers who don't contribute anything on an individual basis(or rather, you can, but you wouldn't want to).
From a revenue producing perspective, if you are working on a product that isn’t producing revenue and won’t ever produce revenue, you are dead weight.
That's an optimistic short. Especially for companies like Google who are prime to take over the internet of corporate function.
Imagine how those premises apply in covid-remote-enterprise world and any existing major player built on the foundations of on-prem corporate function and real estate ... especially the inner-city & inner-building support businesses (food/beverage, commute, telecom, hotel).
Im more inclined to think large tech companies are prone to further growth here.
> BigTech has a huge yearly R&D budget. In fact, with two years’ worth of R&D, BigTech could recreate the Apollo program. But they haven’t. Why? Incumbency’s biggest drawbacks are lack of creativity, sloth, internecine politics and waste.
They haven't because they don't want to compete with Jeff Bezos and Elon Musk, who are both working on it. (It's been longer than two years, granted, but they also have more involved goals than just landing and flying away.)
Big Tech buys innovation and shuts it down or absorbs it.
Think for example all Alphabet products that came from acquisitions: Youtube, Picasa, Android, DoubleClick, reCAPTCHA, ITA Software, SageTV, Meebo, Waze,DeepMind, Fitbit...
They have also bought something like 50 ad tech companies and 20-30 web search companies.
> BigTech has a huge yearly R&D budget. In fact, with two years’ worth of R&D, BigTech could recreate the Apollo program.
Why? One could argue that advances in AI and Quantum Computing are at least as significant as landing on the moon, and of more value. Big tech investment has pushed the field forward significantly.
Neither did Shell, Apple, Walmart or any of the other of hundreds of ultra-rich corporations. Which tells more about the Apollo program (and it's rather rapid cancellation before even finishing all the flights) than about those corporations.
How can we trust economic judgement from someone who uses a project which was only approved due to political grandstanding, as an example of successful corporate direction?
If anything, FB and GOOG will be strengthened by US economic protectionism and assault on China. They just have to continue navigating the political mindefield outside the US markets.
I have one of each of Apple’s categories. But let’s be honest, Microsoft and Google have done more to bring technology to the masses than Apple has. Most of the world’s population either can’t or won’t pay Apple’s prices.
Apple is never going to make a $25 smart phone like you can get in India.
I still don't understand why people care so much about the iPhone. It's a bad computer that fits in your pocket. We've had PDAs for going on thirty years. Sure, it was a good PDA, but I have no idea how anyone can consider it revolutionary.
"Consumer" tech hasn't improved at all in my estimation since about 2002. The hardware has gotten better and the software has gotten more bloated, but a modern gadget can do roughly zero things that a gadget from 2002 couldn't.
2002 was the year of the Nokia 7650, their first phone with a camera - 0.3MP which it displayed on its 176x208 screen. It cost €740 in 2020 money (€550 back then).
In 2020 you can buy a second generation iPhone SE for €489, with a 1334x750 screen (at >6x pixel density) and 12MP camera.
These are not roughly equivalent pieces of hardware, and the software they run differs immensely. MMS is not Instagram.
Say, from India's perspective it is possible that they will be at war with the United States at some point in the next 50 years. If that happens then the US will have a detailed social graph of the country through Facebook and who-knows-what information about their manufacturing, commercial and geospatial situation through Google.
Geopolitically, there is an argument there for, say, Europe or Asian countries to ban Google/Facebook/whatever and choke off the revenue leaving their country. That is a pretty decent short-term nationalist argue to try and avoid large amounts of money leaving the country for foreign climes. The Chinese wall-off-the-internet strategy hasn't obviously failed them, and it gave them a bunch of serious technology contenders.
It isn't a problem for this week, but that perspective raises longer-term questions about what the risks are to Google's and Facebook's business models of government intervention.
Besides geopolitics might shift quite fast. If, and that's a gigantic if, China lets go of is habit of looking at a map and declaring "yeah, that region is ours!", or Pakistan gets rid of its shadow deep state (that'd be ISI + military) India could have way better cooperation with them than it had ever had with USA, or will ever have. This again, obviously, is hypothetical.
Historically, wasn't there a period where the US was considerably more friendly with Pakistan than India? I think it was when India was more Soviet-sympathizing.
I remember reading about an incident when the US sold a lot of fighter jets to Pakistan, and decided after collecting payment not to deliver. Probably that was about when the relationship went sour?
If someone really wanted to do this, you would short GOOG or FB and long the nasdaq (QQQ) by a proportional amount. This position insulates you against the market bulls, which could go on pumping the market for several more years. It's a bet that GOOG & FB will underperform the tech sector more widely.
Maintaining a short position also costs money, so this is a further complication. As a retail investor, I don't know if there are any instruments for shorting these big tech co's. I'm guessing that you can do it on interactive brokers (for example) if you post enough margin. DYOR.
How would you do it if you were working for Microsoft and weren't legally allowed to transact with Microsoft stock because of a trading blackout period?
Yikes.. If buying QQQ is counted as "transacting with microsoft stock" then you could try finding a basket that didnt have microsoft. I'm not an expert in this stuff, but for example the Russell 2000 fits. It would be better if it was a tech/internet related basket.
EDIT: here's a better idea. Just buy apple and/or half a dozen other big tech stocks that you like!
The brilliant engineers argument is pretty blind to the way these corporations might not make the most potential of some people. I know brilliant person which moved to work for Google because of the pay, and he was spending time there doing mundane testing. It's pretty known issue that Google easily hires brilliant people, it becomes so crowded they don't really use their potential.
At least Google is desperately trying to diversify away from ads only. Facebook doesn't. And Facebook has even bigger problem: their ads are a distraction, and younger people are getting more and more adapt at subconsciously ignoring this distraction. I've seen young kids automatically reaching for the the skip ad button in YouTube. I would argue that in 10 to 20 years, most of humanity will be immune to forced advertisements.
At some point there's a problem of comparative advantage.
You could hire a top tier genius computer programmer to check out groceries at the supermarket, and he could become the best supermarket checkout clerk in the world — but it's more efficient for him to be programming computers and leaving the grocery job to someone else, who isn't even particularly good at it, just as an entry level job.
Google's simplest tasks may be more important than many other companies' complex tasks, but in the long term, wasting capital (including human capital) by using it at a fraction of its potential is generally a losing game, for society and for the capitalist.
Google has certainly moved the needle on things like SRE--both for themselves and for the industry as a whole--because they can and do hire much of what their interview process determines is the "best" into roles that many other companies will staff with more or less whatever resume comes along.
That said, it really hasn't helped Google much to expand their business. GSuite is probably the clearest mostly organic new area--and it's pretty good. Google Cloud somewhat although, like Java for Sun, Kubernetes will probably end up making other companies a lot more money than it will for Google. Hence the current spat over Istio. Certainly lots of things haven't gone anywhere. Anyone want to lay long odds on Waymo being around in 10 years?
And it's probably not healthy for the tech industry. Yes, some will go for the startup lottery ticket for reasons of passion or naivete. And others are just less driven by money. But having many of the notionally best and brightest spending years at Google mostly because they'll pay such large wads of cash to even fresh grads means a lot of companies won't even try to compete for them.
given the 6m disclosed G Suite customers, they only need an average revenue of $167/u/y ($13.9/u/m) to have a billion dollar business. Given their pricing structure, I'd guess they are most likely close or past that run rate.
Google made $162 billion last year. GSuite would be a little over 0.5% of their revenue if that were the case. How much of that would translate to profit?
I would think though GSuite/Chromebooks would be a success story because of the education market.
Bingo. As a GSUITE admin, they are still far behind competing on the business front, and too many of their enterprise solutions are very google-specific, so few CTOs are willing to commit to them.
On the investment front, we had equity positions in Google for a while, but these days I see a lot more upside in Microsoft equity positions than Google.
I am really surprised they haven't managed to diversify into one other area properly. I used to think that with the number of smart people they have, it was only a matter of time before they had a strong revenue stream from other than ads. But seems like they are struggling to do that. I guess one issue is that any new revenue stream looks minuscule when compared to ads revenue and hence gets killed off before it has the chance to establish and grow.
Let’s compare that to the other big tech companies.
Facebook - yeah it’s just a social media company at its core, but before mobile really took off, it made money as a platform for games and shortly after its IPO, everyone thought it was doomed and didn’t get mobile. Between their strong pivot into mobile ads and their very smart acquisitions. Now FB has four platforms - FB, Instagram, Messenger, and WhatsApp that all serve different demographics.
Apple. During the time that Google has existed, Apple has gone from making most of its money selling computers, to music players and a music store, phones, and now depending on the quarter, phone sales are less than 50% of revenue. Heck the watch and AirPods are each considered to be larger businesses than the iPods were at its peak.
Would Google ever invest in a product that only made up 10% of its revenue?
Amazon: (Disclaimer: I work at Amazon). Went from a retail store selling its own stuff, to a marketplace, smart speakers, AWS, Amazon Prime Video, and did a lot of successful acquisitions.
Microsoft - It’s basically removed it’s focus from Windows to Azure, Office in every imaginable platform, Sql Server even runs on Linux now, and has a successful gaming division.
What’s more nuanced than if a product is successful than does it make money?
Of course a product doesn’t have to be profitable on its own if you’re selling razor blades at a loss to sell razors. But neither product is doing that.
That's more to do with the unviability of VR than Oculus itself. If (rather, when) VR becomes viable, Oculus will be front and center - it has cornered mindshare in the space
People have been saying that VR was right around the corner since the Virtual Boy in the mid 90s.
The console market itself is tiny in the grand scheme of things. The PS4 has only sold 102 million units since inception. The VR market won’t even be that big. In contrast, Apple alone sells that many phones over two quarters
I'm not particularly bearish on VR but it's clear that the technology is far, far more mature than anything in the 90s.
Hardware sales are anyhow not quite as important as the software that runs on the hardware. The console market might be small, but the gaming market is absolutely massive. Facebook doesn't have to make money off Oculus hardware of it can, like Sony and Microsoft, get people into the ecosystem where $60 games are the norm and microstransactions total billions in revenue.
How many billions did the Microsoft lose before the division became profitable? I believe the breakdown is that Microsoft makes $7 on each third party physical game and $27 on each first party game. I doubt that Sony and Microsoft makes as much on their consoles as Apple makes selling headphones.
Well, Facebook has cash to lose. Further, VR, at least as Facebook and Zuckerberg see it, would be less about games and more about social interactions in virtual worlds. The monetization model would be different than directly selling software I reckon (most likely ads - to a hammer, everything looks like a nail). This would then be an engagement play - something Facebook already excels at.
Doesn't sound particularly feasible at the moment honestly. But you never know. I'm not writing it off at least - the people who do like VR think it's the greatest thing ever created.
I was largely bought into the Second Life hype briefly. I certainly lived through all the brands setting up camp in Second Life.
But I'm skeptical VR was the missing ingredient. Most people don't want immersion most of the time. e.g. people hyping up VR for collaboration. I'm actually fine with video calls at least some of the time. But you're not getting me to wear a VR headset hours a day. Not happening.
It looks like the Oculus Quest is constantly sold out, are you sure it's not profitable? (I actually have no idea, but it seems quite successful as a product.)
“Sold out” doesn’t mean anything if the are selling below cost (doubtful) or if they aren’t selling enough to make it worthwhile investment of time and money.
I don't really see the difference between Facebook and Google. I mean besides the search engine Google has Android, YouTube, all their ad network stuff (Doubleclick, AdSense, etc.)
In fact, the only 2 areas I think Google has really underperformed are:
1. The cloud. I'm a big fan of GCP, and I think in many ways it's easier to use than AWS, but Google still doesn't understand enterprise support and what big business customers value. I think a lot of this is just because Google doesn't have customer support in their DNA, and they had so much custom tech for so long (most big businesses want to use a relational DB, not Datastore).
2. Business applications. I feel like Sheets and Doc should have taken a much bigger chunk out of MS Office revenue than they have, but again enterprise support just isn't in their culture and hence G Suite lags.
According to information that came out during the Oracle lawsuit, Android had only made Google around $22 Billion in profit from inception through 2016 (https://www.reuters.com/article/us-oracle-google-lawsuit-idU...). Google pays Apple a reported $8 billion a year to be the default search engine on iOS. Apple makes more on a Google from mobile than Google makes from Android. In other words, all of the money that Google makes from Android isn’t enough to pay Apple for it to be the default search engine.
Youtube is still thought you be at best slightly above break even in terms of profitability.
What happens to the ad network between ad blocking and businesses keep realizing that you can do better targeting with Facebook?
That $22 billion number (which basically sounds like it was just a number made up from Oracle's lawyers, never confirmed by Google) from the article you posted is definitely not comparing apples-to-apples.
I can guarantee that being in control of the world's dominant mobile OS, and all the default Google search engine installs, Google Maps installs, etc. that entails, is worth much more in terms of mobile ad revenue than any directly-attributed OS revenue.
That number was not made up by Oracle. That came from Google as part of the discovery process.
Being in control of the major mobile OS when the most affluent customers are on iOS is a Pyrrhic victory. There is a reason that Google is willing to pay Apple more than $8 billion dollars when it only has a 13% global marketshare. Advertisers care much more about reaching people who are willing to pay $650 for a device than people who are paying less than $250.
On top of that Google has a rev share with OEMs for ads.
I would assume bad leadership, even Amazon that has reportedly dubious work life balance has been able to pivot/grow but Bezos is able to lead by example and they have a lot of interesting 'ethos'. Then you have cases like Microsoft and Apple which have been around for way longer and have weathered multiple storms and computing eras. Google and Facebook just have ads, have not worked on their trustworthiness (ironically we even see posts about how real/fake are the ad engagements to this date) therefore they are stuck even if they are able to pay the salaries of the so called 'smartest' engineers (who are willing to join a one trick pony company). Microsoft built that trust by maintaining Office for the whole enterprise world (which granted, is a boring endeavor to be fixing bugs that 2-3 companies that use Excel hit but it pays long term dividends) and Apple built that trust by building easy to use consumer products that just work. Disclaimer, mostly talking about revenue streams and not products.
I keep hearing about Amazon’s bad work life balance. I have a friend who worked at Amazon in Seattle on the business side (not software development ) and he said it was brutal.
I work remotely on the consulting side. It’s about the same work life balance as I’ve had my entire career. It’s actually better than my last two jobs. At those, I had to be the “adult supervision” trying to overall their processes while juggling releasing a product and for my last job, trying to figure out ways to cut costs and increase efficiencies post Covid. I’m just a much better paid peon now.
My experimentations causing a large AWS bill is not exactly a problem now....
Anyone interested in this concept should read The Innovator's Dilemma. It covers the idea innovation suffocation within big organizations very well and is just an overall fantastic book.
> I've seen young kids automatically reaching for the the skip ad button in YouTube.
Does anyone not? Anyone who doesn't run uBlock Origin, I mean.
Hell, by the early 2000s I automatically tuned out anything banner-shaped to the point where it sometimes took a while to notice menus if they looked too much like a banner.
The difference is back in 2000s the technically savvy demographic did not have the purchasing power to make a difference , i.e. people who had money to buy things clicked on ads. Things have already changed that is partly why making ads to get easy revenue is harder, in another 20 years there will not be a pre-internet generation who can be dependent on to click ads.
However ads are not going away, for example although I pay for YT premium and run ublock origin, there are plenty of ads within the video itself . if you have browsed education videos on YT you will know brands like CuriosityStream, nebula, nordVPN, brilliant, skillshare. etc.
Similar and far worse practices happen in other mediums, with influencers on instagram and sponsored posts masquerading as neutral content etc.
It is becoming lot harder to filter it out, lesser and lesser ads are effective we will see more of this .
Me. Because if I like the content, I believe that letting the ad run is the very least I can do to support the person who created it and encourage them to create more content. I'm not a leech.
The skip ad button is designed to be pressed. It proves to Google that you’re still watching. Indeed you’re watching intently at the countdown clock. The ads front load all the content so they don’t need you to see the second half.
IC at BigTechCo: "There's another team building the exact same product as my team. It's frustrating and wasteful."
Director at BigTechCo, when asked why that happens: "That's actually by design. We want internal competition. We can afford to spend 2 or 3x on building that product. We can't afford to have a competitor build it better."
In practice, “internal competition” isn’t competing in the way the free market does. The most politically connected product tends to win, not the one that has the best odds of success.
And if you let these all go to market, you risk eroding user trust (think Google and messaging products). Confusing your users is not a good thing.
Do you mean "most politically connected" or "best marketed at the right time?" Outside of products being used by state agencies, I don't think political connections have much bearing...
I think he means politically connected internally. Ie the VP or Director of your group convinces the higher-ups that theyve won the internal competition even if they don't have the better product. This definitely happens.
Very true about the politically-connected team winning.
That said, the high level point is even without the M&A lever, these companies can still succeed by doing things that seem wasteful. FB is a good example with Snap. They didn't have the M&A lever (for different reasons in that case), but they just built Stories into Instagram, WhatsApp, and Messenger. If you were willing to spend billions on M&A you can just spend them internally. And you don't even need to build a free-market best product, because you have a brand and user base that startups don't.
In any case, I do hope that alone isn't enough to keep big companies entrenched.
The problem there is that it makes for a confusing messaging strategy from the company. How does Google think I should do video calls? Hangouts? Hangouts Meet? Duo? And there's probably other options that I've forgotten, and I'm the best case here because I work at Google.
Is it that confusing these days? (I know it certainly has been in the past.) Maybe it's because I'm an enterprise GSuite user but Meet seems straightforward and is integrated with GCal. Indeed, it's mostly that integration that makes me strongly prefer Meet over our other option.
I agree, but I feel like Meet, now that it's available to all, will finally "win", especially with it's improvements since the start of the pandemic, and the fact that it's the default in GCal.
I mean, (just to show how confusing it is) I sorta thought Hangouts had already become Meet after they made Meet available to consumers. And it doesn't feel like Duo ever had much traction.
That sort of thing seems to happen a lot more at Google than it does at other big tech companies.
Frankly I don't believe that an explicit ethos of internal competition is really what drives it. That might be how people at the top explain it, but it's really driven from the bottom up by dev teams who want to launch something in order to get promoted.
Can someone explain how you would actually do this?
Assume their thesis is true. How would you short it? What's some real figures and returns if true.
I'm not sure I even understand the bet/prediction.
Is the bet it will drop in the next 5 years and drop lower than now and then stay lower until the 5 year mark, then we profit? How much do we profit to investment?
Saying there will be a substantial fall sometime in the next 5 years seems to me still hard to profit from, but I don't know the numbers.
Hmm, I assumed the author implied literally short selling the underlying stock but I think that's a bad idea: potentially unlimited losses. The author may even be correct but the market can be particularly irrational around growth stocks...
Another method might be to sell calls or call spreads, date it out a few years and hope the underlying doesn't rise too much.
Offtopic: Why is TikTok growing faster than IG or Youtube? What features make it more compelling for users? I don't use TikTok and don't plan to, but I'm curious about the TikTok phenomenon.
It's more memetic than either of those, by design. You can easily incorporate other videos, sounds, and ideas (memes) into your own videos.
The videos are also very short compared to YouTube and to have a new video play is as simple as a swipe down.
I don't have much experience with Instagram, but Instagram doesn't seem to have the memetic component. It's more just traditional social media. Users don't really build off of other users content as much.
One things is that it makes it easy for anybody to be a content producer. Kids make their own version of short video somebody else did. Just some dance moves, music is provided. You can be creative, but don’t need to think too much what to do or say.
The format also makes the content universal. Since there’s just music, there’s no language barrier for consuming the content. Certainly this helped to get traction on smaller markets.
Also it is addictive. Short videos, visual and aural stimuli which you control by clicking to next or liking. Checking who liked your videos. Very much like slot machines in casino.
Even if you agree with him in principal I don’t see how anyone could stomach shorting a growth stock for 5+ years like he suggests. How much would you lose just on interest paid to borrow the shares for that long? So maybe he’s talking about buying puts? Can you buy puts 5 years out? The premium would be insane. Is there another instrument I’m missing to make this trade?
You can’t possibly evaluate stock prices by blatantly ignoring every single financial metric, knowing nothing about the product, and posting your analysis on Twitter.
I wish people would stop using twitter for article/blog sized content.
Maybe I'm holding it wrong, but I find retweets of threads extremely an extremely unreliable way to find my way back to the actual thread.
This particular link works, but it's still very a very annoying form to read it.
That said: Shorting these companies, that OP admits have huge R&D budgets, is a bet that they won't invent something new. Or that they will be taken over by something that does.
With a 10 digit R&D budget you can afford to be second mover.
In the last 20 years, has GOOG invented? Wow, yes. Question is do you think the past 2 years (or whatever) is a better predictor of next 5 years than the last 20 years was?
I dunno. And saying you do (especially when shorting) is saying you know better than the market, which is not always wrong, but it does have some arrogance in it.
I agree that Twitter is the wrong medium for essays. Not that it's a great fix, but Twitter threads can be consolidated with Thread reader, which makes them much easier to read. For example, this article:
I think the major question is not whether they will invent something else. they are reliant on Ads and will remain so as far as I can tell.
the real question is: is the ad model overvalued?
I think so for the following reasons: ad blockers, users getting desensitized to ads, diminishing returns of the amount of data one needs on a user to sell.
I think OP has the right conclusion but the wrong reasons.
I think the ads market risk is offset by the market potential of self-driving, cloud, AI (deepmind), and maybe other things, long term.
Shorting GOOG is betting not only that ads will decrease long term, but also that the other fields won't increase.
Yes, I realize even cloud has a long way to go, revenue wise, compared to ads. But on the other hands ads has a long way to fall. And public cloud (including Google's cloud) is still growing exponentially.
In other words: I have no reason to think I know better than the invisible hand of the market.
>I have no reason to think I know better than the invisible hand of the market.
I don't understand how anyone can talk any more about the market having mystical powers after what we've seen in the past few months.
If the market was priced correctly in late February, and now that it's regained almost all it lost, how could it be priced correctly in late March at 1/3 lower? And if you swallow that, how is it that it went lower in a basically linear fashion over a month rather than instantly as whatever information was absorbed got out?
This really is bugging me as an "emperor's new clothes" situation, you can argue any which way on which is the right price, but how can you believe for an instant that they are all correct, reflecting all available information at all times?
I disagree with shorting stock, but I agree with some of the sentiment behind that choice.
I am not sure the best way to articulate the specific names for these, but I generally categorize our tech companies into 2 buckets when viewing this through the lens of an investor:
Bucket A seems to be the riskiest to me because there are virtually no barriers to entry on the markets and products these companies target. Sure, Google & Facebook have some hardware/cloud hosting angles, but the companies in Bucket B make those revenue streams pale in comparison. E.g. AWS/Azure vs GCP, Microsoft Surface vs Oculus Rift, Macbook vs Pixelbook, iPhone vs anything, etc.
Bucket B contains all of the companies that I would feel comfortable buying and holding long. These companies have a deep pool of products, IP and larger barriers to entry for their markets. For instance, if someone came along and made some change to the world where Microsoft no longer makes any money off of advertising, they would be able to proceed without much difficulty. If someone chopped Google's ad revenue stream, I think there would be a serious problem for the company.
Google isn't fundamentally in the entertainment business. They are in the search/ad business, which breaks the fundamental assumption here ("users need to be entertained or they leave"). Moreover, Facebook has shown an ability to capture attention, in spite of an incumbent TikTok; their decision to acquire Instagram when they did was canny and their ability to continue to foster it was skillful.
With respect to the "Apollo Program" metaphor — Google's X projects and other projects (like Waymo) are formidable, and may lead to serious breakthroughs and changes to society. The narrative that FB/Google are inefficient is questionable and is offered without coherent context; it would be helpful to compare them, say, to Genentech, Merck, Lockheed Martin and other large companies with serious R&D budgets, which have survived and are doing okay, despite not being as nimble as, say, the occasional dark horse like SpaceX (with respect to Lockheed Martin).
Yes, Google and Facebook may not loom like the giants they were. But there is a good chance they will continue to thrive. Another example: Microsoft is doing fine, despite not being the giant it was in the 90s.
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[ 2.5 ms ] story [ 201 ms ] threadThe "Market Can Remain Irrational Longer Than You Can Remain Solvent" comes to mind, no doubt one day they'll crash but until then...
And an utter disregard for traditional business mores
As TikTok and other companies become more popular, you'll see the US government more protective of FB and Google. An abusive duopoly with Western alignment is better than a social media monopoly from China. The continued rise of TikTok actually simultaneously reduces government's will to act on big US tech.
Neither FB or Google are in China; so the Chinese government's ability to hurt those companies are limited.
social media platforms are extremely durable until the next hot new thing comes along.
There is a new generation you need to engage every ~5 years or so, and they see facebook as the platform to talk with grandma.
FB made some genius acquisitions with instagram and whatsapp, but eventually they are going to fail to acquire the challenger, and when that happens the fall can be swift.
https://ourworldindata.org/rise-of-social-media
Facebook surpassed MySpace in monthly user count by April 2008. MySpace hit its peak in December 2008. This wasn't a "migration" from MySpace to Facebook. It was Facebook out growing MySpace.
But that doesn't necessarily mean it could happen again.
"The percentage of US adults who use social media increased from 5% in 2005 to 79% in 2019."
Facebook grew at a time when social media usage was also growing. We don't have a huge, untapped pool of users from which to fuel a "Facebook killer". There was also a significant difference in how the sites we originally used, so there was interest from a lot of early users in using both.
My feeling is that any site that might eventually supplant Facebook as the dominant social media force would need to grow in an underserved market before expanding into the general market, and do it in such a way that Facebook doesn't notice and come crush them first.
What strikes me is that the peak year for MySpace and the year Facebook surpassed it was also the year that smartphones started to take off. Facebook, being the far "simpler" site, would have been much more usable in early smartphone browsers. And smartphones were a huge part of the growth of social media. So it suggests that not only does a Facebook competitor need an untapped market to serve, it needs a platform on which it can create a significantly better experience than what Facebook can do.
Unfortunately, Facebook is ahead of the game on this issue. Why do you think they spend so much money on Oculus and VR? There are leaked memos from Zuckerberg that explicitly spell out this strategy. They are taking over the platform early to avoid ceding the space to a future competitor.
Sure, they could be displaced by a better search engine, but that's a whole different kettle of fish.
Most people probably don't even have a conception of what search engine is, and that it's not just a part of the browser or their phone, but it's an independent service.
I don't see how that's remotely possible. The capital costs are just too high. Currently there is only one other formidable English language search engine (Bing - all the other search sites like DuckDuckGo use Bing), and it's been a distant also-ran for over a decade now.
If anyone has any plausible scenario where Google looses their search supremacy, would love to hear it.
(1) social networks provide better basis on which to give answers/results to users, so FB “replaces” google.
(2) advances in deep learning make googles secret sauce not so critical, and lots of competitors provide good enough search results (and VC funding makes the build out of the massive data enters possible (I.e. the u er/Lyft scenario)
Side question: is google’s dominance really built on search these days? If they shut down the search engine, would it have a significant effect on their bottom line?
Is that a serious question?
This is exactly why I sold my Facebook shares a few months ago. The next Instagram might not sell to Facebook so cheaply, or the sale might well be blocked by regulators.
Having said that, I still have a large position in Twitter because the brand seems a lot more durable.
My point is that digital data is a commodity that has been found and being excavated at high margins and will be protected by their countries, just because some other countries are trying to do the same thing.
So while California and the European Union are making it more expensive to do this, DC and Beijing are only protecting the golden goose.
Legislative changes and protections that raise the cost around monetizing user data can debilitate them heavily. Just watch for those. But on autopilot these companies will be fine as they convert quarterly revenue into a big cash warchest instead of reinvestment fuel.
Microsoft (or Apple) is America's Saudi Aramco, if we're speaking of important & highly profitable corporations.
They're vastly more profitable than Google or Facebook, and far more sustainable (in terms of market position, regulation, anti-trust, etc). In fact, Microsoft ($52b) will soon have as much operating income as Google ($35b) and Facebook ($26b) combined, and will soon surpass Apple ($65b; which has barely grown its operating income in four years and has weak prospects for income growth).
To make matters worse, Google is stagnating and losing their hold on the ad market (while being pursued for anti-trust). Google also suddenly lost their leadership, Larry & Sergey cast Alphabet adrift after creating that mess, said good luck and adieu (to run & hide from the legal tsunami). Microsoft by contrast is booming, has a solid regulatory context, and has one of the world's best CEOs at the helm.
Here is Microsoft's income growth: $22b -> $35b -> $43b -> $52b
If I were a nation, I'd rather own Microsoft than Aramco, much less Google & Facebook. Easy choice.
Aramco has a collapsed future and they're trapped in low oil price hell indefinitely. Microsoft is probably going to $75-$80 billion per year in operating income in five years, on their way to $100 billion this decade. As far as individual corporate entities goes, nothing like the Microsoft profit machine has ever existed before (Apple comes the closest, and they're stuck in a zero growth smartphone market). Apple's cost of revenue is 61.8% of sales; Microsoft's cost of revenue is 31.7% of sales, their operating income margin is a wild 37.4% (given their scale it's something beyond extraordinary).
From a quick search, I found the "Forbes Global 2000" list of the most profitable business sectors (in 2019). From the top, in trillions:
- Oil and gas - 4.797
- Technology and communication - 4.726
- Banking - 4.424
- Retailing - 3.814
- Automotive - 2.847
Source: https://www.nsenergybusiness.com/news/oil-gas-revenue-forbes...
Seeing how Microsoft accounts for only a portion of the second most profitable sector, I'd imagine the whole lot of top tech companies in the U.S. would be considered essential for national interest.
---
Then I found "The World's 10 Most Profitable Companies" (2019).
- Saudi Aramco - $110.9 billion
- Apple - $59.5 billion
- Industrial & Commercial Bank of China - $45 billion
- Samsung Electronics - $39.8 billion
- China Construction Bank - $38.4 billion
- JPMorgan Chase & Co. - $32.4 billion
- Alphabet - $30.7 billion
- Agricultural Bank of China - $30.6 billion
- Bank of America Corp. - $28.1 billion
- Bank of China - $27.2 billion
From their summary:
> Saudi Aramco is by far the world's most profitable company.
> Most of the global leaders in profits are based outside the U.S.
> State-owned Chinese banks are among the profit leaders
..So I guess Saudi Aramco is still America's Saudi Aramco.
Its insane what is possible in the commodities market.
And to think there are so many players that aren't publicly traded, and it has been this way for a century? There are some extremely wealthy people out there we have no clue about.
At what point does a company get to say "hey, we probably don't need to grow income much more"? At $65b Apple would qualify as the 72nd highest GDP in the world if it were a country[1], my understanding is even now they have more income than they can feasibly spend. It just doesn't make sense to me that they're getting penalised for not growing their income at this point.
[1] https://www.worldometers.info/gdp/gdp-by-country/
Executives and the board negotiate stretch goals of stock based compensation for themselves based on marketcap or revenue targets.
It is inconsequential for them to create and sell these shares as the market keeps absorbing it at any marketcap.
The rest of the shareholders like the idea of capital returned back to them no matter what price they bought in at.
And finally the legal system will support private litigation regarding the CEO being expected to do things that make the most returns for shareholders.
So if you have a whole marketplace of people trying to navigate this incentive structure, there is a selective evolution towards a few that create this growth machine successfully. And when they dont share prices will fall thats it.
I used to have gsuite for my personal e-mail, file/photo and office stuff. I’ve been using the cheapest office365 business plan for a year and a couple of months now. Not because I was concerned about privacy, but because google made it harder for me to use their services as a private consumer on a business plan. On the flip side of this is my job in the public sector of Europe, where we’re using more and more cloud solutions, but don’t use google cloud or gsuite because of their poor business-to-business support and failure to work with EU legislation.
Privately google search used to be the best in my native language, but these days I find myself doing !g less and less on DuckDuckGo, again not really because of privacy concerns but because the whole first page of my google search results are commercials for places that I’m not going to use. Just try searching for something baby related on google and see what happens. We have some very good public health sites with tons of info, run by our government, first results on DDG but burrowed deep below a heap of advertisements on google. Professionally we’re moving to the new Edge rather than Chrome because it’s easier for IT operations and support to control it, even though the google enterprise tools aren’t bad, they are just not as good.
All of this is completely anecdotal of course, but I’m always worried about investments into companies that don’t make stuff I’d personally or professionally want to use. Then again, most of my investments like in green energy companies, so I’m probably just too conservative for tech investments and you likely shouldn’t take my advice.
Costs about the same, but you pay for a year instead of a month at a time.
OneDrive isn’t really better on iOS than google drive and google photos, even with the weird way google photos work on gsuite, but stuff like word and one note are really nice compared to what you get at google docs. The change was mainly because using gsuite privately turned out to be such a hassle for photos.
Of course we're discussing anecdotal evidences here, and Google searches have deteriorated for me, too, but for a lot of things DuckDuckGo fails to find the most relevant results and I tend to use !g quite often (~20% of the time). This might be due to SEO fighting making Googles results less relevant, but DDG is not steeled against this either.
I agree on your general point, though; Google has lost a lot of competitive headway. On the other hand, however, it still has a lot of market penetration: YouTube is the largest video platform by far, Google search is "the internet" to a lot of people and while Android is technically a free OS, it practically belongs to Google. Also, there's still gmail, and for people to take the effort of switching mails takes quite some convincing.
You never use youtube or google analytics?
Remember how there was a time where everyone here said that Microsoft's products are complete trash, Windows 8 is a failure, the company is doomed to failure and no self-respecting person would ever use their products and would never invest in it? And the stock kept growing and growing and growing.
Investing based on your personal product usage is about as sensible as using Las Vegas casinos as a way of increasing your wealth.
People don’t buy Windows. OEMs and to a lesser extent big enterprise.
Apple was almost doomed because of bad strategy. Jobs was a once in a lifetime event.
I will note that there is a difference between what everyone says, and what everyone does. Microsoft may have taken a lot of heat over the years, but it’s remained one of the best tech partners to non-tech enterprise corporations and organisations for decades.
Not sure why Netflix makes the list. The other five are the largest US companies by market cap (order varies by day). Netflix is closer to 20th.
They still have some growth left as they optimize their workforce for WFH and cut costs elsewhere. Worst case they can still push their ad delivery in more “annoying” ways, but that’s more of a break glass in case of emergency situation.
It’s also unclear how damaging their antitrust result will be.
(Disclosure: I work for Google speaking only for myself)
Despite years of trying, they are still a one trick pony - advertising - where 90% of their revenue comes from.
A series of tweets telling me why I should short... Yeh, right! Calling my banker on a Sunday.
A systematic analysis would probably get published in a prestige finance journal, whatever it concluded.
[1] https://mattstoller.substack.com/p/break-ups-and-stock-price...
Imagine how those premises apply in covid-remote-enterprise world and any existing major player built on the foundations of on-prem corporate function and real estate ... especially the inner-city & inner-building support businesses (food/beverage, commute, telecom, hotel).
Im more inclined to think large tech companies are prone to further growth here.
> BigTech has a huge yearly R&D budget. In fact, with two years’ worth of R&D, BigTech could recreate the Apollo program. But they haven’t. Why? Incumbency’s biggest drawbacks are lack of creativity, sloth, internecine politics and waste.
[1] https://twitter.com/chamath/status/1281630459286286336
Think for example all Alphabet products that came from acquisitions: Youtube, Picasa, Android, DoubleClick, reCAPTCHA, ITA Software, SageTV, Meebo, Waze,DeepMind, Fitbit...
They have also bought something like 50 ad tech companies and 20-30 web search companies.
Why? One could argue that advances in AI and Quantum Computing are at least as significant as landing on the moon, and of more value. Big tech investment has pushed the field forward significantly.
How can we trust economic judgement from someone who uses a project which was only approved due to political grandstanding, as an example of successful corporate direction?
If anything, FB and GOOG will be strengthened by US economic protectionism and assault on China. They just have to continue navigating the political mindefield outside the US markets.
Apple is never going to make a $25 smart phone like you can get in India.
"Consumer" tech hasn't improved at all in my estimation since about 2002. The hardware has gotten better and the software has gotten more bloated, but a modern gadget can do roughly zero things that a gadget from 2002 couldn't.
In 2020 you can buy a second generation iPhone SE for €489, with a 1334x750 screen (at >6x pixel density) and 12MP camera.
These are not roughly equivalent pieces of hardware, and the software they run differs immensely. MMS is not Instagram.
Geopolitically, there is an argument there for, say, Europe or Asian countries to ban Google/Facebook/whatever and choke off the revenue leaving their country. That is a pretty decent short-term nationalist argue to try and avoid large amounts of money leaving the country for foreign climes. The Chinese wall-off-the-internet strategy hasn't obviously failed them, and it gave them a bunch of serious technology contenders.
It isn't a problem for this week, but that perspective raises longer-term questions about what the risks are to Google's and Facebook's business models of government intervention.
From a strategic point of view, India should be allied with the US as India is quite naturally at odds with China.
Besides geopolitics might shift quite fast. If, and that's a gigantic if, China lets go of is habit of looking at a map and declaring "yeah, that region is ours!", or Pakistan gets rid of its shadow deep state (that'd be ISI + military) India could have way better cooperation with them than it had ever had with USA, or will ever have. This again, obviously, is hypothetical.
I remember reading about an incident when the US sold a lot of fighter jets to Pakistan, and decided after collecting payment not to deliver. Probably that was about when the relationship went sour?
Maintaining a short position also costs money, so this is a further complication. As a retail investor, I don't know if there are any instruments for shorting these big tech co's. I'm guessing that you can do it on interactive brokers (for example) if you post enough margin. DYOR.
EDIT: here's a better idea. Just buy apple and/or half a dozen other big tech stocks that you like!
Fighting the fed in this environment though? Not a chance.
At least Google is desperately trying to diversify away from ads only. Facebook doesn't. And Facebook has even bigger problem: their ads are a distraction, and younger people are getting more and more adapt at subconsciously ignoring this distraction. I've seen young kids automatically reaching for the the skip ad button in YouTube. I would argue that in 10 to 20 years, most of humanity will be immune to forced advertisements.
You could hire a top tier genius computer programmer to check out groceries at the supermarket, and he could become the best supermarket checkout clerk in the world — but it's more efficient for him to be programming computers and leaving the grocery job to someone else, who isn't even particularly good at it, just as an entry level job.
Google's simplest tasks may be more important than many other companies' complex tasks, but in the long term, wasting capital (including human capital) by using it at a fraction of its potential is generally a losing game, for society and for the capitalist.
That said, it really hasn't helped Google much to expand their business. GSuite is probably the clearest mostly organic new area--and it's pretty good. Google Cloud somewhat although, like Java for Sun, Kubernetes will probably end up making other companies a lot more money than it will for Google. Hence the current spat over Istio. Certainly lots of things haven't gone anywhere. Anyone want to lay long odds on Waymo being around in 10 years?
And it's probably not healthy for the tech industry. Yes, some will go for the startup lottery ticket for reasons of passion or naivete. And others are just less driven by money. But having many of the notionally best and brightest spending years at Google mostly because they'll pay such large wads of cash to even fresh grads means a lot of companies won't even try to compete for them.
Maybe it's just that Google understands the value of testing in a way that the other companies don't.
I would think though GSuite/Chromebooks would be a success story because of the education market.
Nonetheless, billion dollar opportunities don't grow on trees. They have tons of neighboring area to grow into -- ADFS, directory, IdP, etc.
On the investment front, we had equity positions in Google for a while, but these days I see a lot more upside in Microsoft equity positions than Google.
Facebook - yeah it’s just a social media company at its core, but before mobile really took off, it made money as a platform for games and shortly after its IPO, everyone thought it was doomed and didn’t get mobile. Between their strong pivot into mobile ads and their very smart acquisitions. Now FB has four platforms - FB, Instagram, Messenger, and WhatsApp that all serve different demographics.
Apple. During the time that Google has existed, Apple has gone from making most of its money selling computers, to music players and a music store, phones, and now depending on the quarter, phone sales are less than 50% of revenue. Heck the watch and AirPods are each considered to be larger businesses than the iPods were at its peak.
Would Google ever invest in a product that only made up 10% of its revenue?
Amazon: (Disclaimer: I work at Amazon). Went from a retail store selling its own stuff, to a marketplace, smart speakers, AWS, Amazon Prime Video, and did a lot of successful acquisitions.
Microsoft - It’s basically removed it’s focus from Windows to Azure, Office in every imaginable platform, Sql Server even runs on Linux now, and has a successful gaming division.
Of course a product doesn’t have to be profitable on its own if you’re selling razor blades at a loss to sell razors. But neither product is doing that.
The console market itself is tiny in the grand scheme of things. The PS4 has only sold 102 million units since inception. The VR market won’t even be that big. In contrast, Apple alone sells that many phones over two quarters
Hardware sales are anyhow not quite as important as the software that runs on the hardware. The console market might be small, but the gaming market is absolutely massive. Facebook doesn't have to make money off Oculus hardware of it can, like Sony and Microsoft, get people into the ecosystem where $60 games are the norm and microstransactions total billions in revenue.
Doesn't sound particularly feasible at the moment honestly. But you never know. I'm not writing it off at least - the people who do like VR think it's the greatest thing ever created.
I was largely bought into the Second Life hype briefly. I certainly lived through all the brands setting up camp in Second Life.
But I'm skeptical VR was the missing ingredient. Most people don't want immersion most of the time. e.g. people hyping up VR for collaboration. I'm actually fine with video calls at least some of the time. But you're not getting me to wear a VR headset hours a day. Not happening.
In fact, the only 2 areas I think Google has really underperformed are:
1. The cloud. I'm a big fan of GCP, and I think in many ways it's easier to use than AWS, but Google still doesn't understand enterprise support and what big business customers value. I think a lot of this is just because Google doesn't have customer support in their DNA, and they had so much custom tech for so long (most big businesses want to use a relational DB, not Datastore).
2. Business applications. I feel like Sheets and Doc should have taken a much bigger chunk out of MS Office revenue than they have, but again enterprise support just isn't in their culture and hence G Suite lags.
Youtube is still thought you be at best slightly above break even in terms of profitability.
What happens to the ad network between ad blocking and businesses keep realizing that you can do better targeting with Facebook?
I can guarantee that being in control of the world's dominant mobile OS, and all the default Google search engine installs, Google Maps installs, etc. that entails, is worth much more in terms of mobile ad revenue than any directly-attributed OS revenue.
Being in control of the major mobile OS when the most affluent customers are on iOS is a Pyrrhic victory. There is a reason that Google is willing to pay Apple more than $8 billion dollars when it only has a 13% global marketshare. Advertisers care much more about reaching people who are willing to pay $650 for a device than people who are paying less than $250.
On top of that Google has a rev share with OEMs for ads.
Google is non existent in China.
I work remotely on the consulting side. It’s about the same work life balance as I’ve had my entire career. It’s actually better than my last two jobs. At those, I had to be the “adult supervision” trying to overall their processes while juggling releasing a product and for my last job, trying to figure out ways to cut costs and increase efficiencies post Covid. I’m just a much better paid peon now.
My experimentations causing a large AWS bill is not exactly a problem now....
I wonder what happens to Google shorts if Google filed bankruptcy at the whims of Larry/Sergey back in 2007-2008.
Does anyone not? Anyone who doesn't run uBlock Origin, I mean.
Hell, by the early 2000s I automatically tuned out anything banner-shaped to the point where it sometimes took a while to notice menus if they looked too much like a banner.
I try to do my bit to pay for stuff I like if I can get it without ads. What really annoys me is stuff I pay for that still has ads.
However ads are not going away, for example although I pay for YT premium and run ublock origin, there are plenty of ads within the video itself . if you have browsed education videos on YT you will know brands like CuriosityStream, nebula, nordVPN, brilliant, skillshare. etc.
Similar and far worse practices happen in other mediums, with influencers on instagram and sponsored posts masquerading as neutral content etc.
It is becoming lot harder to filter it out, lesser and lesser ads are effective we will see more of this .
Well, youtube-dl is technically not the same thing as uBlock Origin, right?
Me. Because if I like the content, I believe that letting the ad run is the very least I can do to support the person who created it and encourage them to create more content. I'm not a leech.
Director at BigTechCo, when asked why that happens: "That's actually by design. We want internal competition. We can afford to spend 2 or 3x on building that product. We can't afford to have a competitor build it better."
And if you let these all go to market, you risk eroding user trust (think Google and messaging products). Confusing your users is not a good thing.
That said, the high level point is even without the M&A lever, these companies can still succeed by doing things that seem wasteful. FB is a good example with Snap. They didn't have the M&A lever (for different reasons in that case), but they just built Stories into Instagram, WhatsApp, and Messenger. If you were willing to spend billions on M&A you can just spend them internally. And you don't even need to build a free-market best product, because you have a brand and user base that startups don't.
In any case, I do hope that alone isn't enough to keep big companies entrenched.
Also hi Scott!
People aren't stupid. If one team is simply failing to deliver, then the internal competition is a hedge on that.
I mean, (just to show how confusing it is) I sorta thought Hangouts had already become Meet after they made Meet available to consumers. And it doesn't feel like Duo ever had much traction.
Frankly I don't believe that an explicit ethos of internal competition is really what drives it. That might be how people at the top explain it, but it's really driven from the bottom up by dev teams who want to launch something in order to get promoted.
Assume their thesis is true. How would you short it? What's some real figures and returns if true.
I'm not sure I even understand the bet/prediction.
Is the bet it will drop in the next 5 years and drop lower than now and then stay lower until the 5 year mark, then we profit? How much do we profit to investment?
Saying there will be a substantial fall sometime in the next 5 years seems to me still hard to profit from, but I don't know the numbers.
Another method might be to sell calls or call spreads, date it out a few years and hope the underlying doesn't rise too much.
The videos are also very short compared to YouTube and to have a new video play is as simple as a swipe down.
I don't have much experience with Instagram, but Instagram doesn't seem to have the memetic component. It's more just traditional social media. Users don't really build off of other users content as much.
The format also makes the content universal. Since there’s just music, there’s no language barrier for consuming the content. Certainly this helped to get traction on smaller markets.
Also it is addictive. Short videos, visual and aural stimuli which you control by clicking to next or liking. Checking who liked your videos. Very much like slot machines in casino.
Maybe I'm holding it wrong, but I find retweets of threads extremely an extremely unreliable way to find my way back to the actual thread.
This particular link works, but it's still very a very annoying form to read it.
That said: Shorting these companies, that OP admits have huge R&D budgets, is a bet that they won't invent something new. Or that they will be taken over by something that does.
With a 10 digit R&D budget you can afford to be second mover.
In the last 20 years, has GOOG invented? Wow, yes. Question is do you think the past 2 years (or whatever) is a better predictor of next 5 years than the last 20 years was?
I dunno. And saying you do (especially when shorting) is saying you know better than the market, which is not always wrong, but it does have some arrogance in it.
https://threadreaderapp.com/thread/1281630456807452677.html
the real question is: is the ad model overvalued?
I think so for the following reasons: ad blockers, users getting desensitized to ads, diminishing returns of the amount of data one needs on a user to sell.
I think OP has the right conclusion but the wrong reasons.
what do you think?
Shorting GOOG is betting not only that ads will decrease long term, but also that the other fields won't increase.
Yes, I realize even cloud has a long way to go, revenue wise, compared to ads. But on the other hands ads has a long way to fall. And public cloud (including Google's cloud) is still growing exponentially.
In other words: I have no reason to think I know better than the invisible hand of the market.
That's GOOG. FB I've not looked into as much.
I don't understand how anyone can talk any more about the market having mystical powers after what we've seen in the past few months.
If the market was priced correctly in late February, and now that it's regained almost all it lost, how could it be priced correctly in late March at 1/3 lower? And if you swallow that, how is it that it went lower in a basically linear fashion over a month rather than instantly as whatever information was absorbed got out?
This really is bugging me as an "emperor's new clothes" situation, you can argue any which way on which is the right price, but how can you believe for an instant that they are all correct, reflecting all available information at all times?
I am not sure the best way to articulate the specific names for these, but I generally categorize our tech companies into 2 buckets when viewing this through the lens of an investor:
Bucket A: Facebook, Google, Twitter, Snap, Pinterest, Netflix, et. al.
Bucket B: Microsoft, Amazon, Apple, Intel, AMD, et. al.
Bucket A seems to be the riskiest to me because there are virtually no barriers to entry on the markets and products these companies target. Sure, Google & Facebook have some hardware/cloud hosting angles, but the companies in Bucket B make those revenue streams pale in comparison. E.g. AWS/Azure vs GCP, Microsoft Surface vs Oculus Rift, Macbook vs Pixelbook, iPhone vs anything, etc.
Bucket B contains all of the companies that I would feel comfortable buying and holding long. These companies have a deep pool of products, IP and larger barriers to entry for their markets. For instance, if someone came along and made some change to the world where Microsoft no longer makes any money off of advertising, they would be able to proceed without much difficulty. If someone chopped Google's ad revenue stream, I think there would be a serious problem for the company.
With respect to the "Apollo Program" metaphor — Google's X projects and other projects (like Waymo) are formidable, and may lead to serious breakthroughs and changes to society. The narrative that FB/Google are inefficient is questionable and is offered without coherent context; it would be helpful to compare them, say, to Genentech, Merck, Lockheed Martin and other large companies with serious R&D budgets, which have survived and are doing okay, despite not being as nimble as, say, the occasional dark horse like SpaceX (with respect to Lockheed Martin).
Yes, Google and Facebook may not loom like the giants they were. But there is a good chance they will continue to thrive. Another example: Microsoft is doing fine, despite not being the giant it was in the 90s.