"In a meeting during early December with top shareholders, Chief Executive Larry Page said Google understands the need to balance long-term investments against the risk that a weak stock price will dent employee morale and hurt recruiting and employee retention."
Yeah right. Nothing sends the morale soaring like the "necessary cuts".
For this day, they can feel good, but this is a signal that Page is facing the fact that the search advertising business may have hit the limits of growth or even be in jeopardy well before they've managed to develop another business.
If they were confident about continued revenue growth they wouldn't be feverishly worrying about the stock price.
They've shot themselves in the foot by reactively deflating other businesses they are afraid of to protect their cash cows rather than creating enough new value to replace it themselves.
>For this day, they can feel good, but this is a signal that Page is facing the fact that the search advertising business may have hit the limits of growth
or just a big one coming - the correction ("bust") is coming around next year, and thus advertising business will not grow until we are out of the correction several years down the road. So may be what Larry does is just that old "butten down the hatches", like some other companies are starting to do to.
Google has this rhetoric of creating new businesses, but the company is more than 15 years old and the best they did was to buy youtube. Android is a success story, but it exists only to protect advertisement revenue. Even Amazon has done better in diversifying on the technology space when they created AWS. I don't think Google has much investor credibility left in the sense of creating additional money generating businesses.
> The company is still aggressive about retaining employees, often offering more equity, he added.
> Some employees cite other examples of increased frugality, albeit at a workplace that is luxurious compared with most others. Travel, supplies and events all require more justification or approvals than in the past, according to two people familiar with the changes.
It doesn't look like they're interested in making drastic cuts just yet. The innumerable perks that Google offers its employees in the form of retreats, trips, food, play, etc. are what will be cut first. You can still keep morale up if you don't send your entire data center team to a cabin or Disneyworld twice a year, or if you don't send more people to a job site than you really need.
From what I understand, it's more of a "death by a thousand cuts" thing. Nobody really complains that the offsites aren't as incredible or anything, but little things like crowding in desks everywhere in open-office plans and lowering the quality of kitchenette foods.
It's fascinating to be able to see generational power shifts in such short cycles of time. I still vividly remember the days when M$ could never do anything wrong, and only a few years later, an upstart Google became the next M$, and Facebook the next Google, and so on. Old timers may also remember the IBM to M$ power shift, which played out over multiple decades.
Could you explain how Facebook might be the next Google? Facebook's scope just doesn't seem as wide-ranging as that of the other companies you mention.
This might be totally off base, but I can see the parallels in the shift of business in these companies:
1. IBM: main business used to be hardware, but now mostly IT services. This, believe it or not, is the most stable business. It's really hard to switch to another service provider for stuff your whole company relies on: payroll, inventory management, HR, etc.
2. Microsoft: main business used to be software, but moving to infra/productivity services. This is also as sticky as IBM's offering.
3. FB/Google: main business is selling advertisements, still looking for something to move to. If history repeats, it'll be some kind of services, but the multi-billion dollar question is, for what?
Google's move looks kinda like IBM's - being the technology partner in mutually beneficial tech projects. The only difference is the profit sharing arrangement and the risk/vision.
I don't know that Facebook ever took over from Google in terms of reputation. There was a brief period during which they were being extremely competitive with salary, but Facebook has never inspired the excitement (and trust) that systematically attracted large swathes of top talent. The reputation of Google was idealistic and awesome for a long time and then it shifted towards the more traditional MS-corporate-evil thing. Facebook pretty much started out with a reputation for being ruthless and "evil", which has a real effect on how excited talent gets about working for your company.
Facebook was super cool as a service for a couple brief years when they were serving only college students. But yeah, I don't think they've ever been well liked as a company. In many ways they're the modern AOL.
Yea I was in one of the (relatively) earlier groups of users since I was in college when they were college-only. I loved it when it was photo-sharing and event planning, but never got into (and still have never used) any of the other features they started adding. It's only recently that enough of my friends use FB messenger that I've started checking it once every day or two.
"Mr. Page said he looks to Berkshire Hathaway Inc., the insurance-focused conglomerate run by billionaire Warren Buffett, as a model for how to run a large, complex company, [...] "
I recall hearing a guest on the a16z podcast say something along the lines of 'high-growth tech companies eventually become big boring banks,' but I can't remember who said it. Is there a notable quote to this effect?
What makes Buffet a financial genius is exactly the fact that he likes boring companies, as he himself acknowledges. So, there is certainly a lot to be learned from Berkshire Hathaway, but while it is not a traditional bank or insurer, it is most certainly a company that only invests in boring, profitable businesses.
Thanks for posting it. That was the report on a business I actually enjoyed reading. It has personality and good advice embedded in it. If I was a shareholder, this particular quote would have me feeling quite assured:
"Indeed, we are far more conservative in avoiding risk than most large insurers. For example, if the insurance industry should experience a $250 billion loss from some mega-catastrophe – a loss about triple anything it has ever experienced – Berkshire as a whole would likely record a significant profit for the year because of its many streams of earnings. We would also remain awash in cash and be looking for large opportunities in a market that might well have gone into shock. Meanwhile, other major insurers and reinsurers would be far in the red, if not facing insolvency."
Good point. You can bet that popped into my mind when I was reading it: some of my own friends who saw it coming lost everything because they pulled their clients out of the bad investments. Which got bailed out and became the good investments. (sighs)
The credit facility was secured by the stock in AIG-owned subsidiaries in the form of warrants for a 79.9% equity stake in the company
It might be good for executives and other employees to take excess risks, but it probably isn't good for shareholders, they generally lose a substantial amount of their investment in an emergency bailout, most of it in a bankruptcy.
> The government buyout was not a great deal for AIG shareholders:
Good. The legitimate use of taxpayer money in propping up for-profit organisations should be to prevent a broader social problem, not to guarantee the ROI of investors.
FWIW, we actually saw this in the last financial crisis, where Berkshire Hathaway funded a $2B bailout of Goldman Sachs that he exited for a healthy profit.
A bailout is basically just redirecting the assets of the healthy part of the economy towards a part of the economy that has lost confidence, oftentimes at a profit (the government profited from the TARP bailout). The government does this using its power to tax. Berkshire does it through the power of Americans' insatiable demand for candy, sugar-water, freight transport, and peace of mind. Having large cash reserves just lets it participate in these deals where you would otherwise need a state-sized actor, much like how the Rothschilds owned much of 19th-century Europe.
Of the big emerging business lines at Google - Android/Play, GFiber/Loon, YouTube, self-driving cars, Nest & home automation, enterprise Google Docs, and AppEngine/Cloud - YouTube is the only one where the money comes from advertising.
This is a major shift from the Eric Schmidt years; Eric would always say "Our next billion dollar business is our last billion dollar business." Larry's plan is clearly to own a major portion of the technology industry going forwards, using capital from Google's first successful business (Search) to fund direct investment in new technologies, the same way that Buffett used the float from his insurance company to acquire additional cash-generating businesses. It remains to be seen how successful he is at this; tech is very different from the brick & mortar businesses that Buffett got rich at, and small startups often have strong advantages over well-funded incumbents. But "Google is an advertising company" hasn't really been true, in terms of corporate strategy, since Larry took over.
To a certain extent, one could imagine a tech conglomerate would be easier to manage than a traditional brick and mortar conglomerate, and least for the digital offerings. It's a lot easier to wind down less successful initiatives, and redeploy creative, skilled people to work that is more valuable. No sunk costs in production lines, inventory or call centers.
The problem - at least in my mental model, and it's possible I'm wrong, it's often dangerous to bet against Larry - is that new technology businesses often require a closeness to individual early adopters and speed of decision making that is impossible to achieve in a big company. The factors that make new tech businesses successful are often very subtle, and they're discovered only through long periods of direct interaction with users. When you're an engineer at Google, you don't have the freedom of direct-messaging an individual user, saying "Hey, what do you think? Got any suggestions for us?" and then immediately making the change and pushing it to production. In my experience, that seems to be essential for new tech products to catch on. (With the possible exception of Apple, who seem to be able to convince the consumer that they really want an Apple product regardless of what that product does. Even that lustre seems to be fading.)
In 2014, 89% of Google's revenue comes from advertising. Google is an advertising company with a lack of focus. I don't think I would call "use the war chest and try a bunch of stuff to move forward" a strategy. It feels like floundering, exactly like Microsoft's "Take the Windows/Office war chest and find the next big thing" doldrums of the last decade.
What else are you supposed to do when you conquer your market? Spending more money to be an even bigger Internet ad player would suffer diminishing returns, so you hunt for better investments that'll (here comes the buzzword) synergize with your current money maker (ads).
At least at first, Google's "floundering" was always focused back onto advertisement -- e.g. Android to capture the mobile market.
The assumption when you pay out massive dividends is that the stock market as a whole can invest that capital more efficiently than you can. It remains to be seen whether that's the case, but given how the average Fortune 500 company operates and the trends of technological change that are happening right now, I really doubt it.
> No but the company does belong to the share holders
Only in the sense that:
(1) The shareholders have specified voting rights (which, to the extent that they want dividend payments, they can exercise those voting rights to get them), and
(2) The shareholders have a claim on the residual assets of the firm in the event of dissolution.
Of particular note, the way voting rights are structured in Google, the shareholders to whom Google "belongs" in sense #1 are predominantly the narrow band of insiders holding Class B (10 votes/share) shares, not the masses holding class A (1 vote/share) or Class C (0 votes/share) shares.
Don't forget that Google is also an anti-shareholder company. They have several times introduced their own tricks to remove power from shareholders and give it to upper management. Paying shareholders a dividend seems to be last thing they would want to do.
> Of the big emerging business lines at Google - Android/Play, GFiber/Loon, YouTube, self-driving cars, Nest & home automation, enterprise Google Docs, and AppEngine/Cloud - YouTube is the only one where the money comes from advertising.
GFiber/Loon is arguably about increasing connectivity and internet access to Google services, and thus increasing ad revenue. Android also increases exposure to Google services and ad revenue. Indeed, one of the main justifications of Android and Play Services has always been that if Google can control the platform they can control where eyeballs go for ads.
> But "Google is an advertising company" hasn't really been true, in terms of corporate strategy, since Larry took over.
Strategy is aspirational; revenue and profits are reality. Google is an advertising company. Larry may aspire to be the Emperor of San Francisco and Protector of Mexico, and there's little to prevent him telling people that he already is, but that does nothing to change the fact that he's really the CEO of an advertising company in Mountain View.
This is such a reductionist Wall Street perspective. Money is just what keeps the lights on, but it says nothing about the impact on the world. Google's impact is not just advertising, arguably the most notable impacts are the utility of its search, and Android as the only credible competitor to iPhone keeping Apple on its game. While it's true that none of that is sustainable without the advertising business, that only matters at the point that business is failing.
Wait, where did I say that there were no concerns about the business? I was responding to a comment that literally said "profits are reality" as a way of dismissing all the interesting things that Google does which are not directly profitable.
"Of the big emerging business lines at Google - Android/Play, GFiber/Loon, YouTube, self-driving cars, Nest & home automation, enterprise Google Docs, and AppEngine/Cloud - YouTube is the only one where the money comes from advertising."
As opposed to the others, where the money doesn't come from anywhere.
Android and Fiber arguably exist in no small part to prevent a situation where entities with market power in the respective industries are able to extract rents from Google's online services, particularly its current primary revenue stream.
So, in a sense, they are "money comes from ads" businesses, but in a less direct manner.
It's even more of a holding company, it doesn't try to integrate the disparate businesses under a single management structure (if anything, it encourages owned companies to thin out their management).
Well, Google's top line has been shrinking in recent quarters, in order to maintain their profit margins and propel their (recently waning) stock, cutting cost is the only real option. PPC accounts for ~90%+ of their business despite their inroads in mobile; it's really incredible how Android has yielded virtually nothing for Google. If anything the mobile shift has come as a detriment since mobile ads have lower conversions.
I suspect if cost cutting doesn't help pad the bottom line after the top line adjustments investors will start pressuring them to do something with their massive market share...which in the end could come as a detriment to their presence.
There are probably some model changes to make between desktop and mobile ad conversions. You may well be right, but users need a different conversion path on mobile.
Google has seen Q/Q declines in revenue and net income recently which is a huge cry from it's explosive growth before. YoY growth is still steady, but slowing.
They've gotten more revenue in Q4 than Q1 for a number of years now (since 2011 maybe?) as Q4 tends to bring in a ton of revenue. I don't really see anything else that suggest a pattern like that.
I'm continually surprised by Google's total reliance of their core, original business: Search Ads.
Google docs presented a neat opportunity to attack Microsoft where it hurts, and Google has more or less pathetically failed, and Google docs continues to suck. I would have expected docs with version control, a big-data capable spreadsheet... not docs. BigQuery at least is somewhat ok.
Maps, shockingly, has gotten worse. On iOS the current app sucks battery life, and is unintuitive to use. Microsoft and Apple have more user friendly maps apps, which nobody would have expected upon using the original maps.
With Glass, they invented an entirely new way to be a douchebag.
> I'm continually surprised by Google's total reliance of their core, original business: Search Ads.
I'm not.
With all the venture capital pouring into Silicon Valley, how often have businesses to rival Google's Search Ads business been generated? Is it really surprising that Google hasn't managed, internally, to develop anything else on the same scale?
I agree. It defies the common wisdom against putting all your eggs in one basket. Many of the biggest names in industry did the opposite by acquiring companies in both similar and very different industries. The reason is simple: losses in one might be offset by successes in another. Google should be growing big in other markets.
They might also consider acquiring companies that could benefit from using Google technology and infrastructure as a competitive advantage. They get software for free and hardware (esp datacenters) at or right over cost.
Android has been a lifesaver for Google. If it didn't exist then phones would be in ecosystems from Apple, Blackberry, Microsoft, Nokia, Samsung, plus other up and comers. Each one of those would demand payment from Google for being the default search, maps, video etc. For example Google already pays Apple over a billion dollars a year to be the default search engine on iOS. Apple's change to its own maps resulted in Google losing over 30 million lucrative maps users (power of platform defaults).
Being dependent exclusively on others for the success of your own business is insane. Having your own alternatives around (eg Android, Chrome) to keep everyone else "honest" is a very good strategy.
Look at it another way - if Android was a non-Google company then Google would be paying them in the ballpark of a billion dollars a year. If Google can develop Android for less than that, then Android is profitable even if it has no direct revenues.
User activity is the lifeblood for the Google business. It is what the revenues hang off, it is what improves existing products, it is what lets you measure what is actually going on, and it provides a ready place to introduce products and change existing ones.
This is a false dichotomy. Google has to pay to be in particular platforms because they're viewed as a competitor. Even nowadays Apple doesn't seem to have any interest in search technology. If Android didn't exist, Google could concentrate their efforts in being the known and trusted source for web search and partner with Apple and other companies, the same way this works for Facebook, Twitter, Yahoo, and so many other web-based companies.
> Even nowadays Apple doesn't seem to have any interest in search technology
It is called Siri. Also Google isn't the only player in search, maps, video etc so competitors like Microsoft, Nokia, and Facebook could pay for placement. If Google was entirely dependent on other people's mobile platforms, then those platforms can make decisions based on payments, as well as on their competitive views such as not wanting to make Google stronger. The latter would harm Google's business and future prospects.
When you don't own the platform you don't control the advertising. Facebook now competes with Youtube, even if there's not perfect overlap in the markets they target. Did Google+ fail? Certainly. But Facebook can leverage its way into things like competing with Youtube by using its existing user base. So just sitting around being the "best" at something doesn't mean squat. Your current partners might very well be your future competition when they see how much money there is to be made.
I see what you are saying, however we have to look at the demographics and how that plays into ad sales for Google as well. People who buy Android phones are generally not the audience that advertisers want to hit. People who buy Apple products are generally middle to upper middle class individual with disposable income. Even in app sales this is apparent. I doubt Apple would have let them stand in for Apple's app advertising platform, but Siri? Maybe. Now Microsoft powers Siri, which has allowed them to do some data gathering for their own PA.
Anyhow, I wasn't saying that Android is a lost cause for Google, just that it's incredible that it has yielded virtually (if none at all) profits. The biggest benefactor from Android has been Samsung and they have made it pretty clear they really really want (doesn't mean they can) swap out Android for Tizen. Every other Android OEMs are bleeding cash, even if Nokia had adopted Android it likely would have had to be sold eventually because of industry capitation in "dumb" phones. I think Google has sort of blown their golden opportunity with Android, it should be making them billions, instead it yields nothing. Google is an ad company first, but that's all they have. If I were an investor in Google, this would worry me. Maybe not for the next 10 years, but eventually. I think ad campaigns for millennials have become complex operations and just plane PPC and display won't cut it eventually.
There are approximately 1 billion Android users and half that amount of iOS users. If Google didn't own Android then other companies would have those billion users. Google would have to pay them for the user activity (if not outbid by someone else) and would be subject to their whims (eg Apple deciding to do their own maps). Google does not need to own every user, but does need to control some to keep the other players in check.
As I mentioned, if Android costs less than a billion dollars a year to develop, then Google is ahead. It won't show up as a regular profit line, but they will be better off by the difference. It shows up in other ways too - Android gets Google's apps preinstalled. Defaults are extremely powerful as most users go with them. Google can essentially do whatever they want on Android. For example doing Google Now even required some changes to Android. A competitor platform would severely limit what could be done, and most platform owners would want that kind of functionality and knowledge of their users for themselves.
Think of Android as sending pennies a day back to Google's products for each user. On other platforms, the platform owner gets first bite, controls Google's access, requires payment, and reduces what Google gets back.
As for the Android OEMs, Google doesn't need them to succeed, and only that there is reasonable choice of devices available in the world. Heck it is actually in Google's interest for Android OEMs to just barely make it, as that means cheaper devices which means more users, and that those users have a bit more income left over to spend with Google.
Google is making billions on Android. Without it their future would be very much in doubt.
You're right about Android being important as a way of blocking competition, but it's false to say they are making billions on Android.
It's just like all the other free stuff they offer - it raises the bar for competitors, but it doesn't make them money. Saving money is not the same as making money.
Using nice round made up numbers let's say that a Google ad is displayed and clicked on iOS. Google got paid 10c for the ad, but then had to pay Apple 5c to be the search engine. Same story on Android, except they didn't have to pay Apple, but did have to pay to develop Android (1c). In the iOS scenario they are left with 5c, but in the Android scenario they are left with 9c. They are better off in the final accounting by 4c because of Android. Call that whatever you want, but they end up with more money and more profits.
The "free stuff" is not free. It is a place to deploy ads and encourage use of other Google services which then provides more places to deploy ads (aka revenue opportunities). Even if no ads are involved, the user activity is very valuable. Knowing what people search for, where they go, who they communicate with etc let Google make better products. For example when showing search results, which ones the users click on is monitored. If they keep clicking on the 3rd result then that one should likely be higher. The more traffic you get the better you can make your search results because the users tell you. Navigation data tells you what physical places are popular, which again reinforces the search results (eg Chinese restaurants in your town). Even seeing mis-spellings helps.
If you ask people who have tried multiple search engines why they use Google, the answer is usually the quality of the results. It is a vicious cycle and why Google has 70-80% of search traffic. Guess where that makes the advertisers go, and the more advertising demand the higher the rates that can be charged. The positive feedback loops around Google really help.
Android does not directly add to Google's bottom line. It does however add over a billion users to Google products, significantly reduces the costs to access those users, does not place those users under someone else's control, and helps the revenues of those Google products they use which does show up in the bottom line.
Google makes more off of iOS ads than Android ads worldwide (which goes to my suggestion that Apple users have more disposable income and thus higher ad rates.) It's not hard to look up. Google makes less than $1 Billion off of Android app sales/ads quarterly, which in Google's financials is practically nothing. Their capital expenditures in that space wipe most of that out anyhow.
I'm not sure why this is controversial, it's in their financials.
Did you include the fees Google has to pay to Apple, which they don't have to pay to themselves for Android? The whole thing is also not binary. It is fine that Google has ads on multiple platforms targeting multiple demographics and markets. It would be problematic if 100% of the ad activity was on platforms controlled by others.
In other words, having some (or many) of your eggs in someone else's basket is okay. Having all of your eggs in their baskets leaves you very vulnerable.
There are other big Google benefits to Android. It keeps people using Google services, including when they use other platforms. That makes the other platforms have to play nice with Google, and restricts the amount they can take away from Google. An iOS user who uses Apple for everything (mail, calendar, etc) is far harder for Google to monetise.
It is very interesting to see how Android is a pyrrhic victory for Google. As they grab more market share, they are debasing their own products because profit margins on mobile are so low compared to desktop. At the same time, they practically give away the top of the market to Apple, which makes more than 90% of the profits in the smart phone segment. Retrospectively, it would be much better for them to be partners with Apple and other companies in delivering search technology, without any of the costs associated to developing mobile software.
There is typically a cost leader and a quality leader in most markets - e.g. android and apple, Blue Bunny and Haagen Daas, kia and mercedes (respectively).
Companies that target the cost-leader position will have thin margins but make up for it in quantity. Google didn't lose anything in the Android victory over the mobile OS market, and falls in line with their strategy of making slim returns on every user (which adds up).
That makes sense if you're focused on being the cost leader in that segment, such as Kia or Walmart. But Google has no long term desire to be in a market unless it is advertising. I think they will be in a bad situation when cost pressures mount over the next years.
I don't have any factual link handy but don't a small percentage of startups take off? I remember reading here on HN that a VC will invest a little money in a lot of companies knowing (hoping?) that most ideas will fizzle, some will do okay, and a few will make millions or more.
Having grown up with Google, I had hoped to see Web ads as their first Unicorn and expected more of the side projects they let their employees work on "take off". It's certainly not for lack of trying; it would be very interesting to summarize Google's pushes into other markets and see why they have failed to expand their core competencies.
Google has in no way failed, but I have always expected another PageRank type success somewhere.
This is probably great news for startups overall. Not only does it reduce the chances the next big thing will come out of Google, it probably means Google will be less competitive at hiring people, or retaining people who could otherwise join (or found) a startup.
I have never really seen Google investing on the Next Big Thing. Google Ads is what they do correctly. Google Maps, certainly strategic. Driving cars? Awesome, but why not wait for a thousand startups to invent it and aquire. Android? It's a defensive position. The rest goes in decreasing order of size and revenue and half of it could be shut down.
If they want to make an impact, AirBnb, Spotify, Uber, Facebook, MongoDB, iPhone, AWS, those were the next big thing in the last 10 years. On all those topics they're on the second step. None of them were particularly hard, especially when you have the funding.
At least with that many talent, they have good chances of inventing a human-grade IA; with that much data they could decently feed their IA; with that much computing power they're ready to host the IA. If they don't, then they should have settled with the first 5000 employees who made the Search, Maps and Android.
I think it's more that if they're not in "wartime" mode, and employ a bunch of brilliant people who are well resourced and not working flat-out, they have a good chance of coming up with big things accidentally. gmail isn't necessarily huge compared to AdSense, but it's big compared to startups.
What sucks for startups is when there's a google-subsidized free or below cost kind of crappy option for something at $0 or $50/yr, which crowds the market out for a $200/yr version. Or when something like Reader happens, which basically kills all innovation in an area, and then eventually gets killed on its own after those other competitors have died.
I'm kind of bitter because there are 2 big projects I'd love to do, but there's a crappy Google (or in one case, Google + a couple other companies) product in the middle of the field in the low price position.
If I were a Google competitor, I'd be very happy about this.
From a Lean (as in Lean Manufacturing) perspective, I see two mistakes: a focus on reducing costs and increasing use of control to do that.
The problem with a cost-oriented perspective is that is too narrow. For example, suppose you're known for making great hamburgers. If you look at costs, you might say, "Well, beef is our biggest expense, so let's focus on reducing that cost." But the easy ways to do that reduce quantity and/or quality, which also reduce value delivered. Instead the thing to do is to focus on reducing waste or increasing effectiveness, both of which increase value delivered per dollar of expenses.
And the problem with adding control structures as a mechanism is that is slows everything down. You want employees asking, "Am I doing the right thing for the company?" rather than having them pray to the gods of the executive suite every time they need to make a decision.
I think a large part of what made Google so successful is that they approached most problems like engineers rather than MBAs. Looks like there will be opportunities for others to pick up that torch.
The fact that the current CFO is a long-term Morgan Stanley alum should be a pretty strong signal about the direction the board wants to take Google. It's not that hard to turn into Microsoft...
Google is already Microsoft; it was almost from the very beginning. Despite repeated and wide-ranging (especially in Google's case) efforts to build additional businesses, both companies are from a revenue perspective one-trick ponies. Google has search advertising and Microsoft has the Windows+Office franchise. From a shareholder's perspective, nothing else either company does offers any [positive] return.
My great hope is that the new funding rules will make startups accessible to the general investing population. That would, in principle, obviate the desire of existing companies with mature, successful businesses to go out and start unrelated new efforts. Conglomerates aren't very popular these days and haven't been for a long time; it would be nice to see these companies stick to what they're good at, pay their shareholders richly, and then let those shareholders decide whether they want to go invest that income in something else (and if so, in what).
> The fact that the current CFO is a long-term Morgan Stanley alum should be a pretty strong signal about the direction the board wants to take Google.
If the CEO was a Morgan Stanley alum, maybe, having a CFO from that background doesn't seem to be all that strong of a signal of anything.
> Could you elaborate why you don't think the CFO is a strong signal?
I don't think the CFO having a history in a large financial firm is strong signal for the same reason I don't think the Chief Counsel having a history in a large legal firm or -- even for a firm that isn't a tech firm -- the CTO having a history in a large tech firm is a strong signal: its a background tightly connected to the specific domain of responsibility.
OTOH, a CEO or COO being drawn from a specific industry other than the one the firm is operating in, or any C-level drawn from an industry both different than that of the firm and not tied to the specific domain for which they are responsible, may be a strong signal.
You have a valid point, thank you for explaining your view. I suppose I do agree with you in principal that the CEO, CTO, and COO send stronger signals about the direction of the company than the CFO. I do still believe that pulling any execs straight out of finance creates the potential for nasty cultural changes.
> If I were a Google competitor, I'd be very happy about this.
If I were a Google competitor -- or a prospective investor -- I'd take this whole attempt to read tea leaves into a narrative with a grain of salt.
> From a Lean (as in Lean Manufacturing) perspective, I see two mistakes: a focus on reducing costs and increasing use of control to do that.
I don't see any real evidence in the article that either of those mistakes are being made, except, with regard to increasing use of control, the reference citing "two people" to vague unspecified increases in approvals for certain kinds of expenses.
> The problem with a cost-oriented perspective is that is too narrow.
Sure, a purely cost-oriented perspective is too narrow. But the information in the article doesn't really support the proposition that that is what is going on at Google.
> Instead the thing to do is to focus on reducing waste or increasing effectiveness, both of which increase value delivered per dollar of expenses.
What little concrete information is given in the article seems to indicate an increased focus on identifying the concrete results that expenses are intended to serve (e.g., the reference to tying hiring to particular plans to achieve concrete goals related to revenue, user-acquisition, etc.) which seems to be a focus on effectiveness, rather than a narrow focus on costs.
Though, really, the article doesn't support a strong conclusion on anything.
Is that really a "trend" we're going to cite to justify this narrative?
Besides, it makes no sense. Even if their revenue growth has stalled out at 20%, their operating costs are only ~35%[1]. You'll very quickly get diminishing returns cutting that, and you still won't be able to maintain anything that keeps investors pleased.
Honestly this seems more like a story written off a press release from this "Bernstein Research".
Interesting that the stock has been sideways since the split into GOOG (Class C) and GOOGL (Class A) in Q1 2014, also around the same time the first dividend appeared.
Does anyone recall Larry Page saying how he foresee 32 hour work weeks or 4 day work weeks to make things more efficient? Well the first group of people that can test this idea is probably HR or the recruiting department. Would anyone from big tech companies mind sharing if such schemes are being implemented?
Anecdotally, I've noticed my campaigns getting a better CTR on Bing (perhaps their audience is less tech-savvy or just clicks on more ads?), and the CPC is lower to boot. If your market is a good fit for their audience, I consider advertising on bing to be a well-kept secret right now.
There are a lot of people outside of the US, and most of them aren't using either Bing nor Yahoo. Over here in europe, google is still king and I think that in Asia it's Baidu. I don't want to downplay the successes of Bing, Yahoo or Baidu, but looking globally Google is still pretty much uncontested.
Baidu is only popular in China, not the rest of Asia where it doesn't appear on the radar at all. Also, blocking Google probably has something to do with Baidu's success. And it's a crappy search engine, the Chinese I know use Bing for serious searches if they don't have a VPN to use google.
This is the beginning of the end if I ever saw it. If I could point to any particular point in time as when a company has the chance to break their stride it would be something like this, and it's on an article as opposed to being kept private. Something is amiss.
Since last year, many Google teams have had to submit plans describing how additional employees will produce specific business objectives, such as increased revenue or more users.
...
In one ad-marketing group, new hires are tied to generating revenue, said a person who recently left the group.
While this might cut the cost in short term, it is also an anti-thesis of long term vision, exploration and playing in uncharted territory. How does a team make a proposal for scanning books or building email system or maps with no real business plan in this kind of environment? Most properties on Google don't make ton of money but they provide - what is known in business - "free parking" model. These properties have more subjective role in overall image of Google. Do we expect all these properties to stagnate moving forward? I hope Wall Street folks are not finally catching up with Google's visionary leadership. Don't they still have voting majority anyway?
It would be nice to hear about what Googlers think of this article and changes they have experienced.
And how are you supposed to hire people to do things like improve build tooling? That doesn't generate any money except indirectly. "How much revenue does this janitor contribute?"
With pay per click prices generally trending downward, and competition going up, Google has to focus on actually making money - not a huge surprise there. The bigger problem for them, I think is that their ad business is still heavily trained on search intent, and search behavior. Certainly, google understands search behavior better than any other company, but as an end user, I find that my web behavior now is far less predicated on the functionality of search than it once was.
With search, I show intent, frequently looking to purchase something. However, as google's results have become worse and worse at surfacing useful information for me, I increasingly rely on my bookmarks, or other favorite places to start. Because the search is not getting better at the same rate that the internet is getting bigger, I find I don't bother with extensive search-based shopping, and instead hit standard review sites or shopping sites.
This wouldn't be such a problem if I still got to _those_ sites through advertising, or search, but I don't do that much at all.
IMO, google really needs to change their tactics with search in order to put themselves back into the purchase intent stream a bit more.
I think mobile is a big problem for them. The average iPhone user (and even Android users) doesn't visit web sites anymore, since almost all relevant sites have apps with better user interface. In that situation, the app stores are now the starting point of navigation, not web search. And Apple is covering increasingly more space with siri and spotlight. In a few years web search may just become a legacy technology.
nothing boosts morale like the auditors with MBA background... snooping around ... timing your bathroom breaks... Sounds like Google has reached another stage in a lifecycle of a big company...
Now that Googlers have to justify their hiring needs and demonstrate how hiring someone will increase profits, perhaps they will change their hiring strategy and actually care about experience and what potential new hires have actually done in the past. Once can imagine, but at this point it's not even cool to work for Google any more.
The problem with Google is that they did not find cash cow which will replace their ads business (I'm not saying that they did not build some great product - I'm saying that they did not find something which will replace their ads business).
I think Google needs a new CEO. Somebody from inside. Before it is too late.
I run a small website that makes use of the Google Translate API for some functionality. Use of that functionality is pretty low and so I get billed $0.04 or $0.06 every month.
Unless Google has terrific rates on credit card charges (and they probably do, but certainly not that great), it's probably costing them more to bill me than they make.
Maybe there aren't that many low paying accounts and so it's not worth the man hours to work around, but it's always struck me as strange when there are 2 easy solutions 1) not bill accounts where the amount is < credit card fees, or 2) always bill a minimum amount (e.g. $5) which gets stored as credit and slowly used up.
I've mentioned before that the declining ability to extract profits from the search advertising business was going to lead to stricter cost controls. I've been in enough companies that have gone through that process to know it can be really hard on the employees. The good news is that if you survive it, you are much stronger for it.
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[ 2.8 ms ] story [ 184 ms ] thread(I didn't get why this story didn't get upvoted more, it seems like an interesting shift.)
Yeah right. Nothing sends the morale soaring like the "necessary cuts".
If they were confident about continued revenue growth they wouldn't be feverishly worrying about the stock price.
They've shot themselves in the foot by reactively deflating other businesses they are afraid of to protect their cash cows rather than creating enough new value to replace it themselves.
or just a big one coming - the correction ("bust") is coming around next year, and thus advertising business will not grow until we are out of the correction several years down the road. So may be what Larry does is just that old "butten down the hatches", like some other companies are starting to do to.
> Some employees cite other examples of increased frugality, albeit at a workplace that is luxurious compared with most others. Travel, supplies and events all require more justification or approvals than in the past, according to two people familiar with the changes.
It doesn't look like they're interested in making drastic cuts just yet. The innumerable perks that Google offers its employees in the form of retreats, trips, food, play, etc. are what will be cut first. You can still keep morale up if you don't send your entire data center team to a cabin or Disneyworld twice a year, or if you don't send more people to a job site than you really need.
1. IBM: main business used to be hardware, but now mostly IT services. This, believe it or not, is the most stable business. It's really hard to switch to another service provider for stuff your whole company relies on: payroll, inventory management, HR, etc.
2. Microsoft: main business used to be software, but moving to infra/productivity services. This is also as sticky as IBM's offering.
3. FB/Google: main business is selling advertisements, still looking for something to move to. If history repeats, it'll be some kind of services, but the multi-billion dollar question is, for what?
"Mr. Page said he looks to Berkshire Hathaway Inc., the insurance-focused conglomerate run by billionaire Warren Buffett, as a model for how to run a large, complex company, [...] "
I recall hearing a guest on the a16z podcast say something along the lines of 'high-growth tech companies eventually become big boring banks,' but I can't remember who said it. Is there a notable quote to this effect?
Do you read Buffet's yearly letters? They're great.
http://www.berkshirehathaway.com/letters/2014ltr.pdf
"Indeed, we are far more conservative in avoiding risk than most large insurers. For example, if the insurance industry should experience a $250 billion loss from some mega-catastrophe – a loss about triple anything it has ever experienced – Berkshire as a whole would likely record a significant profit for the year because of its many streams of earnings. We would also remain awash in cash and be looking for large opportunities in a market that might well have gone into shock. Meanwhile, other major insurers and reinsurers would be far in the red, if not facing insolvency."
Smart.
https://en.wikipedia.org/wiki/American_International_Group#L...
The credit facility was secured by the stock in AIG-owned subsidiaries in the form of warrants for a 79.9% equity stake in the company
It might be good for executives and other employees to take excess risks, but it probably isn't good for shareholders, they generally lose a substantial amount of their investment in an emergency bailout, most of it in a bankruptcy.
Good. The legitimate use of taxpayer money in propping up for-profit organisations should be to prevent a broader social problem, not to guarantee the ROI of investors.
A bailout is basically just redirecting the assets of the healthy part of the economy towards a part of the economy that has lost confidence, oftentimes at a profit (the government profited from the TARP bailout). The government does this using its power to tax. Berkshire does it through the power of Americans' insatiable demand for candy, sugar-water, freight transport, and peace of mind. Having large cash reserves just lets it participate in these deals where you would otherwise need a state-sized actor, much like how the Rothschilds owned much of 19th-century Europe.
They where v popular in the 60/70's until the wheels came of and corporate raiders starting breaking them up.
Of the big emerging business lines at Google - Android/Play, GFiber/Loon, YouTube, self-driving cars, Nest & home automation, enterprise Google Docs, and AppEngine/Cloud - YouTube is the only one where the money comes from advertising.
This is a major shift from the Eric Schmidt years; Eric would always say "Our next billion dollar business is our last billion dollar business." Larry's plan is clearly to own a major portion of the technology industry going forwards, using capital from Google's first successful business (Search) to fund direct investment in new technologies, the same way that Buffett used the float from his insurance company to acquire additional cash-generating businesses. It remains to be seen how successful he is at this; tech is very different from the brick & mortar businesses that Buffett got rich at, and small startups often have strong advantages over well-funded incumbents. But "Google is an advertising company" hasn't really been true, in terms of corporate strategy, since Larry took over.
https://investor.google.com/earnings/2014/Q4_google_earnings...
At least at first, Google's "floundering" was always focused back onto advertisement -- e.g. Android to capture the mobile market.
Pay out massive dividends.
Only in the sense that:
(1) The shareholders have specified voting rights (which, to the extent that they want dividend payments, they can exercise those voting rights to get them), and
(2) The shareholders have a claim on the residual assets of the firm in the event of dissolution.
Of particular note, the way voting rights are structured in Google, the shareholders to whom Google "belongs" in sense #1 are predominantly the narrow band of insiders holding Class B (10 votes/share) shares, not the masses holding class A (1 vote/share) or Class C (0 votes/share) shares.
GFiber/Loon is arguably about increasing connectivity and internet access to Google services, and thus increasing ad revenue. Android also increases exposure to Google services and ad revenue. Indeed, one of the main justifications of Android and Play Services has always been that if Google can control the platform they can control where eyeballs go for ads.
Strategy is aspirational; revenue and profits are reality. Google is an advertising company. Larry may aspire to be the Emperor of San Francisco and Protector of Mexico, and there's little to prevent him telling people that he already is, but that does nothing to change the fact that he's really the CEO of an advertising company in Mountain View.
As opposed to the others, where the money doesn't come from anywhere.
So, in a sense, they are "money comes from ads" businesses, but in a less direct manner.
I suspect if cost cutting doesn't help pad the bottom line after the top line adjustments investors will start pressuring them to do something with their massive market share...which in the end could come as a detriment to their presence.
Google docs presented a neat opportunity to attack Microsoft where it hurts, and Google has more or less pathetically failed, and Google docs continues to suck. I would have expected docs with version control, a big-data capable spreadsheet... not docs. BigQuery at least is somewhat ok.
Maps, shockingly, has gotten worse. On iOS the current app sucks battery life, and is unintuitive to use. Microsoft and Apple have more user friendly maps apps, which nobody would have expected upon using the original maps.
With Glass, they invented an entirely new way to be a douchebag.
Android, nothing.
App Engine, nothing.
I'm not.
With all the venture capital pouring into Silicon Valley, how often have businesses to rival Google's Search Ads business been generated? Is it really surprising that Google hasn't managed, internally, to develop anything else on the same scale?
They might also consider acquiring companies that could benefit from using Google technology and infrastructure as a competitive advantage. They get software for free and hardware (esp datacenters) at or right over cost.
Being dependent exclusively on others for the success of your own business is insane. Having your own alternatives around (eg Android, Chrome) to keep everyone else "honest" is a very good strategy.
Look at it another way - if Android was a non-Google company then Google would be paying them in the ballpark of a billion dollars a year. If Google can develop Android for less than that, then Android is profitable even if it has no direct revenues.
User activity is the lifeblood for the Google business. It is what the revenues hang off, it is what improves existing products, it is what lets you measure what is actually going on, and it provides a ready place to introduce products and change existing ones.
It is called Siri. Also Google isn't the only player in search, maps, video etc so competitors like Microsoft, Nokia, and Facebook could pay for placement. If Google was entirely dependent on other people's mobile platforms, then those platforms can make decisions based on payments, as well as on their competitive views such as not wanting to make Google stronger. The latter would harm Google's business and future prospects.
Anyhow, I wasn't saying that Android is a lost cause for Google, just that it's incredible that it has yielded virtually (if none at all) profits. The biggest benefactor from Android has been Samsung and they have made it pretty clear they really really want (doesn't mean they can) swap out Android for Tizen. Every other Android OEMs are bleeding cash, even if Nokia had adopted Android it likely would have had to be sold eventually because of industry capitation in "dumb" phones. I think Google has sort of blown their golden opportunity with Android, it should be making them billions, instead it yields nothing. Google is an ad company first, but that's all they have. If I were an investor in Google, this would worry me. Maybe not for the next 10 years, but eventually. I think ad campaigns for millennials have become complex operations and just plane PPC and display won't cut it eventually.
You do know there are people outside US right?
As I mentioned, if Android costs less than a billion dollars a year to develop, then Google is ahead. It won't show up as a regular profit line, but they will be better off by the difference. It shows up in other ways too - Android gets Google's apps preinstalled. Defaults are extremely powerful as most users go with them. Google can essentially do whatever they want on Android. For example doing Google Now even required some changes to Android. A competitor platform would severely limit what could be done, and most platform owners would want that kind of functionality and knowledge of their users for themselves.
Think of Android as sending pennies a day back to Google's products for each user. On other platforms, the platform owner gets first bite, controls Google's access, requires payment, and reduces what Google gets back.
As for the Android OEMs, Google doesn't need them to succeed, and only that there is reasonable choice of devices available in the world. Heck it is actually in Google's interest for Android OEMs to just barely make it, as that means cheaper devices which means more users, and that those users have a bit more income left over to spend with Google.
Google is making billions on Android. Without it their future would be very much in doubt.
It's just like all the other free stuff they offer - it raises the bar for competitors, but it doesn't make them money. Saving money is not the same as making money.
The "free stuff" is not free. It is a place to deploy ads and encourage use of other Google services which then provides more places to deploy ads (aka revenue opportunities). Even if no ads are involved, the user activity is very valuable. Knowing what people search for, where they go, who they communicate with etc let Google make better products. For example when showing search results, which ones the users click on is monitored. If they keep clicking on the 3rd result then that one should likely be higher. The more traffic you get the better you can make your search results because the users tell you. Navigation data tells you what physical places are popular, which again reinforces the search results (eg Chinese restaurants in your town). Even seeing mis-spellings helps.
If you ask people who have tried multiple search engines why they use Google, the answer is usually the quality of the results. It is a vicious cycle and why Google has 70-80% of search traffic. Guess where that makes the advertisers go, and the more advertising demand the higher the rates that can be charged. The positive feedback loops around Google really help.
Android does not directly add to Google's bottom line. It does however add over a billion users to Google products, significantly reduces the costs to access those users, does not place those users under someone else's control, and helps the revenues of those Google products they use which does show up in the bottom line.
I'm not sure why this is controversial, it's in their financials.
In other words, having some (or many) of your eggs in someone else's basket is okay. Having all of your eggs in their baskets leaves you very vulnerable.
There are other big Google benefits to Android. It keeps people using Google services, including when they use other platforms. That makes the other platforms have to play nice with Google, and restricts the amount they can take away from Google. An iOS user who uses Apple for everything (mail, calendar, etc) is far harder for Google to monetise.
Companies that target the cost-leader position will have thin margins but make up for it in quantity. Google didn't lose anything in the Android victory over the mobile OS market, and falls in line with their strategy of making slim returns on every user (which adds up).
Which doesn't change that they're the cost leader of the market and didn't lose anything. Where do you think the thin margins per user comes from?
And the company is starting to diversify away from advertising with Cloud, Play, Express, etc.
Having grown up with Google, I had hoped to see Web ads as their first Unicorn and expected more of the side projects they let their employees work on "take off". It's certainly not for lack of trying; it would be very interesting to summarize Google's pushes into other markets and see why they have failed to expand their core competencies.
Google has in no way failed, but I have always expected another PageRank type success somewhere.
TPS reports incoming Google!
If they want to make an impact, AirBnb, Spotify, Uber, Facebook, MongoDB, iPhone, AWS, those were the next big thing in the last 10 years. On all those topics they're on the second step. None of them were particularly hard, especially when you have the funding.
At least with that many talent, they have good chances of inventing a human-grade IA; with that much data they could decently feed their IA; with that much computing power they're ready to host the IA. If they don't, then they should have settled with the first 5000 employees who made the Search, Maps and Android.
What sucks for startups is when there's a google-subsidized free or below cost kind of crappy option for something at $0 or $50/yr, which crowds the market out for a $200/yr version. Or when something like Reader happens, which basically kills all innovation in an area, and then eventually gets killed on its own after those other competitors have died.
I'm kind of bitter because there are 2 big projects I'd love to do, but there's a crappy Google (or in one case, Google + a couple other companies) product in the middle of the field in the low price position.
From a Lean (as in Lean Manufacturing) perspective, I see two mistakes: a focus on reducing costs and increasing use of control to do that.
The problem with a cost-oriented perspective is that is too narrow. For example, suppose you're known for making great hamburgers. If you look at costs, you might say, "Well, beef is our biggest expense, so let's focus on reducing that cost." But the easy ways to do that reduce quantity and/or quality, which also reduce value delivered. Instead the thing to do is to focus on reducing waste or increasing effectiveness, both of which increase value delivered per dollar of expenses.
And the problem with adding control structures as a mechanism is that is slows everything down. You want employees asking, "Am I doing the right thing for the company?" rather than having them pray to the gods of the executive suite every time they need to make a decision.
I think a large part of what made Google so successful is that they approached most problems like engineers rather than MBAs. Looks like there will be opportunities for others to pick up that torch.
My great hope is that the new funding rules will make startups accessible to the general investing population. That would, in principle, obviate the desire of existing companies with mature, successful businesses to go out and start unrelated new efforts. Conglomerates aren't very popular these days and haven't been for a long time; it would be nice to see these companies stick to what they're good at, pay their shareholders richly, and then let those shareholders decide whether they want to go invest that income in something else (and if so, in what).
Well, a man can dream, right?
http://www.microsoft.com/Investor/EarningsAndFinancials/Fina...
If the CEO was a Morgan Stanley alum, maybe, having a CFO from that background doesn't seem to be all that strong of a signal of anything.
Could you elaborate why you don't think the CFO is a strong signal?
I don't think the CFO having a history in a large financial firm is strong signal for the same reason I don't think the Chief Counsel having a history in a large legal firm or -- even for a firm that isn't a tech firm -- the CTO having a history in a large tech firm is a strong signal: its a background tightly connected to the specific domain of responsibility.
OTOH, a CEO or COO being drawn from a specific industry other than the one the firm is operating in, or any C-level drawn from an industry both different than that of the firm and not tied to the specific domain for which they are responsible, may be a strong signal.
If I were a Google competitor -- or a prospective investor -- I'd take this whole attempt to read tea leaves into a narrative with a grain of salt.
> From a Lean (as in Lean Manufacturing) perspective, I see two mistakes: a focus on reducing costs and increasing use of control to do that.
I don't see any real evidence in the article that either of those mistakes are being made, except, with regard to increasing use of control, the reference citing "two people" to vague unspecified increases in approvals for certain kinds of expenses.
> The problem with a cost-oriented perspective is that is too narrow.
Sure, a purely cost-oriented perspective is too narrow. But the information in the article doesn't really support the proposition that that is what is going on at Google.
> Instead the thing to do is to focus on reducing waste or increasing effectiveness, both of which increase value delivered per dollar of expenses.
What little concrete information is given in the article seems to indicate an increased focus on identifying the concrete results that expenses are intended to serve (e.g., the reference to tying hiring to particular plans to achieve concrete goals related to revenue, user-acquisition, etc.) which seems to be a focus on effectiveness, rather than a narrow focus on costs.
Though, really, the article doesn't support a strong conclusion on anything.
Is that really a "trend" we're going to cite to justify this narrative?
Besides, it makes no sense. Even if their revenue growth has stalled out at 20%, their operating costs are only ~35%[1]. You'll very quickly get diminishing returns cutting that, and you still won't be able to maintain anything that keeps investors pleased.
Honestly this seems more like a story written off a press release from this "Bernstein Research".
[1] https://investor.google.com/earnings/2015/Q1_google_earnings...
An efficient google can keep more irons in the fire.
http://investorplace.com/2014/07/goog-google-stock-split/#.V...
Anecdotally, I've noticed my campaigns getting a better CTR on Bing (perhaps their audience is less tech-savvy or just clicks on more ads?), and the CPC is lower to boot. If your market is a good fit for their audience, I consider advertising on bing to be a well-kept secret right now.
Since last year, many Google teams have had to submit plans describing how additional employees will produce specific business objectives, such as increased revenue or more users. ... In one ad-marketing group, new hires are tied to generating revenue, said a person who recently left the group.
While this might cut the cost in short term, it is also an anti-thesis of long term vision, exploration and playing in uncharted territory. How does a team make a proposal for scanning books or building email system or maps with no real business plan in this kind of environment? Most properties on Google don't make ton of money but they provide - what is known in business - "free parking" model. These properties have more subjective role in overall image of Google. Do we expect all these properties to stagnate moving forward? I hope Wall Street folks are not finally catching up with Google's visionary leadership. Don't they still have voting majority anyway?
It would be nice to hear about what Googlers think of this article and changes they have experienced.
With search, I show intent, frequently looking to purchase something. However, as google's results have become worse and worse at surfacing useful information for me, I increasingly rely on my bookmarks, or other favorite places to start. Because the search is not getting better at the same rate that the internet is getting bigger, I find I don't bother with extensive search-based shopping, and instead hit standard review sites or shopping sites.
This wouldn't be such a problem if I still got to _those_ sites through advertising, or search, but I don't do that much at all.
IMO, google really needs to change their tactics with search in order to put themselves back into the purchase intent stream a bit more.
So it's not all bad news...
I think it would be a mistake to cut spending on innovation, you risk becoming irrelevant.
I think Google needs a new CEO. Somebody from inside. Before it is too late.
Unless Google has terrific rates on credit card charges (and they probably do, but certainly not that great), it's probably costing them more to bill me than they make.
Maybe there aren't that many low paying accounts and so it's not worth the man hours to work around, but it's always struck me as strange when there are 2 easy solutions 1) not bill accounts where the amount is < credit card fees, or 2) always bill a minimum amount (e.g. $5) which gets stored as credit and slowly used up.