Last year, I asked if Google would surpass MSFT by 2010, this year, with Google crossing $600 and $700 in a matter of weeks, Silicon Alley’s Henry Blodget and Tech Crunch’s Duncan Riley are getting in on the fun.
For the record, it is highly possible to think that Google will be worth a lot more than it’s worth today, but there’s also a lot to suggest that it won’t. When you break down the variables, it’s plausible to think that Google might be the world’s first trillion dollar company, too, but there is enough to suggest that that company will be based in China or India, and involved in wireless. Of course, these last three traits are right now very speculative, so Google is as good of a bet as any. But more on Google later, the thing that struck me most with Duncan Riley’s most, who is Australian, is that he asks: Imperium: Google’s March Towards Becoming America’s Biggest Company.
The key word, my friends, is America. Has America lost its edge? Probably. I am very sure that the world’s most valuable company in 10 years will not be an American one. The US currency is a shadow of its former self. Growth will come increasingly from Russia, China and India.
Back to Google, don’t get me wrong: Google has a lot of growth opportunities, and almost gets 50% of its revenues from abroad, but right now it only generates ads from search ads… once it begins to monetize YouTube, integrates Doubleclick etc., there is upside, but we should also put down the koolaid and realize that Microsoft remains a pretty good bet on that front: it will do nearly $60B in revenues, 5x what Google will do in 2007. Sure, MSFT is not growing anywhere near as fast as Google, but Google is a one trick pony whereas MSFT can more easily gain market share in Internet than Google can add market share (at least that’s the theory). The Web shall inherit the meek, I suspect that by 2021, web ads will be larger than TV ads… and guess who’s value will increase to reflect that?
While everyone is getting giddy in a remarkably 1999-esque fashion, I’d like to point your attention to the last Web-based company that had trillion dollar aspirations: Infospace, who’s Naveen Jain said “we’ll be a trillion dollar company.”
At one point, in 2000, Infospace’s market cap was $25B. Today, Infospace’s enterprise value is worth $425M.
Infospace was never a Google, mind you… but Google isn’t yet the America’s most valuable company yet, let alone a potential trillion dollar company either.
With China’s economy in a bubble-esque state of euphoria, I suspect that the market in China will face a correction in the hangover period after the Olympics… but after things settle down, expect one company to emerge from China to become the world’s most valuable company before long.
Some time ago, Alley Insider pointed to Sandeep Aggarwal (an analyst at Oppenheimer)’s report on the impact of the mortgage crisis.
I’ve frequently raved about Alley Insider’s reporting, it’s a welcome addition to the landscape where most bloggers regurgitate corporate press releases and fail to question the institutional imperative…
But a few weeks ago, one of their posts made me question the logic and wisdom thereof.
In a nutshell, Alley Insider made a really big stink about Aggarwal’s revised numbers for growth. Sit down, are you ready? Aggarwal’s report suggested that online advertising will fall from 26% to 25%. Yep, a rounding error.
Analystitis
I was going to pen a post about how analysts of the 20th century will become a dying breed, mainly because they’re on the outside and “insider bloggers” will always have more accurate, albeit biased, points of view. Then again, analysts too were conflicted, we saw that front and center with the dot com revolution cum bubble in the late 1990s and early 2000s.
Ultimately, the bloggers (who unlike journalists probably have a day job and unlike analysts are literally on the front lines) who most accurately provide an insight into industries will command the largest audiences etc., at which point they will become part of the system and make room for younger, more hungry, less conflicted bloggers.
But, I did not write that post. Why pick on respected and influential folks like Aggarwal, Blodget or Mark Meeker; the latter despite the fact that she forgot to divide by 1,000 when trying to compute CPMs (which stand for cost per thousand - that darn M must have thrown her off).
I respect Blodget for sticking his neck out and doing a lot of projections, calculations and analysis. That kind of stuff stands out in the otherwise increasingly repetitive and staid blogosphere. But one example of Analystitis was Blodget’s calculations when Revver announced that it had shelled out $1M to partners (disclaimer: we’re a content provider to Revver, along with YouTube, Veoh, Joost etc., and no, we’re nowhere near a rounding error on that $1M). Anyway, Blodget’s Revver calculations forgot a major fact which made everything he said somewhat moot.
In all fairness, I was also shocked that Revver did not stress the following, because $1M is paltry in one perspective but impressive in another.
What’s this missing iota of information? It’s nothing earth-shattering, but it’s a key one when trying to make sense of revenue. Revver had up to recently worked on a CPC (or cost per click) model which is anything but effective with video.
Video vs. Text Consumption
From a consumer behavior, it’s a simple enough fact that users who are reading text content have a tendency to be leaning forward, hand on mouse, scrolling down a screen and trigger happy to click on something - be it a link to another article or an ad. As such, Google’s business model of indexing text content and serving text ads works wonders.
But with video, it’s an altogether different beast: you find what you want, press play, lean back. Chances are, your hands are off the mouse and keyboard… as such, the propensity to click on anything is low. Furthermore, Revver made its life really hard (and maybe that’s why under its initial model we questioned its survival) y running CPC ads as post-rolls, where most people don’t even get to!
Point is, the fact that Revver paid out $1M to partners largely running CPC ads at the end of videos is a testament to how much advertisers want to advertise online and just how viable video advertising will become for anything but user generated content (let’s not even get started on that).
So, if I was going to keep my trap shut and am now raining down this tirade, what gives?
Can I say “I told you so?”
Well, not only were Oppenheimer and Alley Insider wrong, but in fact, it turns, one (yes, admittedly biased) ad agency says that au contraire, online advertising will increase this year:
ZenithOptimedia, part of the Publicis Groupe media agency, has revised its spending forecast for internet advertising upwards yet again: it now predicts a 29.9 percent gain over 2006, up from 28.6 percent three months ago, and 85 percent growth between 2006 and 2009 (up from 82 percent previously). Online video and local search are the new, fast-growing segments, but Zenith notes that display, classified and the rest of search are still expanding. Looking ahead to 2009, Zenith expects online ad spending will make up 9.5 percent of all ad expenditures, slightly up from the 9.4 percent the company forecast three months ago.
Gee, ain’t that something we argued recently?
Total Marketing vs. Online Advertising
In a nutshell: I have long argued that we’re not in 2000, and that any reduction in marketing will help, not hurt, online advertising. That’s right, if I am Anheuser Busch, that means I’ll spend a little bit less on TV, billboards etc., and shift a bit more of that budget to online.The difference between 2001-03 and now is, when the marketing dollars flow back, they won’t go back to TV, print and newspapers.
Targeted Media vs. Non-Targeted Media
Mark my words, we are seeing the accelerated decline of offline and online advertising will be the main beneficiary. It’s not so much that marketers dislike offline, that’s not the issue. Half of the global trend comes from following the user, but the other half comes from the fact that online offers marketers targeted media, whereas print, TV, radio and billboards are non-targeted media. As such, targeted media will increase quite more rapidly than offline in an environment where there is pressure on total, global marketing expenditures.
But the reason why the entire sub-prime mortgage matter shows that analysts’ future will resemble that of offline, non-targeted media is the following:
Anyone who has bought or sold advertising knows that the mortgage-related advertisers are the least likely to be buying display/banner advertising on a CPM basis. They’re not in branding, these are performance-driven marketers. Most of these buy performance based search advertisement, or CPA-based display/banner advertising. Do a search for “mortgage” on Google and tell me if you saw a dearth of text ads around the organic results? You don’t, there are more than enough advertisers picking up the slack, which is why Google will probably not be affected by it, either (note: if they see a softening elsewhere or an overall slowdown in their torrid growth, they might use this as an excuse, but I doubt it will and that they would).
All right, I feel better now. Back to work.
When I was in college finishing up my degree in finance from 1996-99, Mary Meeker and Henry Blodget were the top two analysts covering dot coms. We know how that ended up.
Seeing this, I wondered, where am I? What year is it? And how will this ride end?
PLAY
