Online advertising down

NYTimes today  - down 2.4% compared to last year. Talks about low value/commoditisation of advertising networks and that blogs/video will eventually work as advertising conduits.

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Former employee on Google management style

Came across this blog from a former Google employee

http://steve-yegge.blogspot.com/2006/09/good-agile-bad-agile_27.html

Ignore the first few paragraghs and scroll down to the section titled "The Good Kind".

He describes the practice of "Theory O" inside the Google world......

Google Local Gets Broken Into

Sept 2008 - yes last month. Looks like Google Local was subjected to 'social engineering security attack'. Slightly like Pallin and Yahoo eail.

Article from Miriam Ellis in Search Engine Guide

Quote:

From my perspective this is like a scenario where Google has the keys to your shop, they agree to watch over it for the afternoon. On their coffee break they stepped out and forgot to lock the door. During that time, a thief broke in, stole some flowers and left his calling card taped to the door.

Google, returned for the afternoon after coffee and upon closing, forgot to alert you to the theft and they left the thief's calling card where he left it, covering your sign on the door.

Google gets no pass on this one.

Google Answers - RIP

http://answers.google.com/answers/

Competing on the Edge - Shona Brown

The book referenced earlier, 'Competing on the Edge' by Shona Brown. Shona Brown is the 'Senior Vice President, Business Operations' at Google.

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Google Scenarios

Greg has done a lot of scenario building based on scanning.

However not letting any details get in the way I'll take a crazy stab at scenarios. Didn't look at 'strategic gap' (Ansoff) or market growth rates specifically.

Optimistic scenario: Positive marketing environment and transition to on-line spend grows internet advertising market. Google diversifies into other media, becoming a single source supplier for many customers. Development of web-platforms e.g. the Chrome browser, Gears, Andriod lead to ubiquity of the web and in particular web-search. Google's applications successfully become content drivers adding to conversion into clicks. Applications become carriers for Google's advertising and thereby capture a large proportion of software spend. Google provides an end-to-end solution for marketing, tying themselves into marketing supply chains. Google also manages to provide a purchasing directory, thereby tying themselves into consumers supply chains.

Pessimistic scenario: Google gets surpassed by searchme.com with advertising conversions falling to negligible levels (20% of existing?). Worldwide economy falters with marketing spend fulling dramatically in key Google markets, e.g. U.S.. Internet media consolidates into a model more resembling a traditional publishing model with a few significant players - not Google. Hubris at Google results in them spending to 'invent their way out of trouble' compounding the liabilities that expensive fixed-cost platforms have become. Specialist providers have picked of effective platforms such as YouTube, which was never quite consolidated into a coherent part of the Google organisation. Google is forced to charge $25 a year for gmail, obtain revenue through ever more detailed profiles and on-sell 'anonymised' content profiles to Sharman Networks and Mark Zukerberg which coupled with rising unreliability results in mass defection and the sale of the Google brand for $1 to Murdoch.

Gmail-Picassa-Docs etc/storage options:

10GB - $US20/yr | 40GB - $US75/yr | 150Gb - $US250/yr | 400Gb - $US500/yr

Neutral scenario:

These are the revenue growth figures from the Google 2007 Annual report:

Revenue	2002	2003	2004	2005	2006	2007
Y/Y Growth rate	409.00%	234.00%	118.00%	92.00%	73.00%	56.00%

Clearly the rate of growth is decreasing. As Hamel says – rapid growth leads more quickly to constraints to growth.

I was looking in the y/y growth rate crystal ball. Our hypothesis is that the growth rate needs to be high so as justify share price (P/E 21 in this financial market), to justify expectations and offset a high rate growth rate in costs (69%, 2007). Admittedly the first line starts at a high 50%. Data came from Google investor site.

I can't imagine the 2008 annual growth being too much higher than the Q2 growth rate of 39% given global economics. Growth rates should be able to be compared quarterly, ignoring seasonal factors. Open office 'power regression' (guess that is the -1.19 bit) give me an equation f(x) = 4.56x^-1.19 and an r value of 98 as the closest fit to these numbers. Equation gives 45% growth for 2008, 38% for 2009 and 20% for 2014.

If we took the negative model and mapped linear, Google would be negative in 2007 (r = 0.77).

For costs, I could not get a good model, the 2003 figure probably should be discarded. In 2005,2006, 2007 the rate of growth actually increased to sit at approximately 70%. This is higher than the growth in revenue at 56%

Divergent:
a) Google finds the long-lost patent for the hyperlink and purchases it. It uses this patent and address translation software to become the middle-man in all accesses to internet resources.
b) Big media and authoritarian regimes limit access to freely available sources. The only access is through media company or national portals.

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Our Central Theme - Future Sighted Google

I guess it did come down to Hamel - companies are often criticised for being short-cited. Not Google - they are always looking at 'blue sky' and repeating the success with targeted search advertising with something else equally impressive.

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Could be yet another interesting diversion for us if we had another month or 2 to do the report. Anyway, test the hypothesis that 'Google is not big overseas'. Could be a cultural thing that they demonstrated they didn't get with street-view. Could be just that being big globally is hard.

O'Brien: Why we'll all soon forget about Google's Android

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Innovation and Risk Taking at Google

Shona Brown is the 'Senior Vice President, Business Operations' at Google.

She wrote Competing on the Edge: Strategy as Structured Chaos:

Brown has made a career of arguing that anarchy isn't such a bad thing--which is why Page, co-founder Sergey Brin, and CEO Eric Schmidt hired her in 2003

(Fortune Magazine)

(Adam Lashinsky. Fortune. New York: Oct 2, 2006. Vol. 154, Iss. 7; pg. 86)

This reference fills in some gaps as to how Google runs its operations. It fits in with our analysis that Google is 'Theory O' and 7s/congruence are tied to their take on the environment and
disruptive innovation:

The way to succeed in "fast-paced, ambiguous situations," she tells me, is to avoid creating too much structure, but not to add too little either.

Our basic narrative of maturity and managing financial and brand risks and how to maintain oversight/governance while still maintaining the devolved organisation structure.

Google is  reminiscent of Enron 'Smartest Guys in the Room' in organisation structure and outwardly ethos.

John


Yes - I still have my posts about 7s in drafts - will also add to report.

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Interactive/digital marketing growth rates

Post from Kate - fits into scenarios. Marketing growth supposedly trails economic growth (ref needed), so growth in digital may continue growth path (ref needed). I suspect not as quickly as in the past though:

CMOs report reduction & shift in marketing spend to digital

According to recent research by Epsilon "Chief Marketing Officers at many of the biggest brands in the nation [USA] are seeing a major shift in the marketing landscape. Almost two-thirds (63%) of the 175 marketing executives surveyed see an increase in their spending on interactive/digital marketing while 59% report a decrease in traditional marketing spend."

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Evolutionary Advantage

I was researching Google organisation structure and came across this interesting perspective on Google from leading corporate strategy theorist Gary Hamel - circa 2006 (Opinion – Wall Street Journal).

Hamel discuss Google novel management system (evolutionary advantage) which attributes to why it revenues grew (which it has) and could grow more. He compares 4 Evolutionary risk factors that typical businesses fail at against that of Google.

The 2nd last paragraph about the evolution of Google is quite a convincing summary – so much so that it made me question that maybe Google is on the right track with its strategies??? and should we be considering in our report that no changes should be made???

This article would be a good cross check on some of our ideas

http://online.wsj.com/public/article/SB114601763677436091-RZdaVtvykRAz4EhCKs0KervA0Eo_20060503.html?mod=blogs

Google Sites Supporting Google AdSense

Google Sites Supporting Google AdSense

Analysis by product makes it seem a myth. The 70-20-10 rule mentioned in the Google annual report that is. Maybe it is different by expense?

"We are still keeping to our long-standing plan of devoting 70% of our resources to search and advertising. We debate where we should classify our Apps (Gmail, Docs, etc) products but they
currently fall into the 20% of resources we devote to related businesses. We use the remaining 10% of our resources on areas that are farther afield but have huge potential, such as Andriod."

The report says 'search and advertising' but most of the search applications don't have any advertising and there is not much revenue from search. I can only see the main search engine and gmail with advertising. The rest nothing...

Android could push mobile use and lead to more visitors, visiting the main search engine site more often and consuming the advertising - the mobile version does have the advertising? The book search does not currently have advertising and as such does not fit into my view of the current e-business model at all.

I started doing the whole-product diagram. I knew of this from Moore although it is similar to the
Kotler 'Three Layer Product Model'. I ended up with 4 as I had 'enablers' which are not actual features but are important to Google. Also, maybe, I didn't study it hard enough. Most of the products on the Google product list I didn't find a spot for.

This has thrown the idea that everything fitted nicely together around advertising (the 70) into disarray. Help - how does it all fit together?

Full Size


Google Product descriptions

Product	URL	Advertising	Competitors	Description	Price	Competitive play	business case
Alerts		No				compliments search
Blog search		No
book search		No	reuters, proquest, amazon			compliments search
catalogs		Yes – but free	salmat au – lasoo.com.au	shopping catalogue site		compliments search
custom search engine		No		search proliferation
desktop		No
directory		No
earth		No
finance		No
gears		No
images		No
language tools
maps
personalised search
product search
scholar
sketchup
toolbar						Positions the search engine countering owners of applications control
web accelerator
web search
Ads
adsense
adwords
analytics
Applications
apps		Yes – gmail				Entry + education + business + partner (portals) editions
blogger		No – user option through adwords				Develop on-line communication – potentially replace office documents
calendar		No				Develop on-line practise
checkout		No	PayPal, card providers, bpay (Aus), Western Union			Payments play? Become an e-commerce player
code						Potential for advertising. Support software development . Potential access to software creators. Perhaps an 'app-store' concept will develop?
Docs & spreadsheets		No				Develop the habit of using web-applications? Demonstration?
gmail		Yes – gmail			$USD20/yr = 10Gb, $50/yr/account professional
groups		No – only google products				?? - brand?
labs						brand/innovation. Improvements to applications
news		No
notebook
orkut		No	facebook			Facebook has adverts, sells stakes in business to content sharing partners
pack						Desktop version of picassa
picasa		No
picasa web albums		No			Storage
reader
talk
translate						Value-add to search
video
webmaster tools
youtube		No – only google products				Value-add to search
Enterprise
earth for enterprise/google pro
maps for enterprise
Mini
Search appliance
sketchup pro
Mobile
Mobile
dodgeball

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Microsoft launches 'frequent clicker program'

Up the competitive ante in search - Microsoft air miles plan to attack Google - Financial Times

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Does Google Need to Reign in it's ambition

Solving everything is not strategy.

San Francisco Chronicle describes how solving global warming, mapping the moon might be 'non-core'. Google founders respond by saying that such things will not divert significant resources.

Positives for being involved in environmental initiatives are managing sustainability issues from i) huge amount of energy that Google uses in data centres ii) good PR.

"Martin Pyykkonen, an analyst with Wunderlich Securities, said he wasn't worried about Google getting distracted by its expansive portfolio. In terms of products, Pyykkonen said Google's strategy is to throw spaghetti at the wall and see what sticks."

I could not find more basis to Pyykkonen quote - time to go for sirius I guess.

Also here blogger Battelle

"2008 will be the year Wall Street gets frustrated with Google. The company has incredible numbers, and will continue to impress, but analysts, tired of bidding up the stock, will start to question the company's myriad ocean-boiling projects - after all, it's merely trying to reinvent Health, Energy, Telecom, IT (both consumer apps and OSes), and a few other major portions of the GDP"

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Google Buys mungawumba bank - maybe

Might be a bit of gratuitous fun rather than serious scenario. Mungawumba is not real. Diversification strategies brainstorm for the disruptive model?

Google (GOOG) today announced that it would purchase mungawumba bank . "We have taken a look at the banking systems, and today they are mostly I.T. systems, much like all the other applications such as gmail".

The benefits from the merger include:
- banks are really I.T. business these days. Google, coming from a software platform world, has a high level of capability in developing I.T. platforms.
- Google has cash - $15b in cash which could be used to (partially) capitalise a bank - if Buffet is to be believed a good use of Google capital.
- Google could combine a banking business with a e-commerce payments platform - think PayPal. Google already has Google checkout a competitor to PayPal.
- Google could use banking platforms to augment marketing platforms. Think credit card rewards. They *could* combine banking platforms with 'tailored advertising' - providing advertising to people who could do something with it. I think that would be a long way off, they would have to be very careful that people didn't think their financial data was getting away. Microsoft is providing rewards for people using its Live site.

Against:
- Both banking and marketing are cyclical businesses and correlated against economic performance. The current environment demonstrates the cyclical nature of the banking industry and it's relation to economic performance. Economic performance is highly correlated to marketing spend although at this stage in the growth of on-line advertising, the effect on on-line advertising and Google itself is unknown. Financial Times says higher.  PWC via Guardian says lower - up 20% not %38%.
- Google has in recent times had trouble maintaining enterprise levels of service.
- conflicts between banking privacy and selling advertising.
- Banking compliance, regulation. Knowledge of banking (other than Google Checkout)
- Risk management

I was going to take a punt on potential investments. Google is similar in size (market cap $US130b) to a large bank (JPMorgan, Chase & Co - $US157b) (Goldman Sachs market cap $US50.41b)

Financial services of a type is possible. PayPal as a competitor in this market (and maybe Yahoo)- Google seems to be a weak competitor based on market share and features. Opt-out is required for information not to be shared between Google affiliates.

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Google sells a company - performics

http://googleblog.blogspot.com/2008/04/selling-performics-search-marketing.html

They sold 'performics'  - search engine marketing service. Which I am not sure, but guessing is like any of the myriad 'SEO' - experiment with buying adwords, working out what works and tweaking the site to maximise 'natural results'.

I thought it might show strategic direction - but it does not show they built something that became irrelevant - performics came via acquisition to double click. Does not show rejection of a segment - which would be a huge strategic signal. They just think that 'guaranteed results in marketing your product via search engines' would effect the competitive tension in the click advert markets. If they helped people tweak their sites for natural results effect, it would result in lost confidence in the results, and possibly greater exposure as to how to beat the system.

So minor importance I think. Ideas?

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Google future of the internet

http://googleblog.blogspot.com/2008/09/next-internet.html

The purpose of posting this is informing ourselves as to where they see changes happening and what effects there will be on their strategy.

- on-demand/interactive features provided by the internet will spread to other media (video)
- internet as a software platform
- mobile and ubiquitous computing.

I can see that they have been backing up an expected take-up in ubiquitous computing with a strategy that includes 'people management' - empirically. David Carmichael is one of the people I know who now work at Google. They bought out a Sydney University commercialisation company.

Now the information that you would need to know for ubiquitous computing?

And Google will be there, helping to make sense of it all, helping to organize and make everything accessible and useful.

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Stallman on "Cloud Computing" aka GMail

Stallman argues that use of 'cloud computing' at least should be questioned - questioning whether 'cloud computing' is 'a marketing hype campaign'. Quotes Larry Ellison, the founder of Oracle as saying that it is "fashion-driven".

Fits in with Clarke's issue relating to privacy clauses. Stallman continues:

"One reason you should not use web applications to do your computing is that you lose control," he said. "It's just as bad as using a proprietary program. Do your own computing on your own computer with your copy of a freedom-respecting program. If you use a proprietary program or somebody else's web server, you're defenceless. You're putty in the hands of whoever developed that software."

Sorry Roger - I turned off my last mail server last week. CO2 you know - and the hum was driving me nuts.

Negative scenario - people turned off from using on-line applications. Stallman is 55 (according to the above article) - it would be interesting to know how much credibility he has with 'the facebook generation' - gen-y and after.

Positive scenario (for Google) - now I don't have a mail server, so I have a Google habit. Revenue.

Posted to Google.

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Google clipping the viewers ticket - disruptive scenario

Disruptive scenario - ie not business as usual.

Reading the notes from the interview with Clarke - and thinking why the AFR might not be accessible to crawl-bots. I would guess that it is because it is one of the few subscription sites on the web. Following on it would make sense for Fairfax to publish a site-map to Google and if people really want the article they will either pay-per-view or buy a subscription. Aside - I note that AFR took away the pay-per-view option.

Continuing, I would expect that Google is in a strong position as a content intermediary to broker pay-per-view. I am guessing that people would be more inclined to create an account with Google, on the expectation that they could use it in more places than just a single content provider.

Ouch - would like to put that thought back in its box. I'll get kicked off the web.

John

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Telstra on-line advertising revenue grows by 50%

He is some empirical evidence that on-line, in its current state of market growth is relatively recession proof. Will see how it effects our scenarios.

2nd point is that Telstra might be a competitor to Google. Has it's own content sites.

"More experienced companies are coming to see that online and mobile advertising offers much greater return on advertising investment and more accountability, which is vital in trying economic conditions,'' Mr Milne said.

"Our results so far this year indicate that online and mobile advertising is bucking the trend reported by traditional print and television sectors, which are watching their revenues shrink.''

John

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