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Takeaways from Google's 4Q09 earnings

Google generated probably the strongest annual revenue growth, 17%, of any large U.S. company this past quarter. 

  • Given that Google is exceptionally non-transparent, the minimal guidance and insight that Google is required to provide as a public company always provides a rare glimpse into what is really going on at Google

What are the big takeaways from the earnings call?

First, Googleopoly continues to gobble revenue market share at a voracious rate because we know Google's revenues are up 17%, and Google's only significant competitors, Yahoo and Microsoft are continuing to lose ground, (as Yahoo is expected to report a revenue decrease on Tuesday so its search revenues can be assumed to badly lag Google's 17%, and Microsoft Bing's modest search share gains are not keeping up with Google's torrid search growth in a weak economy.)

Second, Googleopoly continues to show strong evidence of its dominant market power in pricing as its revenue growth of 17% is outpacing its paid click growth of 13% -- by roughly 30%. There is no stronger evidence of monopoly power than pricing power and Google clearly has pricing power aplenty.

  • Google is very good about keeping its pricing power hidden from public view by letting no relevant market information escape Google's "Black Box" auction process.    

Third, Google's CEO Eric Schmidt reaffirmed that Google is on an acquisition spree with some "big" buys coming -- and with almost $25B in cash and roughly $10B in annual free cash flow -- Google can afford to buy most whatever it wants.

Google blunders in highlighting Apple-Quattro

Google unwisely chose to trumpet Apple's purchase of Quattro as evidence that the mobile advertising market is competitive -- and by implication that the Google acquisition of Admob therefore should be approved.  

First, the FTC surely remembers that Google CEO Eric Schmidt indignantly said only last year that Google and Apple were not competitors, so there was no reason for Mr. Schmidt to have to step down from Apple's board, despite an FTC antitrust investigation into potentially illegal Google-Apple inter-lockiing directorates.

Google's Biggest Customers Oppose Goohoo Ad Pact!

Google, you have a problem. The verdict of your biggest customers is in -- and you've been found guilty of not pursuing your clients' best interests.

  • The ANA, the nation's largest association of advertisers and marketers representing ~9,000 brands, just wrote the DOJ formally recommending that the DOJ oppose the Google-Yahoo advertising partnership as anti-competitive.  

I have two big takeaways for you:

  • First, despite the ANA letter, Google continues to claim that Google knows better what's best for their advertiser clients than their advertiser clients do.
  • Second, at core, the DOJ is investigating the Google Yahoo ad pact for illegal price fixing collusion; this is relevant because DOJ antitrust chief Tom Barnett has stated that prosecution of price fixing is his Division's highest enforcement priority.

First Takeaway: Google clearly doesn't subscribe to the old adage -- the customer is always right. Google knows best and isn't afraid to tell most of its biggest customers they are wrong -- in public. 

Rather than publicly respond to the anticipated ANA letter with respectful comments about how Google looks forward to better explaining how the ad pact will benefit Google's customers, Google essentially wagged their finger at their customers in public telling them they don't know what's best for themselves.  

Google's online advertising dominance grows -- Don't forget the pending DOJ investigation...

Google's dominance of the Internet's business model for monetizing content only grows.

  • "Gap widens in online advertising: Rivals struggle to catch up to Google as buyers favor search over display" reports Jessica Vascellaro in the Wall Street Journal.
  • The article's conclusion is dead on and ominous -- the gap between Google and its competitors in online advertising is widening and will continue to do so because the business that Google dominates, search advertising, is growing significantly faster than display advertising is.

As I read the article, I thought many involved in the FTC's investigation and subsequent 4-1 approval of the Google-DoubleClick merger must be getting awfully worried that they made a big mistake in not appropriately enforcing antitrust law last year when they had the opportunity.

Google Knol: The World's Editor-in-Chief & Omni-Publisher? Can you say "Dis-intermediation?"

Knol, Google's newly announced online publishing service, is an ominous direct competitive threat to traditional newspaper/magazine/journal publishers, NOT a challenge to Wikipedia as many in content circles naively and wishfully think.

  • Like the frog that has the good sense to jump out of boiling water, but who can be lulled into a false sense of security and get cooked if the tempature increases gradually...
    • ...publishers of all types currently have a false sense of security that Google is targeting Wikipedia and not them because Google has YET to really monetize Google News or YouTube.

Wake up publishers/editors! Google, with by far the world's largest:

Takeaways from Google's earnings call

Growth: 39% YoY revenue growth on a ~$20b base, in a slowing global economy is impressive. Hats off to Google. Lots of network effects at work as Google sites revenue grew 42% YoY.

Tone: I did note the slightest whif of humility this quarter that external factors had some effect on Google's business, in stark contrast to last quarter's more bold statement that Google saw no effect of the external market or economy on Google's business.  

DoubleClick: As I suspected, CEO Schmidt said in an answer to a question, that Doubleclick was going well but that he would not break out any information -- in Google's well-established sorry-Charlie-style... no insight or guidance for you... The only thing interesting that was said about DoubleClick was indirect, in that Sergey Brin said that the big problem in display is that it is highly-fragmented." Couple that with CEO Schmidt indicating that Google was only months away fom offering a one-stop advertising solution, one can surmise that Doubleclick will indeed prove to be a material growth kicker to help Google fight off some of the natural drag of the law of large numbers.  

Mention most worth follow-up: In Q&A my ears perked up when the CFO explained part of a cost jump was "legal costs" and CEO Schmidt chimed in that these costs were "bursty." I am amazed that a $20b company that gives minimal detail would mention that legal costs were a factor. Do you know how unusually big a legal number has to be to pop up in an earnings call? Did they settle some case that we don't know about? or is the Viacom-Youtube discovery work a lot more costly than Google has let on? Something is amiss and worthy of followup.   

J. Edgar Google: Information Is Power + No Accountability

Kudos to Danny Dover's tremendous post: "The evil side of Google? Exploring Google's user data collection" where he comprehensively assembles all the types of personally-sensitive-information that Google routinely collects on Internet and Google users.

  • Mr. Dover also exhibits exceptional clarity of thought in describing Google as "first and foremost a data company" despite conventional wisdom that describes Google as a search engine company or despite Google's description of a technology company. 

Why is J. Edgar Hoover/J. Edgar Google an apt analogy? 

Conflicted Google is crushing it's third party accountability -- ComScore payback?

In entering the web measurement business for free, Google is literally killing many birds with one stone -- ComScore, Nielsen, Google's third party accountability, and any notion that Google does not have a badly conflicted business model. 

The Wall Street Journal article by Emily Steel: "Google to offer tool to measure web hits" is a solid and illuminating article that starts to get at the serious conflicts of interest at work here.

First, did any of you connect the dots that Google's press leak crushed ComScore's stock today (which is down over 20% at this writing) ... the same ComScore that investors used to drive Google's stock down in 1Q08 out of fear that click rates were down with the economy?

Great piece on academic's concerns about Google's influence -- in Boston Globe

Drake Bennett of Boston Globe did a great job of highlighting some fresh new concerns about Google's extraordinary influence that I had not heard before -- see "Stopping Google."

  • Here's the conclusion of the piece in order to encourage you to read the whole article:
    • "But there is a reason "Google" has become a verb: Google has so outpaced its rivals that it has begun to look like a monopoly, a necessity where users have only one real option. And the more we come to rely on Google, the more Google may have to listen to the rest of us."