Google does it again

[DanS]

Regarding JDS Uniphase, weren't its sales based a lot on vendor financing deals?

AFAIK, people are bringing ~ cash money to Google.

[DanS]

Here's a good NYT article about the evolution of Google's advertising system, that some may find interesting. Too long to post in entirety on Poly...

http://www.nytimes.com/2005/10/30/business/yourmoney/30google.html?hp&ex=1130731200&en=a00d00b637033c4a&ei=5094&partner=homepage

[DanS]

Another NY Times article. Most of it is just unwarranted fear of change from different industries, but I do note that it states that Chrysler corporate has a robust keyword purchase campaign, so I think Colon is demonstrably wrong with regard to the Toyotas of the world.

Just Googling It Is Striking Fear Into Companies
By STEVE LOHR

Wal-Mart, the nation's largest retailer, often intimidates its competitors and suppliers. Makers of goods from diapers to DVD's must cater to its whims. But there is one company that even Wal-Mart eyes warily these days: Google, a seven-year-old business in a seemingly distant industry.

"We watch Google very closely at Wal-Mart," said Jim Breyer, a member of Wal-Mart's board.

In Google, Wal-Mart sees both a technology pioneer and the seed of a threat, said Mr. Breyer, who is also a partner in a venture capital firm. The worry is that by making information available everywhere, Google might soon be able to tell Wal-Mart shoppers if better bargains are available nearby.

Wal-Mart is scarcely alone in its concern. As Google increasingly becomes the starting point for finding information and buying products and services, companies that even a year ago did not see themselves as competing with Google are beginning to view the company with some angst - mixed with admiration.

Google's recent moves have stirred concern in industries from book publishing to telecommunications. Businesses already feeling the Google effect include advertising, software and the news media. Apart from retailing, Google's disruptive presence may soon be felt in real estate and auto sales.

Google, the reigning giant of Web search, could extend its economic reach in the next few years as more people get high-speed Internet service and cellphones become full-fledged search tools, according to analysts. And ever-smarter software, they say, will cull and organize larger and larger digital storehouses of news, images, real estate listings and traffic reports, delivering results that are more like the advice of a trusted human expert.

Such advances, predicts Esther Dyson, a technology consultant, will bring "a huge reduction in inefficiency everywhere." That, in turn, would be an unsettling force for all sorts of industries and workers. But it would also reward consumers with lower prices and open up opportunities for new companies.

Google, then, may turn out to have a more far-reaching impact than earlier Web winners like Amazon and eBay. "Google is the realization of everything that we thought the Internet was going to be about but really wasn't until Google," said David B. Yoffie, a professor at Harvard Business School.

Google, to be sure, is but one company at the forefront of the continuing spread of Internet technology. It has many competitors, and it could stumble. In the search market alone, Google faces formidable rivals like Microsoft and Yahoo.

Microsoft, in particular, is pushing hard to catch Google in Internet search. "This is hyper-competition, make no mistake," said Bill Gates, Microsoft's chief executive. "The magic moment will come when our search is demonstrably better than Google's," he said, suggesting that this could happen in a year or so.

Still, apart from its front-runner status, Google is also remarkable for its pace of innovation and for how broadly it seems to interpret its mission to "organize the world's information and make it universally accessible and useful."

The company's current lineup of offerings includes: software for searching personal computer files; an e-mail service; maps; satellite images; instant messaging; blogging tools; a service for posting and sharing digital photos; and specialized searches for news, video, shopping and local information. Google's most controversial venture, Google Print, is a project to copy and catalog millions of books; it faces lawsuits by some publishers and authors who say it violates copyright law.

Google, which tends to keep its plans secret, certainly has the wealth to fund ambitious ventures. Its revenues are growing by nearly 100 percent a year, and its profits are rising even faster. Its executives speak of the company's outlook only in broad strokes, but they suggest all but unlimited horizons. "We believe that search networks as industries remain in their nascent stages of growth with great forward potential," Eric Schmidt, Google's chief executive, told analysts last month.

Among the many projects being developed and debated inside Google is a real estate service, according to a person who has attended meetings on the proposal. The concept, the person said, would be to improve the capabilities of its satellite imaging, maps and local search and combine them with property listings.

The service, this person said, could make house hunting far more efficient, requiring potential buyers to visit fewer real estate agents and houses. If successful, it would be another magnet for the text ads that appear next to search results, the source of most of Google's revenue.

In telecommunications, the company has made a number of moves that have grabbed the attention of industry executives. It has been buying fiber-optic cable capacity in the United States and has invested in a company delivering high-speed Internet access over power lines. And it is participating in an experiment to provide free wireless Internet access in San Francisco.

That has led to speculation that the company wants to build a national free GoogleNet, paid for mostly by advertising. And Google executives seem to delight in dropping tantalizing, if vague, hints. "We focus on access to the information as much as the search itself because you need both," Mr. Schmidt said in an analysts' conference call last month.

Telecommunications executives are skeptical that Google could seriously eat into their business anytime soon. For one thing, they say, it will be difficult and expensive to build a national network. Still, they monitor Google's every move. "Google is certainly a potential competitor," said Bill Smith, the chief technology officer of BellSouth, the Atlanta-based regional phone company.

The No. 1 rival to phone companies in the Internet access business, Mr. Smith noted, is the cable television operators. "But do I discount Google? Absolutely not," he said. "You'd be a fool to do that these days."

In retailing, Google has no interest in stocking and selling merchandise. Its potential impact is more subtle, yet still significant. Every store is a collection of goods, some items more profitable than others. But the less-profitable items may bring people into stores, where they also buy the high-margin offerings - one shelf, in effect, subsidizes another.

Search engines, combined with other technologies, have the potential to drive comparison shopping down to the shelf-by-shelf level. Cellphone makers, for example, are looking at the concept of a "shopping phone" with a camera that can read product bar codes. The phone could connect to databases and search services and, aided by satellite technology, reveal that the flat-screen TV model in front of you is $200 cheaper at a store five miles away.

"We see this huge power moving to the edge - to consumers - in this Google environment," said Lou Steinberg, chief technology officer of Symbol Technologies, which supplies bar-code scanners to retailers.

Such services could lead to lower prices for consumers, but also relentless competition that threatens to break up existing businesses.

A newspaper or a magazine can be seen as a media store - a collection of news, entertainment and advertising delivered in a package. A tool like Google News allows a reader or an advertiser to pick and choose, breaking up the package by splitting the articles from the ads. And Google's ads, tucked to the side of its search-engine results, are often a more efficient sales generator than print ads.

"Google represents a challenge to newspapers, to be sure," said Gary B. Pruitt, chief executive of the McClatchy Company, a chain of 12 newspapers including The Star Tribune in Minneapolis and The News & Observer in Raleigh, N.C. "Google is attacking the advertising base of newspapers."

At the same time, Google and search technology are becoming crucial to the health of newspapers as more readers migrate to the Web. As one path to the future, Mr. Pruitt speaks of his newspapers prospering by tailoring search for local businesses, but also partnering with search engines to attract readers.

Within industries, the influence of Internet search is often uneven. For example, search engines are being embraced by car companies, yet they pose a challenge to car dealers.

George E. Murphy, senior vice president of global marketing for Chrysler, said Chrysler buys ads on 3,000 keywords a day on the big search sites: Google, Yahoo, Microsoft's MSN and AOL, whose search is supplied by Google. If a person types in one of those keywords, the search results are accompanied by a sponsored link to a Chrysler site.

Chrysler refines its approach based on what search words attract clicks, and studies its site traffic for clues on converting browsers to buyers. "We've got Ph.D.'s working on this," Mr. Murphy said. "The great thing about search is that you can do the math and follow the trail."

After following a link to a Chrysler Web site, a prospective buyer can configure a model, find a dealer and get a preliminary price. Only dealers can make final price quotes. Yet with more information on the Web, the direction of things is clear, in Mr. Murphy's view. "It will fundamentally change what the dealer does, because telling people about the vehicle won't add value for the customer anymore," he said. "If dealers don't change, they'll be dinosaurs."

Mr. Breyer, the Wal-Mart board member, watches Google closely in his job as managing partner of Accel Partners, a venture capital firm in Silicon Valley. These days, he advises startups to avoid a "collision course" with Google, just as he has long counseled fledgling companies to steer clear of Microsoft's stronghold in desktop software.

Internet search, like personal computing in its heyday, is a disruptive technology, he said, threatening traditional industries and opening the door to new ones. "We think there is plenty of opportunity for innovation in the Google economy," Mr. Breyer said.

[Kuciwalker]

I saw that. I think it's right, Google has the potential to vastly increase efficiency in the American economy.

[Colonâ„¢]

Yup, ads for shops.

[JohnT]

Originally posted by DanS
Marketwatch has the market cap at $103.4 billion. Wonder if the discrepancy lies in the secondary offering.

http://www.marketwatch.com/tools/quo...tw&dist=mktwqn

I got my number at finance.yahoo. It could've been calculated based upon the previous days close...?

[DanS]

Could be. Marketwatch now puts the market cap at $114.32 billion.

[DanS]

Originally posted by Colon
Yup, ads for shops.

Do you want to argue this again? The article that I quoted proves you wrong. It's not just ads for shops.

[DanS]

Here's an interesting article about web advertising from the WSJ...

Top Web Sites Build Up
Ad Backlog, Raise Rates
Prime Spots Are Sold Out
Months Ahead as Marketers
Shift Dollars From TV, Print
By JULIA ANGWIN and KEVIN J. DELANEY
Staff Reporters of THE WALL STREET JOURNAL
November 16, 2005; Page A1

As marketers shift dollars from TV and print media to the Internet, more Web sites are hanging "sold out" signs on their most coveted pages and dramatically raising ad rates.

The front pages of Yahoo Inc., Time Warner Inc.'s AOL and Microsoft Corp.'s MSN are sold out on big display ads for months in advance, ad buyers say. Web sites offering car-buying tips are booked so far in advance -- up to 18 months in some cases -- that they are selling ads for next year in a process similar to the way network TV spots are sold.

"We have a supply issue," says Joanne Bradford, chief media revenue officer at MSN.

The surging demand is allowing big rate increases at the largest portals, the prime beneficiaries of the growth. Yahoo said last month that prices increased by "double digits" in the third quarter from a year earlier, while AOL says prices for some ad units have increased as much as 20% since January.

MSN says it currently charges between several hundred thousand dollars and $1 million for a prime, 24-hour ad spot on its home page. That's up from about $25,000 to $50,000 four years ago.

"It's starting to get into Super Bowl territory," says Sean Finnegan, U.S. Director of OMD Digital, a unit of Omnicom Group Inc. that buys ads for clients such as Dell Inc. and Johnson & Johnson.

By contrast, the average price of a 30-second TV ad for last February's Super Bowl was $2.4 million, while a full-page color ad in People magazine costs $228,275. A 30-second spot on this week's episode of ABC's "Desperate Housewives," which had 26.5 million viewers, cost $574,504, according to Nielsen Monitor-Plus.

Though the Web has long been touted as a potentially lucrative market, many big advertisers have been tentative about wading in, unsure of how effective it is and uncertain about making online advertisements as flashy and engaging as those in other media. But advertising executives and Web publishers say that has been changing as the number of Americans using the Internet continues to grow and technologies such as broadband Internet access allow snazzier ads.

In the first half of 2005, U.S. advertising spending online increased by 26% to $5.8 billion, according to data compiled by PricewaterhouseCoopers LLP for the Interactive Advertising Bureau, an online trade group. Growth for the entire ad market was 4.5%, according to market-research firm TNS Media Intelligence.

In all, PricewaterhouseCoopers estimates that Internet ad spending for 2005 will total as much as $12 billion. That compares with $9.6 billion in 2004 and $6 billion in 2002.

Similar growth -- and advertising backlogs -- occurred during the dot-com boom during the 1990s, with online sales peaking at $8.1 billion in 2000. But advertisers and Web publishers say the resurgence bears fewer markings of a land grab and more evidence and better measurements of usage and what works online.

"In 1999, there was no research and people were chasing fear and greed," says Greg Stuart, president of the Interactive Advertising Bureau. "Now there's good data, plus marketers with their own real experience."

To be sure, the Internet still represents only a small share of the U.S. advertising market. Online advertising revenue accounted for just 3.7% of total U.S. ad spending in 2004 -- up from 3% in 2003, according to the PricewaterhouseCoopers report.

Moreover, most of the benefits are going to the top Internet portals. Despite the Internet's vast size, the biggest 50 Web companies are attracting 96% of the ad spending, according to PricewaterhouseCoopers. Most goes to the top four portals -- Yahoo, Google, AOL and MSN.

That dominance reflects the emergence of portals' ad offerings as the closest online equivalent to mass-market media spots. Daily unique visitors range from 2.9 million at Google to four million at Yahoo, according to October data from research firm comScore Media Metrix.

Still, the rising tide of ad dollars is lifting some smaller boats. The shortage of premium spots is driving advertisers toward smaller targeted Web sites that capture niche audiences and even into what is known as "remnant inventory," or otherwise unwanted spots across a wide array of Web sites.

Prices for remnant advertising increased about 3% in the third quarter from the second quarter, according to a survey of media buyers by Deutsche Bank analyst Jeetil Patel. Unlike premium sites, remnant advertisers have no shortage of space available.

"If you want to jump onto the [advertising] networks, you can buy until the cows come home," says Sarah Fay, president of Isobar U.S., the online media buying division of Aegis PLC.

Demand for premium ads is strongest for Web sites that feature content about movies, autos, travel, consumer electronics and personal finance. Many of them have far fewer daily visitors than a prime-time network TV show. But marketers say targeted online advertising is often a more effective way to reach consumers researching a subject and poised to make a buying decision.

For instance, only 1.5% of the population is in the market for a new car or truck each month, says Betsy Lazar, general director for media and advertising operations for General Motors Corp. But, she says, "about 70% of people in the market for a car go online, so it's logical that we need to go there."

Among the hottest current ads are 15-second commercials, known as "broadband inventory," that usually run at the beginning of online videos. "We have ad agencies telling us we'll take every broadband impression you can give us," says Wayne Gattinella, president and chief executive officer of medical information site WebMD Health Corp., which is launching a new broadband format on its home page this month.

Mr. Patel, the analyst, says many advertisers are seeking to reserve ad inventory earlier to lock in rates, but that Web publishers have an incentive to hold out for higher prices later. "Publishers are getting smart and realizing if you sell too far in advance, you leave a lot of money on the table from a pricing standpoint," Mr. Patel says.

Indeed, demand has spurred a debate over whether the Internet could benefit from the "upfront" model for ad sales pioneered by the television networks. Under that model, the broadcast television networks sell 75% to 80% of their spots for the coming year during one week in May. The advantage is that networks can sell packages requiring advertisers to buy time during less popular shows in order to get spots during more popular shows.

The big Web portals already are selling some ad packages. Yahoo, for instance, sometimes requires advertisers to buy ads in other parts of its site before it lets them buy ads for its home page or other pages in high demand.

Wenda Harris Millard, Yahoo's chief sales officer, says "the tightening of inventory has given us a real opportunity" to show advertisers how to reach consumers in places other than the most-demanded pages.

MSN negotiates ad placements on premium parts of its site every June for the following 12 months. Prime ad real estate, such as the front page and spots geared to financial, automotive, retail, health and fitness, and telecom advertisers, can sell out in a matter of hours for the following year, Ms. Bradford says.

AOL's head of ad sales, Michael Barrett, says, "We have to take a risk in reserving our inventory in advance," but says that overall the idea of upfront sales benefits the Internet as a whole. It shows that "online has indeed moved to the grownup's table," he says.

Some specialized auto Web sites, such as Autobytel, Cars.com and Kelley Blue Book, started using online upfront sales several years ago. For them, it's not an organized event like the television upfront, but a series of individual negotiations between auto manufacturers and Web sites. Autobytel says it sells about 80% to 90% of its inventory for the following year during the upfront, for instance, while Cars.com says it sold 86% of this year's inventory up to one and a half years in advance.

Other sites resist the model. Sarah Chubb, president of the Internet division for magazine publisher Condé Nast, says she is reluctant to sell inventory far in advance. "A lot of these guys are asking if we offer an upfront opportunity," she says. "To date, our answer is 'no'...An upfront becomes de facto a conversation on pricing."

Google is something of an exception because it has a different model from the big portals. Where other portals rely more on certain highly viewed pages, Google links its ads to keywords in Web searches and other online content; the ads are displayed when consumers view related content. Google doesn't have a static amount of places to put ads. Rather, advertisers bid in an auction to have their ads displayed when consumers view relevant content and generally pay only when a consumer clicks on the ad. Such ads can appear on sites ranging from AOL to a one-person Web log.

"It's agnostic toward inventory," says Tim Armstrong, Google's vice president of advertising sales. "It could be a home page, it could be page 4,326. Our inventory basically grows along with the Web."

Meanwhile, the medium keeps changing. For instance, technologists are rushing to offer advertisers new ways to track viewers called behavioral targeting. This targeting can let a car advertiser, for instance, follow a potential customer from the front page of Kelley Blue Book, which provides data on new and used cars, to other Web sites and place their ads on those sites.

Yahoo already uses such technology to display banner ads that relate to keyword phrases that consumers have used for searches during the previous 48 hours -- even when they moved on to other parts of its site. A consumer who searched for information about cars on Yahoo's search engine might see ads for autos when viewing Yahoo's finance pages.

[DanS]

GOOG above $400 for the first time. Market cap at $118 billion. Getting a little frothy...

http://www.marketwatch.com/tools/quotes/quotes.asp?symb=goog&siteid=mktw&dist=mktwqn

I would like some clarification on our bet. It is my understanding that the market cap in November, 2007, is what we are looking at. If the market cap were to decline in the meantime to less than $50 billion, but then increase to over $50 billion at November, 2007, I would win. Is this also your understanding?

[Colonâ„¢]

If that happens we'll play rock, paper, scissors, fine by you?

[DanS]

No, let's decide which it's going to be right now. The two bets would be very different.

[DanS]

FYI, according to the WaPo, Craig Venter was hired by Google to map the genome of all life on Earth. He was the guy who applied mathematics and supercomputers to map the human genome. The business that he founded ended up basically being a human genome search engine (Celera and Applera), but eventually went out of business.

I doubt it will have much impact business-wise for Google, but I thought it was interesting how non-linearly Google thinks.

[Colonâ„¢]

I'm fine with your understanding of the bet.

[DanS]

OK, this should be a good bet.

The share price is likely to be a roller coaster.