How Google Could Collapse

Summary: more people are blocking ads and starting product searches at Amazon, so Google will lose their core business.

And yet, the growth of Google's core business isn't declining and it hasn't even leveled off -- growth is actually accelerating!

Year-over-year revenues are growing faster now than they did last year.

Same thing with earnings.

And margins are expanding instead of shrinking.

Source: https://abc.xyz/investor/news/earnings/2017/Q1_alphabet_earn...

Not exactly what you'd expect to see from a business model in decline.

Maybe.

My own experience is quite the opposite, though. As a user, I dislike ads and run uBlock Origin everywhere.

But as a seller (Amazon FBA), I have found Google Ads to be incredibly effective. Much more so than Sponsored Products on Amazon, which goes on to suggest that not all product searches start on Amazon.

Also, using Amazon tools for sellers is not a very pleasant experience. Everything is either broken or extremely complex, or inconsistent, or all three at a time. And let's not mention MWS (just look at the API documentation, it doesn't seem to have been updated since 1999).

AWS is still fantastic, but clearly Seller Central wasn't built - and isn't maintained - by the same team!

I think it's very possible that Amazon could collapse on its own weight -- if for example amazon.com became unavailable for a few days, and then had a hard time coming back up, etc.

Amazon is a machine of infinite complexity, and the way they deal with it is to add more people, which makes it super bureaucratic (very far from the lean mean machine they project to the outside world).

We'll see.

It is obvious the author doesn't understand advertising. Honestly, skip this one. Here is a list of problems:

* OP is constantly misunderstanding the difference between search, shopping, display, native, and social.

* Unsubstantiated claim that youtube has 'insurmountable' problems

* Display ads having 0.06% is irrelevant - the goal isn't clicks

* Random claim that google lost a major portion of its audience already?

* "Google already missed its chance to pivot" with literally no explanation or justification at all.

* Alexa has clear monetization strategy, but google home doesn't?

This is a clickbait blog pretending to be a hit piece. Come on guy, you can do better than this.

For context, Here's Alphabet's quarterly financial results released yesterday:

https://abc.xyz/investor/news/earnings/2017/Q1_alphabet_earn...

Revenue is up 24% year over year. Beat analyst expectations, so the stock jumped ~4% yesterday.

I find it hilarious that people think something like Alexa / Google Home is anything but a gimmicky ad, let alone the future of computing. Like other ad supported content--Gmail for example--it has some useful features. Also like other ad supported mechanisms of the past, it's a huge invasion of a user's privacy for little gain. When this thing is actually "smart" (whatever that means) enough to do something useful without phoning back to Amazon and when that thing isn't just buying useless shit from Amazon, let's revisit. Until then, let's remember that this is just another medium for advertising. Nothing more. Nothing less. Google does, however, specialize and excel at one thing: advertising. I wouldn't count them out just yet.

I guess it's hard to predict the future. This was published 4 days ago, before earnings released showed that the author has no idea what they are talking about.

As an intern at Google back 7 years ago, a fairly senior developer that I liked working with told me something that really stuck with me: "Google found a hose that money pours out of, and it's called Online Advertising. All that we do now is try to make that hose work better, and try to find another hose."

I think the premise of this article is that Google's money hose is drying up and it seems they may not have found another hose.

Related: Here is an interesting piece from Benedict Evans, where he argues that there are currently many reasons voice technology isn't ready to be the next platform.

http://ben-evans.com/benedictevans/2017/2/22/voice-and-the-u...

An excerpt:

"There's a set of contradictions here, I think. Voice UIs look, conceptually, like much more unrestricted and general purpose interfaces than a smartphone, but they're actually narrower and more single-purpose. They look like less friction than pulling out your phone, unlocking it, loading an app and so on, and they are - but only if you've shifted your mental model. They look like the future beyond smartphones, but in their (necessarily) closed, locked-down nature they also look a lot like feature phones or carrier decks. And they're a platform, but one that might get worse the bigger the developer ecosystem"

There isn't enough evidence to back up his claims, especially about artificial intelligence. His claim that Amazon with Alexa will succeed in the marketplace is not definite at all. It's true Alexa has a head start, but Google is catching up to it. The situation kind of reminds me of android in 2010 vs. the iPhone. Look what happened there.

Unnecessarily alarmist. It's true that Google isnt making free ad money anymore and other companies are viable threats unlike Yahoo and Microsoft of 2004. Google has lots of monetizable balls in the air - Cloud, Pixel line and few others.

Have we stopped evaluating companies based on vision and expectations? Because mapping all of reality is a pretty solid strategy that Google is striving for.

"Ads are cool as long as they are relevant to me," said no one ever (who wasn't in the business of selling online advertising).

(EDIT: typo)

I don't think the collapse of advertising is necessarily a collapse of Google. Google (Alphabet, really) has so much IP and many other possible ways to grow that if crap hits the fan they can change course. Not to mention they do seem to be generating plenty of revenue to keep people interested in buying their stock. So long as Wall Street is willing to bear the weight of their ventures then I don't see Google going away any time soon. More likely is that Google eventually leaves the advertising business as it becomes less relevant to their bottom line just like how Amazon isn't about books as much anymore (they still sell them, but they got so many other revenue streams that if books as a market cratered they wouldn't go bankrupt from it). When that "eventually" will happen I can't say but I'll say I'd be surprised advertising would be relevant to them in twenty years beyond a marginal line of business.

Google won't collapse because:

Mobile search is likely to be replaced by agents, and google controls one of the best AI agents and the world's most popular operating system.

Users hate ads but they don't necessarily hate paid responses to search queries, if they are appropriate. That business is not going away soon.

Also, just because YouTube isn't yet profitable doesn't mean it could be made profitable. The Author talks about how Amazon has surpassed google for product searches. Amazon was not profitable for a long time to prioritize growth. I think you can see the same thing with YouTube.

And, oh yeah, they get a cut of a store that is projected to have $42B in revenue in 2021. (https://9to5mac.com/2017/03/29/app-store-android-app-market-...)

This also came out today:

https://venturebeat.com/2016/07/28/google-parent-alphabet-re...

So short it

Its actually far more likely that the app economy would collapse well before any sort of "ads economy" collapse.

When I search for a product I use google because why would I want to restrict my potential sources just to Amazon?

Relevant Taleb tweet: "A man is honorable in proportion to the personal risks he takes for his opinion."

why is 35-44 years group least likely to use adblockers? looks odd to me compared to older groups

https://cdn-images-1.medium.com/max/1000/1*o6B3OtXfG9pqwRDru...

I enjoyed the way the author laid it out, it illustrates the problem Google has, and I tend to watch Google's responses fairly closely. But in full disclosure mode, if this is the first you've heard me say this, and it isn't :-), I also believe that Google's inability to create a business outside of search advertising has put them in this spot.

I would also like to address a common response to the 'Google is doooomed' thesis, which is "Hey, look their revenues are going up and up, you would be stupid to think they were doomed!"

I've asserted for several years here that Google's core advertising business is rotting from the core outward. And I used as the basis for that tracking their reported "cost per click" erosion and their "paid traffic" growth.

The reasoning is pretty simple; At the most basic level Google puts an ad out there, and when that ad is 'clicked' [1] they collect a fee. And if you are familiar with the history, this was revolutionary where advertisers could pay only when someone demonstrably both saw their advertisement and indicated an interest in it with a click. And initially it was wonderful and then bad guys figured out they could insert themselves in the middle, selling advertising space to customers at a price per click and then buying the ads on google can clicking on them with their own computers and collect some ad revenue off the top. Easy riches except that the ads massively underperformed because most of the clicks on them were fraudulent. And that begat a war that continues to this day and has lead to a general disillusionment with online advertising.

So people get disillusioned, but as advertisers are setting the prices and budgets they show this by being unwilling to pay more for ads that they aren't sure will be effective. And since Google's system is auction based their pulling back results in the average price Google can get for a 'click' to go down. At which point Google has three choices, eat a revenue loss (not really a choice), give them more opportunities to buy ads, or increase the number of people who are getting a chance to click.

Google started by bringing more people in contact with their ads by "buying" traffic. The way that works is you find a web property where people are accessing the Internet and you pay the proprietor money to only show your ads to their traffic, or to move their traffic to your web site. So in the case of Firefox they paid mozilla to send their search traffic to Google, in the case of Apple they paid to have all of iOS search traffic go to Google by default. In all these cases you "lose" a bit by increasing your traffic acquisition costs (that money comes out of ad profits) but if you get more clicks from that traffic than you paid for it, you can cause your revenue number to increase. As the effectiveness of buying traffic has declined (and there just aren't that many sources out there and Microsoft is also paying for traffic so you end up paying more and more for less and less valuable traffic) and the cost has gone up, they moved on to stage two.

Stage two was to start increasing the number of ads you had exposure to when you landed on Google sites. You look at how hard people work to be in the first few search results on the page, well advertisers want to be in the first few ads. You can also create other ways to pay to play like, for example, charging advertisers a monthly fee in order to enable them to appear in a 'shopping box' result that appears on what looks like a shopping search query assuming they bid enough on their ad to show up there. Search engine result pages (SERPs) for shopping 'like' queries progressively got fewer and fewer organic results and turned into mostly ads. Google stopped surfacing organic web pages or web sites from their index that their algorithm told them were the best results for a query in favor of people who had paid to be on the page in the event a given query or keyword was entered. More ads to click, heck pretty much anything you clicked on the page was an ad, and revenue goes up.

Of course there are limits to how far you can take this, and the article pointed out that people are pretty fatigued from all of the advertising. As you block more ads and start avoiding things that are just ads in favor of perceptually "better" web sites, revenue should drop at Google. And I was surprised it didn't, but then I read this article : http://www.cnbc.com/2017/04/27/alphabets-google-unit-grabbin... The CNBC folks had noticed that Google's ad revenue from its own sites was growing faster than its partner sites. And that tells me that Google had a third strategy which was "reduce the share of ad revenues to partners." Which really sucks for partner sites and adds commercial sites to the list of people complaining that their AdSense revenue reduced to a trickle over the last 5 years.

Google burns though an extraordinary amount of cash. Its partly due to the nature of their business and its partly due to the way they are investing looking for new opportunities. The unanswerable question is what happens when Google runs out of ways to offset their ad profit margin declines and have to show a reduction in revenue Q/Q and then Y/Y? I don't think they will 'Collapse' any more than IBM collapsed when the computer market stopped carrying the load for them. But will be an extraordinary test on their leadership to avoid setting up a Blackberry like slow descent into near obscurity.

[1] Yes there are CPI models as well but historically they are both lower paying and a smaller fraction of revenue.