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Comment by satvikpendem | Hacker News Reader

> All their revenue came from ads, and they loss-led other projects. Great, market has matured from that.

Has it? Seems like Google still makes most of their money via ads and everything else is a loss leader.

Google has been trying very hard to diversify, mostly through Cloud.

How well they are succeeding at that is up to interpretation but they are chipping away at Ads' percentage of revenue. It used to be higher than 85% but as of 2022 it's down to only being 58% of operating revenue[0].

0. https://www.cnbc.com/amp/2021/05/18/how-does-google-make-mon...

That's an article from 2021 that says ads were 80% of revenue

When companies figure out that cloud is a waste of money, this might not work.

Which mid to large companies have made this decision so far? I know there's Facebook, but their use case is exceptional.

Yes Google is still less diversified than its peers. Cloud and YouTube (edit: and Pixel phones?) are profitable afaik. The overall tech market has matured is what I meant; it's no longer time to loss-lead everything.

Not sure I’d characterize YouTube as a diversification from ads.

It is though. Being an ad supplier is different from being an ad exchange. Or would you describe the New York Times or HBO as "ads businesses"?

By that standard, Search is also a diversification from ads.

But it's not a diversification from what they've always done.

Sure. Why not.

I'm not into watching streaming services or TV for that matter, but that would be news to me. Does YT now produce own exclusive content? I think they don't 1. to keep content producers running their stuff on YT rather than acting as competitor 2. to avoid yet another reason for antitrust action (ie. the bad looks of extending their monopoly)

There was something called "YouTube Originals" that's been discontinued but I didn't consider that central to the point I was making.

Cobra Kai started on "YouTube Red" which I think was renamed "YouTube Premium"

Then it went to Netflix where it became a big hit.

There was another show I liked named Ryan Hansen Solves Crimes on Television. They constantly broke the third wall making fun of YouTube Red being confused with some kind of adult content service.

HBO is paid programming with product placement at most, and NYT sells subscriptions that actually bring in the majority of their revenue. If it were 90% ads, I'd say yeah they might want to reconsider that.

YouTube has its own content while Search ofc doesn't, and its advertising model is different. I wouldn't lump it in with Search. But still, they've decided ads aren't enough and they need YT Premium subscriptions.

You may wish to review Google’s sources of revenue. There is one source which contributes over 50%, and it’s not the ad exchange.

It is not. Think about it. Diversification ensures that if one of your assets degrades in value, you have an unrelated asset that can still do well. Back to Alphabet, if ads revenues disappears overnight, Youtube becomes a dead project. Simples

At least they have alternate ways of selling ads, though. For example there has been a lot of talk about how their search business ads are threatened by LLMs that answer questions directly instead of giving search results that include paid placements, etc. But even if that happened, it likely wouldn’t affect YouTube ad revenues much.

Is it? If some new thing came along tomorrow that made Google's ad exchange obsolete, they could still sell ads on YouTube using whatever the new thing is. Or if YouTube became untenable, they'd have the ad exchange.

You two are nitpicking over "ads" vs "ads exchange" without saying it or talking about it meaningfully

Yeah, the point is diversification

OK, enlighten us then.

Also, they sell Premium

That's probably less than 1% of YouTube revenue (number came out of my hat)

In 2022, premium subscribers accounted for a bit less than 9% of YouTube's audience (and 67% of premium subscribers were in the US), according to this:

https://www.mediagistic.com/blog/how-many-youtube-users-will...

8-9% is actually a pretty impressive conversion rate considering close to 100% of people use YouTube. They have like 97.6% market share.

No data for this, but I feel like 9% is less than they expected after 5 years of the "frustrate and seduce" strategy, which is why they're even going after ad-blockers now. If anything, they look frustrated. But they probably had to do this.

Why would they want people using an ad blocker to even use the site that much though. They’re denying them revenue while costing them. I mean it’s great as a user but as a service there’s not really much upside.

YouTube didn't seem to mind so much before. Maybe they wanted to keep those users' attention on YouTube instead of elsewhere. Now they're a lot more focused on the profits, which is fine.

To use a googlism: I’m surprised Google can count that low.

HBO? No. NYTimes? Probably. All media is.

Your ontology raises more questions than it answers, like how a streaming service/cable television channel is not "media" in your world.

Ok, rephrase the last part to "The vast majority of media is".

Even HBO is partially an ad company, I imagine their own shows include product placement.

I was about to correct you about GCP profitability, but I just looked it up, and TIL that GCP became profitable for the first time in 2023 Q2. Interesting.

And before, it might've been in that "profitable if we want it to be" situation where they're just reinvesting the revenue.

Which is precisely why profit is a red herring. What matters is market share (which for GCP is still 10%, not amazing but gradually increasing) and, ultimately, revenue growth.

Yes, they don't need profits from Cloud yet. They do need it to be a viable business when growth slows eventually, though.

Are the Android app store and GCP loss leaders? I assumed those two would be profitable at least.

GCP burns massive amounts of cash and was a loss for many years. It just barely pulled a profit this year, though it looks more like some accounting tricks to make a small negative number look like a small positive one to make things look better during a downturn.

IIRC most of the public clouds changed their depreciation accounting recently. So all that cloud hardware is now good for 20 years instead of 10 years or something. Quite a boost to the old bottom line when you do that.

I loved old google they refused to share a business model. Google ~2006 I think is just past peaked google. I think they developed ads because it was the only model that fit their valuation.

You have the history backwards.

Ads in early 2000s > Mega-valuation

Could be, they also had a pre-iso valuation that needed justifying. The signal to me that it was really over was when they stopped supporting jabber/XMPP and look where it go them. I never experienced Google as a stock. My only experience with google is as a search engine and a mail delivery system that broke all the rules of polite society.

Could be "Don't be evil" was the answer to the business model question of early google. My memory is that it spawned during an interview with Larry and Sergey regarding the business model.

They were making massive jaw-dropping revenue years years before IPO. Secretly — the public or press were unaware.

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