Paul Allen, managing partner of VC firm Infobase Ventures, reacts to Google's Q4 financial results by listing the reasons why he thinks Google is fundamentally superior to its competitors. Here they are in summary, plus a quick comment:
- Provides service that people really want: Google's fundamental mission to provide its users with access to information will give it an immense customer base.
- Self-service model: Google offers both advertisers and publishers great service through fully automated self-service.
- Good partner: Google "is unbelievably generous with partners -- content sites who accept Google ads in exchange for a percentage of the revenue... they share most of the revenue with their content partners."
- Empowers creativity: "Every employee at Google is allowed... to spend 20% of their time each week working on a pet project".
- Rapid decision making: Google's founders make quick decisions on acquisitions (Blogger and Picassa) and acceleration of pet project.
- Cash flow funds development: Google will end up investing more than its competitors, because it funds R&D from cash flow and doesn't distribute cash to shareholders in the form of dividends.
- Expenses don't scale: declines in hardware costs and the growth of open source software mean that the cost of the services Google provides do not scale with revenue, leading to impressive financial leverage.
Quick comment: Paul is absolutely correct about the benefits of being a technology consumer rather than producer. But is Google "unbelievably generous with partners"? A closer look at Google's latest quarterly results suggests that a more accurate picture may be that Google generates dramatic profit growth, but eats into partners' income.
You can read Paul Allen's full post here. GOOG chart below.