Is Google Scared?

Is all of this just a charade? In a “Pot calling the kettle black” statement, Eric Schmidt whimpered that Microsoft’s (MSFT) Yahoo (YHOO) bid is anti-competitive. My poor little Google, let me rock you and soothe you.

Here’s an excerpt from last week’s analysis on Google’s earnings:

Revenue on Google’s site stood at $3.12 billion, up 58% y-o-y. Google Network sites generated $1.64 billion, or 37% y-o-y (via AdSense). During the quarter, free cash flow was $1.02 billion. Total paid clicks in the quarter rose 30%, compared to the 45% growth rate a year ago.

Did you see that $1.64 billion revenue number due to AdSense? I think, if Microsoft-Yahoo play their cards right, that’s the first piece they can take away from Google!

In fact, in Q4 '07, AdSense was already the source of Google’s problems, by not delivering much from the social network sites it pushes ads to - most notably, MySpace. Last week, we already saw a good example of “how to crash Google’s stock.” Microsoft is watching.

When we first started investigating this AdSense problem, we pegged AdSense to be 37% of Google’s revenues. This was an estimate, and Google wasn’t reporting it separately. Now, reportedly, it is dramatically smaller.

Do you remember what I have previously said about AdSense?

I had lunch with the co-founders of an ad network startup on Thursday. I will keep their identities anonymous, but I cannot help quoting one of them, as he put his finger on one of the biggest problems plaguing Google AdSense: It is great at monetizing crap, but offers absolutely no premium for high quality traffic.

And what is on our Trend Radar this year?

I recently talked about Audience Fragmentation and the Rise of Ad Networks. At the moment, the Ad Networks are in the business of amassing large volumes of fragmented traffic, and offering a channel to advertisers to access the publishers who own this traffic. Expect, in 2008, a trend towards these “mass” Ad Networks gradually becoming of higher quality via segmentation and “verticalization”.

Now, if Microsoft does realize that Yahoo’s greatest asset is their vertical opportunity, then they would also align the ad network accordingly, into a vertical ad network for the top categories that Yahoo plays in.

And then, publishers will be exiting Google in droves.

This, my friends, is the low-hanging fruit!

Comments

[In the money:]

Food for thought: Just because #2 and #3 join, doesn't mean they will rival #1.

Microsoft's search is awful, and Yahoo's...well, it isn't the best either. Their combined efforts don't necessarily mean that they will come up with something to rival the top product.

2008 Feb 05 08:19 AM

[borisb:]

microsoft know this! perhaps this online ad market competition is going to bring margins and profits down, hence both MSFT & GOOG stocks are under pressure.

2008 Feb 05 05:37 PM

[Sharp45:]

Not true that Adsense has no incentive for publishing good content. If you have a high quality site, advertisers will specifically target it for CPM (cost-per-thousand) ads. This drives up the amount of money you're paid for both types of ads - CPM and PPC.

2008 Feb 08 02:41 PM