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Farhad Manjoo writes at the New York Timesthat at first glance Google looks plenty healthy, but growth in Google’s primary business, search advertising, has flattened out at about 20 percent a year for the last few years and although Google has spent considerable resources inventing technologies for the future, it has failed to turn many of its innovations into new moneymakers.
According to Manjoo, as smartphones eclipse laptop and desktop computers to become the planet’s most important computing devices, the digital ad business is rapidly changing and Facebook, Google’s arch rival for advertising dollars, has been quick to profit from the shift. Here’s why: The advertising business is split, roughly, into two. On one side are direct-response ads meant to induce an immediate purchase: Think classifieds, the Yellow Pages, catalogs or Google's own text-based ads running alongside its search results. But the bulk of the ad industry is devoted to something called brand ads, the ads you see on television and print magazines that work on your emotions in the belief that, in time, your dollars will follow.
“Google doesn’t create immersive experiences that you get lost in,” says Ben Thompson. “Google creates transactional services. You go to Google to search, or for maps, or with something else in mind. And those are the types of ads they have. But brand advertising isn’t about that kind of destination. It’s about an experience.” According to Thompson the future of online advertising looks increasingly like the business of television and is likely to be dominated by services like Facebook, Snapchat or Pinterest that keep people engaged for long periods of time and whose ads are proving to be massively more effective and engaging than banner advertisements.
In less than five years, Facebook has also built an enviable ad-technology infrastructure, a huge sales team that aims to persuade marketers of the benefits of Facebook ads over TV ads, and new ways for brands to measure how well their ads are doing. These efforts have paid off quickly: In 2014 Facebook sold $11.5 billion in ads, up 65 percent over 2013.
Google will still make a lot of money if it doesn’t dominate online ads the way it does now. But it will need to find other businesses to keep growing. This is why Google is spending on projects like a self-driving car, Google Glass, fiber-optic lines in American cities, space exploration, and other audacious innovations that have a slim chance of succeeding but might revolutionize the world if they do. But the far-out projects remind Thompson of Microsoft, which has also invested heavily in research and development, and has seen little return on its investments. “To me the Microsoft comparison can’t be more clear. This is the price of being so successful — what you’re seeing is that when a company becomes dominant, its dominance precludes it from dominating the next thing. It’s almost like a natural law of business.”
(Score: 5, Insightful) by Thexalon on Friday February 13 2015, @03:59PM
One of the peculiarities of the way big businesses work is the imperative "grow or die". Investors don't tend to like a company that, say, makes a steady $500 million a year in profits and pays out a nice hefty 10% dividend year-after-year, but go bonkers for companies that make $50 million this year and are projected to make $55 million next year.
It doesn't matter that both investments might earn you the same return. It doesn't matter that you can easily swap between publicly traded companies at any time, so if there's a longer-term upswing with the smaller less profitable company there's no particular reason not to invest in the safe hefty dividend instead.
A big part of this, though, just seems to be the fact that traders work on emotions and hunches at least as much as they do numbers. As a demonstration, managed mutual funds, on average, perform no better than the S&P 500 and other major indexes.
The only thing that stops a bad guy with a compiler is a good guy with a compiler.
(Score: 0) by Anonymous Coward on Friday February 13 2015, @04:21PM
Billions in profit and continued growth has to be a better position than Amazon's "lose money or make no profit every single quarter, but grow revenues"
(Score: 0) by Anonymous Coward on Friday February 13 2015, @09:15PM
Common sense question: If amazon is not making a profit, then how is it growing?
They reinvest everything. It looks like zero profit, but if you earned a 10% raise and spent it on a 10% hotter wife, that certainly is an enviable position.
(Score: 0) by Anonymous Coward on Friday February 13 2015, @11:29PM
When you give out free shipping on most orders, make a phone nobody wants, or undercut everybody in offering cloud services, is that "reinvestment"? Or is it just unsustainable?