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Google Under Fire

Search Engine Optimization and Website Design Discussions.

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Old 04-23-2006, 11:51 AM
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Another good article to read.

Could the Sports Illustrated Jinx, where teams and athletes featured on the cover famously flounder soon after publication; have spread to their fellow Time, Inc. weekly Time Magazine? This week the boys from Google are gracing Time's cover and from their easy smiles (and a byline that mentions Internet domination) you'd think that the transformation is complete: Google has finally "pwned" us all! Well, a theory that there is some kind of jinx fits because Google seems to be getting it from all angles now. But with all the piling on, it's important to remember that Google's core business, search advertising, is still very much a winner.

In regards to lofty stöck prices, it's been said that the same breeze at the bottom of a mountain is a gale at the peak, meaning it doesn't take much negativity to knock a few dollars off the price of a stöck that's performed well. And Google's peak so far has been among the loftiest a corporation has ever experienced to date. Their success stuns - individuals netting billions, a stöck price (NASD: GOOG) skyrocketing to $475 as influential analysts hint at future valuations of $1,000, $2000. Runaway success has been associated with Google since even before their IPO in November, 2004. This aura, however, may have fostered a false sense of invulnerability for the giant Mountainside, CA-based search engine., by virtue of being an online advertising company, has much to thank Google for, particularly the interest they generated in our field. Their brand recognition alone has served as advertising for our industry in recent years. Google was so hot for so long, that just being in a related space may have opened doors for us that might have otherwise been closed.

There have been some cracks in Google's façade for some time, but little notice was given to them in the wake of relentless success. However, the record skipped last month when Google disappointed the public with their earnings and the stöck sold off about 25% from its high. Still, public scrutiny was more focused on Google's earnings, not their business.

That is, until Barron's, the influential weekly financial newspaper, featured Google this past weekend. There was nothing playful on their cover, just the familiar Google logo being submerged into water, like the Titanic. The article makes a compelling case that Google's success is overvalued.

Among the issues discussed was a genuine peril unique to search based advertising: click-fraud. Barron's wondered how anyone presently could gauge the depth of this problem when; a) this problem technically enriches Google, while robbing thousands of their customers, and b) it's almost impossible to distinguish how much is committed. If Google knows, they're not saying. So we see an incalculable problem within online advertising, the very business that's finally measurable. Go figure. But Barron's mentioned other problems that are vexing Google, as well. The very guys on the cover of Time, Google co-founders Sergey Brin and Larry Page along with CEO Eric Schmidt, are feverishly selling their stakes in the company as is the rest of top management. While much of these insider sales registered and scheduled for execution long ago - what's truly disconcerting is that no insiders seem to be buying any stöck in their company. It's a spooky one-way street.

Even the puff piece in Time Magazine contained this loaded bon mot from Schmidt, "The company isn't run for the long-term value of our shareholders but for the long-term value of our end users." I had to read the quote twice to make sure I had actually read it correctly and then again to make sure I could figure out what he meant by "end users".

This is what the CEO of Google thinks of the people who've made him worth 10 figures. It made me think of Bill Murray's character's advice to the students at Rushmore Academy, "Take dead aim at the rich boys. Get them in the cross hairs, and take them down." Sorry, Eric, but this Robin Hood approach elicits this sort of reaction ... especially when it is directed at the people who made them rich.

I believe that Google was rabidly over-hyped and is still overpriced, but it's their chosen business, the one they perfected, and the one that I admire. Now that some Google bashing is somewhat en vogue, be sure some uninformed opinions will form. The same minds that assumed all things Internet were about to be ruled by King Google, they too will be claiming Internet advertising to be a false business, an unworthy venture.

This couldn't be more wrong. One of the signatures of the Web 1.0 bubble of 2000-2001 was that these overheated interactive companies weren't making monëy. Not only were they unprofitable, many couldn't even generate revenue. They were drenched with the promise of new technology and nothing else. Yes, the Internet was wondrous then, but making monëy off of it was not possible, at least not before some of those burn rates contributed to global warming. (Don't laugh; chëck out the data, it matches perfectly.)

Then along comes the search wonder of Google. Google is merely an overpriced stöck, not a collapsing bubble. Their contribution is both simple and stunning. They came up with little text boxes to correspond and link properly with searches on their network. That's all.

99% of Google's revenue comes from search advertising. While Barron's was right to question whether this technology really warrants partnership with NASA for space exploration, the article also boils Google down to a machine that is merely "hawking ads" in providing contrast to Google's self-billing as a global technology leader.

Search advertising made Google bigger than Coca-Cola in only a few short years. If that's the end result of "hawking ads", then Google is doing something right. Microsoft and Yahoo apparently want to hawk ads like Google, too, as Barron cites the increased and inevitable competition.

Google's lesson for us at, and for anyone in Internet advertising, is that you cannot separate Google's success from Google's search. Everything else is a side story. Stöck prices, jet planes, R&D (billions spent for that remaining 1%) - all of it serves to distract from this: 99% of Google's revenue is derived from search advertising. Search advertising works.

This isn't the next bubble burst, just a story of a company that did its job so blindingly well that the public overvalued its stöck. Now it's time for its stöck price to cool off. I'm happy to see the sector grow more competitive. That's terrific. I think that everyone, even Google's shareholders, view this as a healthy sign for the search advertising industry, if not a certified validation.

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Old 04-23-2006, 08:37 PM
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As long as Google continues to grow and expand, I would be their stock price will stay high. As soon as people start thinking it has plateaued, the stock will tank.
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