Is Google running out of gas?
By Yi-Wyn Yen
Google’s stock is on its steepest decline ever, a sign that investors who once believed in the search giant’s story of perpetual growth have started to lose faith.
There’s certainly some immediate cause for concern. Google’s revenue growth is rapidly decelerating — more rapidly than would be accounted for by its sheer size. Last year’s annual growth rate of 56.5% has now dropped to 28.27%, according to Thomson Financial. And its stock price, the best measure of investors’ perception of future growth, is taking a beating of historic proportions. Google’s shares slid from a 52-week high of $747 last November to $475 on Thursday’s close, lopping more than $85 billion off its market cap in the space of three months.
Analysts say it’s not yet time to freak out. Betting against Google, they say, is a bit like betting against Tiger Woods.
“Google is not falling off a cliff,” said Lehman Bros.’ Doug Anmuth. “For the past six months or so, the broad consensus is that Google would be somewhat impacted by a recession. It’s not immune, but Google would certainly hold up a lot better than most.”
To be sure, an economic slowdown — and a fall-off in advertising dollars — probably wouldn’t hurt Google (GOOG) as much as, say, newspapers and glossy magazines. But some are asking a more fundamental question. They want to know whether Google’s growth engine is running out of gas.
“Google hit the bull eye’s with search,” said Iggy Fanlo, CEO of AdBrite, referring to the business of selling ads for Hertz based on the auction of key search terms, such as “rental car.” “Google has this square peg that they’ve been fitting into this square hole.”
But there are signs that the market for search ads may be approaching saturation. Much of this week’s losses can be traced to a comScore report that found that clicks on Google’s ads in January were flat. Google had warned that it has been rooting out fraudulent and accidental clicks, which probably accounts for some of that weakness. But it may not account for all of it.
The deeper problem for Google is that many investors perceive it as a one-trick pony. Most of Google’s ancillary ventures — Google maps and docs and the like — are loss leaders. For real revenue growth, Google has been trying to build a business in display advertising — like the banner ads that appear in social networks and other venues. But they’re finding that it’s not as easy as it looks. “Some of the monetization work we were doing [on MySpace] didn’t pan out as well as we had hoped,” admitted Sergey Brin, Google’s cofounder, during the company’s fourth quarter earnings call.
The trick, experts say, is to put ads on the screen that reflect customers’ interests, something that goes beyond simply knowing what context they’re being viewed in.
“Contextual advertising isn’t the right thing for most of the Internet,” says AdBrite’s Fanlo. “It’s like selling Superbowl ads. They don’t sell me cleats, jerseys or helmets. They sell me cars, beer, and erectile dysfunction medication because they know I’m an old, fat guy.”
Fanlo says most advertisers are better off targeting customers based on where they live, who they are, and how they surf the web.
Another problem for Google is that although tech-savvy advertisers are eager to expand their marketing dollars beyond paid search, they’re not willing to spend those dollars blindly. They want tools and reporting systems that help them target display ads and accurately track their effectiveness.
In other words, advertisers now want the business of buying display ads to be as transparent as Google’s paid click system.
“Google is the leader of accountability. Consumers type in keywords into the search box. They click on ads, and clients are happy. But more and more, we’re seeing clients who want to know the relationship between advertising on Google and the brand messaging,” said Rob Norman, CEO of GroupM Interactive, a holding company of WPP. “There’s a perceived value and an actual value of online advertising, and our job is to help clients navigate that.”
It was to provide such tools that Google made its $3.1 billion bid for ad-service leader DoubleClick, a deal that has been approved but not yet consummated.
Meanwhile, Google’s search ad business, while not growing as fast as it was, continues to make money.
“A 4% drop in the stock based on the day’s news doesn’t show any fundamental problems in the ad model,” says Michael Ostrovsky, assistant professor of economics at Stanford. “This is a very sound model. Maybe some of the rules of how keywords are being auctioned will change, but the fundamental ideals of how Google sells ads is going to stay for a long time.”
Google rocks. It is now time to buy Goog. They are ready to have another run.
Thanks
Jason Berkes
Google is only good for search – but I get the same thing from Yahoo. At least Yahoo has some cool community things like Yahoo Groups and, my favorite, Yahoo Answers!
Yahoo Answers is addictive – and I could spend hours on Answers because it is so addictive. Google has nothing like that. Sure, YouTube is fun – but Google isn’t selling ads there. How are they making money?
I haven’t tried Gmail – but my Yahoo account is 8 years old, why would I change. Google maps is cool. Google Checkout – nothing compared to PayPal.
I would buy google if it went below $200 * but it is not worth what it is valued at now. Good luck google.
Google is so innovative that they only make money from a single product. Microsoft is so uncreative that they make money from (at least) 10 products.
1) Word
2) Excel
3) Windows (various versions)
4) Flight Sim
5) PowerPoint
6) Publisher
7) SQL Server
Access
9) Age of Empire (various versions)
10) Microsoft keyboard
Should I go on?
I think google has to convert its 20% pass time products like News,Docs, email… into real Enterprise (or consumer) products – On Demand or Sellable.
well if i’m thinking about this, the great minds @ google might well be into plan of action already. who knows…thats for the stock holder to worry..
I still can’t afford Google stock for $400
Seriously, saying that Google should sell a product like Apple or Amazon in order to be a real company… are you stupid or just trying to be funny? Real companies sell things like advertising every day and make real money. Advertising is a necessary component to our economic system – in whatever forms it takes.
And as for Apple being the “gold standard” – please, they are just like Google, and for that matter any trend setting company – they are prone to fads, style, and because of that can be subject to a quicker decline when a competitor beats them to the punch. Granted with their size (both Apple and Google) replacing or displacing them will be difficult, but no business is immune to competition.
These are two very innovative companies, and if they continue to bring value and style in the way they have done so in the past, both will continue to flourish.
I am a gmail, google, maps, etc user for many years now, but haven’t clicked on a single text ad. I don’t see any value addition in doing that. I think, if GOOG has to improve it’s ad revenue, it has to start sharing a % of profit with people like you and me by giving discounts on products we buy thro’ it’s websites .
Google is not in trouble, MICROSOFT is in trouble.
Want to see a stock tank? When that one goes below $25 a share, a LOT of people are going to get out fast.
Microsoft can’t innovate it’s way out of a paper bag. Never could. Google is a true innovator, second only to Apple IMHO.
As a consumer, I don’t see this article making much sense. I’m a gmail user and even I am impressed with the kinds of ads Google hits me with. It kind of freaked me out at first that it was reading my email, and putting up ads based on the things I’m discussing. But the ads are remarkable, showing me many useful retailers based on my hobbies and interests. Contrast that with Hotmail, who continues to try to sell me an online education or a birth control patch (Hotmail doesn’t even know that I’m a man with a Bachelors degree). Additionally, gmail has excellent spam filters.
Also, Google’s committment to a free internet resounds with a lot of people, I think.
The Data Google has from searches Worldwide,gives Google chance to offer Premium 1 on 1 ads on PC,Mobiles & soon TV to people as Google knows so much on What & How we think & over the years, now Companies will pay Big $$ to get results.
Goog will be doing $4b net Qtrs before 2010.
E:mavenglobal@gmail.com
The reality of matter is, google is a great company but their stock is NOT worth + $450, There is a lot of hype and speculation so far that drove them here. The reality of matter is in history of mankind ONE entity/company/business/organization have never been jack of all trades. But Today google is trying to be the jack of all trades, from searching anything you can think of online to news, blogs, email, online payment, classified, videos, keeping track of medical records, wireless business, renewable energy business and blah blah blah … they just trying to be anything and everything and simply they will be loosing their core competency as competition builds up and new innovation will challange their search model. They need to stay focus on search and delivering relevant/value added information to consumer searching online. This is gone be an issue for them as advertiser’s excitment on adwords will fade away to something more vertical and meaningful that can be quantified into more robust transaction. Google is charging advertisers above and beyond imagination and I strongly believe that they will loose their advantage sooner than later. A click is a click whether its coming from google or from somewhere else but when advertisers find the same click for significantly less dollar or more definied clients, they will shift gear. This is why you see a slow down in growth in google’s ad sales, not all of it is because new advertisers are NOT coming on board as fast, but because many of the existing advertisers are going away or reducing their marketing campaign and trying alternative/cheaper/more focused/more relevant venues to reach their target audience.
It is an old story as businesses with fat margins make lot of money, more competition show up in door with better price, more improved product/service and start commodotizing the business and grind it to the point that the margin becomes razor thin (Ex: Retail, food manufacturing, personal computer and every established business out there) the longer the industry is around the more competitive it is…the only difference is Google, Yahoo, MSN are in a business that the rate of tranformation is supersonic …. Look up for more competition ….
When AMZN was only selling book, we thought it will not be there long. But later it started selling everything, we thought it would be there for long, login…
$700+ (Oh, now is $471) for a compay did NOT make anything but sell ads?
Please, do something solid like AMZN when you still have the big $ or soon your $ will not be there
Google is really good at making things that work. Just look at GMail, nothing works better in my opinion. If ad revenue falls they will make their paid services like Google Apps Enterprise pick up the slack. I think they are way over valued, but they are a company that make products that actually improve your life.
I have used Apple products and I just don’t see any features that are value added. Many are star struck by them now, but Apple will suffer bad when people realize that eye candy does not improve your life. When I sit in front of my computer, I generally have a job to do and could care less about dancing icons, fan shapes and huge preview graphics. Google actually helps me get my job done, Apple just makes me click my mouse more.
I agree with what most others are saying about Google. All human beings have a built-in aversion to advertisements. In fact, I see that the TV ads have gone up like crazy these days and my TV viewing hours have got drastically reduced as a result of that. Similarly, internet browsing is a new habit that humans have cultivated in the past decade or so and the chances of clicking on an ad is inversely proportional to my browsing skills. So, over the time, ad revenues have to come down. Added to that, the issue of fraudulent clicks, money suckers like YouTube, Google Maps, and pampering of employees etc., would definitely affect Google’s bottomline.
I see the same thing in social networking as well. No technology can force people to be in touch with others… Facebook, MySpace, Orkut etc., are just a fad and the interest will die down soon. So far, the only networking tool that I found to have some substance is LinkedIn – certainly helps head hunters and job seekers.
I really used to think Google advertising technique was cool, but, nowadays I avoid going to the website with Google Adwords on it. It’s annoying. I sure it’s not only me who thinks this way. I still love the search engine though.
Yahoo one time had a market cap of over 100 billion and then reality came in. So will be with google. I still can’t believe people are clicking as many ads as they are. I almost never click on an ad when I use either Yahoo or Google. I get enough ads on TV, driving home with billboards, and other places that I don’t want to encourage the behavior when I am on the computer. It would be great if there as a browser that could filter out all ads.
i think both google and apple are companies that will remain in the limelight for a good number of years to come..google is king of searches and apple’s king of portable music player
This is the problem when you base your entire business model on “not-so-solid ground”. This was never a genious model, it’s an advanced form of consumer deception. It has amazed me over the years how can any company get away with:
1-Revenue from Sponsored links when ?% of the Visitors do not know those are paid links. I’ve seen reports of up to 27%.
2-ClickFraud (?%)… Last month, Click Forensics said that the overall industry average click fraud rate reached 16.6% in the fourth quarter of 2007, up from 14.2% during the fourth quarter of 2006.
Google is by all means a pioneer in highly relevant search but if any brick + mortar would have made billions in large part because of #1 & #2, they would have been long gone with litigation.
my personal 2c.
LOL i love it when companies goes up and then down and people get all frantic haha i love that people can leave comments on articles so i can read all of this. Truth is apple was big, then they went down and now they’re going back up again. Google was going up and now they’re down and people are jumping at ‘em.. LOL like a company always goes up and never goes down or something HAHAH… idk maybe its just me but i get a kick out of people who seem to think that companies always go up and never go down and if they start going down that means they’re on the slope to disappear… anyway im rambling and so i have become one of those people that think what i say is good enough it should be read LOL so read on and enjoy it haha…
Unfortunately “AppleLovers” you sound like many of the other idiots of the dot.com phase that said “you don’t understand the new model…blah blah blah” while many realistic economists asked the simple questions which to this day are still the correct ones to ask. Who was right? Google is not Amazon or Ebay.
Google cannot keep spending millions and millions on pet projects that DON’T return revenue. They can’t spend millions and billions on things like Youtube that don’t return the revenue for money invested. They feed their whole company everyday, free movies each week, tons of benefits, etc…all that will change. Google will be bleeding money soon.
You hate Apple. That is obvious. Apple though is a company that had a business model, shows how they are grabbing market share and changing each business sector (PC’s, Mobile, Music just to name a few).
How about a bet…in 2 years lets see where your beloved Google is and a real company like Apple is. Google might not even exist then. Apple will be the brand of choice in home computing, mobile phones, music and tv.
Problem with Google is that it does not sell anything that is “real”. It sells ads…everyone sells ads on the internet. It needs to sell something “hard” like Amazon or Drugstore.com or other vendors of hard goods.
Google may also see more employees leave the company. Many employees joined the company (many are my friends here in San Francisco), because it’s a fun, stimulating place to work and for the free meals, free laundry services, free commuter bus shuttle, the gym…blah, blah, blah. But there’s another side to the story…most Google employees spend bs 15-20 hours per week (think young, hip employees who want to live in the city of SF, not boring suburban Mountain View where Google is located). They also work ~60 hours per week. So they have very little time to actually live, outside of the walls of the Googleplex…so Google has to give them all those expensive perks. But many of them ….LETS BE HONEST NOW…joined the company primarily driven by the promise of STOCK OPTIONS appreciating greatly in value. Many joined the company in the past year, when the stock was in the $500-600 range. With the stock at $400-something per share, many of them will leave. And it’s not likely to go much higher again, for the foreseeable future.
Google needs to start acting like a more mature company…but still show growth. Whether they like or not, they are a BIG company now, with lots of people, and lots of layers. They can’t be a start-up perpetually and forever, regardless of the “work 20% of you time on brand new inventions” work philosophy. At the end of the day, the bigger the organization, the slower it moves and the harder it becomes to make decisions quickly. They also need to slow down on their hiring…hiring several thousand new employees a quarter, over several years, is not sustainable. Eventually, shareholders will demand that they control costs.
James, you need to stop loving your Apple for a minute and remember that Google is strong because (a) they have the best quality search results (b) the biggest share of search (c) the broadest search (d) an effective way to monetize on searches.
You say Google’s model is not new, but the reality is that it is. They figured out how to monetize search when search was nothing but a loss leader for Yahoo and others. I have consulted numerous clients from various industries who WANT TO PAY GOOGLE MONEY because it beats most other forms of advertising.
So go back to playing with your iPod and understand that just because you only click on Adwords rarely, Google is making BILLIONS off of their business model.
Apple doesn’t know Jack about the web – they can’t even manage to keep their store online 100% of the time. I’ve never seen a company that screws their customers as much as Apple and still gets that kind of adoration. Perhaps Google will buy them in time.
Bye bye Apple.
Why is google successful? Why has facebook all of a sudden become so successful? Its the ease of use that attracts web users, look at google’s homepage, its simple, its sweet. Yahoo’s is cluttered, its too much for some minds to fathom. Look at Facebook’s pages compared to Myspace which has lost some gas over the years, its all about simplicity in today’s world as more and more less-technical people use computers. Why is Apple always on top? Simplicity. When Google’s stock reached 700, I felt it was over bloated, its just a popular search engine that keeps putting out failed accessories, (Google Maps, Google Video), things that Yahoo has had for a long time. Google is trying to monopolize the internet, but in the process is failing by providing too much simplicity where complexity is needed at times.
Then do it Joe… I’ll check back tomorrow and you make sure to let me know what site has replaced it.
There is value in what google does today and going forward as well. They have enabled local listings into search which is useful for regular users. However, there is always the possibility that users will start to ignore the right column and the paid results portion which would mean impressive ad impression numbers but not so much impressive when it comes to click through numbers. That probably is what is beginnign to happen and we have predicted this shift time long time back. On the display ad front Google doesn’t have enough inventory and their display ad tool is not up to the mark.
The next wave can be targeting ads based on location and needs of user from explicit listing of the need by user. This will be more useful for advertisers as well as consumers. Active Yellow Pages and Active Listings enabled from a framework of affinity based clustered communities that ireachable.com is working on can help advertisers reach audience more effectively. Clustered community based targeted advertising benefits consumers directly also. This is in comparision to how businesses try to be visible today on the right column among hundreds of listings.
….not if they create the new “it” platform for cellphones. Do not look at their search engine alone—look at what is coming down the road.
Google has actually run out of gas. When Wall St. slashes at least a third of a stock value, it is signaling that something good has come to an end as meandering would the rule rather than the exception!
Online search is currently the holy grail of the internet/computing. I Personally believe we will see a change in paradigm and Im afraid google will become the webvan/pets.com of today.
Google is nothing but a search engine.. not so impressive in my opinion. The fact that most people use it makes it attractive.. but it isn’t revolutionary .. it could easily be replaced by something better almost overnight.
Take away many of those financial big spenders tied to the mortgage mess and all of the little one’s attached to it, and it is not hard to see how they could lose significant revenue. Also, I believe they are making it too hard for new companies to advertise in certain verticals by making minimums at $10 a click- That is not a good way to attract new business and is not a fair, open marketplace where the largest companies can bid at that rate but smaller one’s who might one day be large, cannot.
I was going to say the same thing about Facebook and Myspace also.
Another failure coming up.
Again, companies like Apple have something you can tangibly feel and you can see the impact.
I’m sorry but I can use Yahoo. Google isn’t bringing anything that you can’t find somewhere else and wasn’t Yahoo the KING of search engines 8 years ago? Googlemaps? How about a GPS instead. Youtube? Lots of money down the drain.
I just don’t think people realize Google is fiery crash waiting to happen.
In a few years, Google will be a $100 dollar stock or less or a company out of business.
Apple is the gold star stock, people are just too dumb to realize how good Apple is going to be. Every day they continue to consume more and more of the PC home and officer market which they have something like a 6% stake in leaving huge profits to come as they continue to take more and more. Apple has products and software that you can feel and touch. You can track that and see revenue and returns from that.
What’s Google? A search engine who’s revenue comes from ad sales which are declining and more and more are wondering if they are really bringing in sales, revenue for those that are spending them with Google and now with more and more information that the data for click throughs isn’t accurate, you could see a lot more problems. This doesn’t take into account the absurd amount of money they are shelling out per day to feed their employees with all these perks, salaries, etc.
There is no “new” business model. It’s how do we make money and you make me money. Google’s “new” model for employees working on other projects, their own time, etc is going to hurt them.
Ask yourself this, how many times do you even read or click the ad on any internet site? Mine? Maybe 1-2 every few months.
Bye bye Google.
Google’s value just never made sense… just like house prices in Socal.
I’ve been an AdWords advertiser for a couple of years and if you took that away from me right now, I wouldn’t cry. I prefer banner advertising with forum boards that are specific to my industry. Sure I would miss a lot of the “free” analytics info I get with using Adwords but Yahoo! has it with their pay per click advertising program too. Pay per click in general, I’m not sure how good it is anyway. I also don’t know how many fraudulent clicks I’m getting from my competitors. Funny, Google has never cared before about this concern of fraud and now suddenly they do? It’s been accepted by AdWords users that you must expect a certain percentage of clicks to be fraud and Google has acknowledged this issue. Great!
Would I miss Google in general if they fell off the face of the Earth? NO. I would go to another search engine. Google is not GE. If GE stopped making airplane engines,appliances, power generators, etc, we’d all feel it real quick.
BTW, speaking of Myspace (and Facebook), they will lose their novelty soon enough too.
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my school project was to buy stocks and wait it for 3-4 months of time. i bought google when it was $692, now it dropped to $400. I think google should allow banner for ad since picture attract more people