[opendtv] Re: News: Ads Drive Sharp Surge in Earnings at Google

  • From: Tom Barry <trbarry@xxxxxxxxxxx>
  • To: opendtv@xxxxxxxxxxxxx
  • Date: Thu, 01 Feb 2007 13:06:02 -0500

I don't mind advertising when there is not too much of it and when it is done more or less with quality (budget).

For instance, back in the day, we used to joke the TV advertising was of higher quality than the programming.

But as more channels (and alternatives) became available and the nets started to saturate each hour with ads I think it devalued the relative worth of each second of advertising. This in turn has maybe led advertisers to spend less thought and dollars on the ads. (I don't have numbers)

And as the ad tax of watching TV rises there is more incentive to Tivo over them, skip to another channel, or turn the damn thing off. I think it has just gotten out of proportion.

But I still see the value of both premium and ad supported TV. And I don't see a particular problem with mixing the two as long as we understand the total cost to consumers is both the time and annoyance factor of the ads plus the subscription dollars paid. Markets don't have any particular problem with paying for the same thing in multiple ways. They just have a problem when the total cost gets out of hand, which it probably is now.

- Tom

Craig Birkmaier wrote:
One of the reasons that commercial television has been such a huge success is advertising. Like them or not, ads have been at the core of growth over the past five decades in all kinds of consumer products; some people even go as far as to claim that they make products cheaper by virtue of the stimulation of demand, which results in manufacturing efficiencies and thus lower prices.

Personally, I don't buy this conclusion, at least today, now that there are so many well entrenched brands that charge a premium for the products that they advertise:


If there is one area that the revolution in digital communications is having a huge impact, it is in advertising. The "holy grail" is to get close to the customer, providing product information when they are making purchasing decision.

The appended article could be considered a "proof of concept" that people do want to consume advertising when it is appropriate. Google just announced record results based on a new advertising model that seems to be working extraordinarily well - I know because i use it frequently. These ads are the text ads that appear first in the list of hits and on the right of the Google search screen. IMHO this is the perfect form of advertising, linking people who are searching for something with companies that may have the product(s) they are looking for

If there is one major criticism of television advertising it is that it uses a shotgun approach, USUALLY missing the target. The situation has improves somewhat in recent years, as more and more content is targeted at specific demographic groups that advertisers covet. This, in fact, is one of the major reasons for the growth of niche cable TV networks, as they are appeal to targeted audiences and often offer programming that stimulates demand for certain products.

HGTV and Food Network are good examples.

But television advertising, especially at the major TV networks is now in decline. Ad rates, especially in the spot market are going down, even as advertising bloat goes up. Advertisers now have better alternatives than TV, which is reflected in the growth of companies like Google, at the expense of the media conglomerates.

And this picture is going to get worse as new technologies help companies in the TV distribution business get closer to customers with more targeted, focused ads. This is an area where TV broadcasters are floundering hopelessly, which I point out frequently in my BE columns, and in arguments with Bert. Cable and DBS companies are deploying STBs that will be capable (some are today) of inserting customized ads for specific subscribers, based on the data mining techniques that these systems employ. This is the end game for Tivo, which is a leader in the TV data mining business.

And this is the real hope for the survival of TV broadcasting, IF broadcasters get off their asses and develop a viable digital platform that leverages the Internet. Radiating bits to anonymous viewers may still produce significant profits today, but there are only a few "Super Bowls" that can attract the huge audiences that commercial TV made possible.



Ads Drive Sharp Surge in Earnings at Google


Published: February 1, 2007

SAN FRANCISCO, Jan. 31 - Continuing the blockbuster growth of its search-driven advertising business, Google reported a sharp rise Wednesday in both sales and profit in the fourth quarter.

Google, the largest Internet search engine, also continued to outpace rivals like Yahoo and Microsoft, which last week reported far slower growth in their online offerings.

"Business continues to be very, very good here at Google," Eric E. Schmidt, Google's chief executive, said in a conference call with investors and reporters.

In an interview, Mr. Schmidt said Google's business, which earns most of its revenue when users click on ads that appear next to search results, was strong in terms of traffic and advertising growth, both domestically and internationally.

Google is also showing fewer ads on each search, but those ads are more relevant to users, are clicked on more frequently, and hence, generate a better return for both Google and for advertisers, he said.

Derek Brown, an analyst with Cantor Fitzgerald, said, "Their performance is extraordinary even in absolute terms, but particularly in comparison with the companies they are competing with."

Google said net income for the quarter nearly tripled to $1.03 billion, or $3.29 a share, up from $372.2 million, or $1.22 a share, in the final quarter of 2005. Excluding charges related to stock-based compensation and other adjustments, the company earned $997 million, or $3.18 a share.

Wall Street analysts had expected Google to earn $2.92 a share, excluding one-time items, according to Thomson Financial.

Google's quarterly revenue rose 67 percent from a year ago, to $3.21 billion. Google sells ads that are displayed on other sites, and passes most of the revenue from those ads to the sites' owners. Excluding those payments, Google's revenue was $2.23 billion.

Some analysts said Google's growth could even accelerate this year.

"I still see a lot of good things coming down the pike," Safa Rashtchy, an analyst with Piper Jaffray & Company.

Shares of Google closed Wednesday at $501.50, up $7.18. After the earnings report, the stock was trading slightly below $500, apparently reflecting the unrealized hopes of some investors that the results would be even more impressive.

Google's results come at a time when the company is rapidly expanding its product offerings, developing partnerships with the likes of AOL and MySpace, integrating its acquisition of the video search service YouTube and experimenting with new forms of advertising, including video, audio, print and displays on mobile phones. Both the company and analysts see many of these initiatives paying off financially over the next couple of years.

Mr. Schmidt said that while text ads linked to search results continued to perform extremely well, Google's diversification was essential to its growth. And he dismissed criticism that the company had introduced too many products, including many that have not been hits with users, and risks losing focus.

"We have concluded that we are expanding our mission, if anything, not fast enough," he said.

Mr. Schmidt also said that search on mobile phones and other portable devices would grow substantially in 2007, but that the financial impact would not be noticed until 2008.

Google said YouTube, which it acquired for $1.65 billion during the fourth quarter, would continue to operate with a large degree of autonomy, but that Google would use its technology and expertise in online advertising to cash in on YouTube's growing popularity.

Just last week, Google announced that YouTube videos would appear among the results on Google's own video search service, and Mr. Schmidt said the company would experiment with a variety of advertising models on the video site.

But the acquisition remains clouded by the threat of potential litigation by movie studios against Google over the proliferation of copyrighted videos on YouTube.

Mr. Schmidt said that after the YouTube acquisition, Google executives began intense rounds of nearly continuous talks with copyright owners, and he sounded hopeful that litigation would be averted.

"A bunch of us got on airplanes to talk to everybody," Mr. Schmidt said. "There is a relatively lengthy process of education on both sides. There is lots and lots of talking, and we have not hit any walls."

Google continued to invest heavily in its infrastructure, like big data centers, which the company said was a continuing source of competitive advantage. The company said capital expenditures were $367 million during the quarter.

"We can now handle more user queries and respond more quickly," said Larry Page, Google's co-founder and president of products.

In the fourth quarter, Google also began heavy promotion of its Checkout service, an e-commerce payment system that competes with eBay's popular PayPal. During the holidays, Google offered consumers $10 rebates on purchases of $30 or more, and in some cases $20 rebates on purchases of $50 or more. It also agreed to pick up processing fees typically paid by merchants for credit card or PayPal payments, which can add up to a few percentage points.

That promotion, which was first offered for the holiday season, was later extended for all of 2007. Google said that it spent more than $32 million on Checkout during the quarter, and that 20 percent of the Internet's top 500 e-commerce sites were accepting Checkout payments.

Anthony Noto, an analyst with Goldman Sachs, noted that without the Checkout promotion, Google's revenue growth would have been even greater, and he predicted "better-than-expected revenue growth for next year."

During the quarter, Google continued to hire workers at a brisk pace. It had 10,674 employees as of Dec. 31, up from 9,378 on Sept 30. For the last few years, the company's work force has nearly doubled in size annually.

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Tom Barry                       trbarry@xxxxxxxxxxx     
Find my resume and video filters at www.trbarry.com

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