Thomas Lord [08.23.07 08:35 AM]

I see you scenario and raise you:

1. Large advertisers will report that they are experiencing diminishing returns when they use brokers to place ads alongside Internet-carried, third party content. No matter how quickly they innovate (spend $) on making better ads or placing them more intelligently, users are becoming over-exposed to the entire class of communications. Every technological, linear improvement in the targeting of brokered ads helps to create a super-linear drop in the value of the market for brokered ads.

2. Small advertisers who have a direct, personal relationship with their carriers will report increasing returns. For example, if I start a successful blog for Bay Area rock musicians, I'll be winning if my personal "advertising department" develops a good relationship with some local music stores, helping them to develop and place timely and relevant ads, perhaps taking special care to customize those ads to my site's style (a la Wired). Technological efficiencies will be critical here as neither I nor my advertisers can afford the costs/prices of, say, traditional print ads for this. The big win, though, is just the human focus on placement and relationship building.

3. Simple, "pull-based" advertising a la craigslist will gain renewed interest. Similar models for other kinds of ads will grow. Pushing ads in people's faces is increasingly ineffective (because those doing it are now too good at it for their own good). Pull-based ads, though, are the most direct way to help consumers shop. Almost everybody loves to shop, when you get right down to it.

4. Google will become an all-stages VC firm, for most intents and purposes. Google is building up assets faster than it knows what to do with them -- but it also knows that the answer to that is to work harder to outsource innovation and share risk. They'll offer start-ups amenities such as free or cheap access to computing grids -- perhaps even t the page cache / indexing / map-reduce engine. Look for the tagline " ____ ... A Google Company." Today's internal culture of competing to pass executive review will evolve into one that is more explicitly a VC model.

5. Consequently, Google will get into trouble with the FTC, there will be some accounting scandals, etc. It's a crap shoot the assets they're buying up are going to hold value and a few problems like these could do real damage. They've got land, ok, good. They've got a huge hardware budget -- that's pure cost and the depreciation rate is astronomical. They've got people -- some strength there but can the center hold in such a large organization? They don't have that much I.P., really. They've got bandwidth and points of presence, ok, good. And the rest, mostly, is nothing but brand -- a highly volatile asset.

-t

  Josh Spaulding [08.23.07 10:00 AM]

A plateau in Googles Adwords program will not be established anytime soon! You have to understand how extremely effective it is. Smart marketers can generate loads of sells for pennies a peice and optimized ads that perform well are rewarded. Yahoo search marketing is still in the stone age.

"You give me money I put your ad way up top...duh."

Yahoo's Search Marketing program shouldn't even be mentioned in the same sentence as Google's Adwords program, let alone be mentioned as competition.

  Tim O'Reilly [08.23.07 10:46 AM]

Nat, your title, "Peak Google," is clearly by analogy to "Peak Oil."

While I agree with Blodgett's analysis that a recession would hurt Google and Yahoo!, I don't think people have grasped fully just how small a share of the global advertising market the internet is.

I think I read this morning in the paper that people's time spent on personal use of the internet is approaching the amount of time spent watching television. Yet according to Imran Khan at JP Morgan, worldwide TV advertising is $160 billion per year, while worldwide internet advertising is only $30 billion. The worldwide ad spend across all media is $564 billion.

In short, there's a LOT of room for growth. Assuming that someone else doesn't come along and knock them out of the driver's seat, they have a very bright future as a growth stock, despite their perceived high price.

  George [08.23.07 12:25 PM]

Tim-not sure if you have disclosed this, but do you or O'Reilly (or any of your interests), own Google stock?

  James Schwahn [08.24.07 01:08 AM]

I believe that things could go either way. The last .com bubble burst was a different type of thing that happened. The internet was new territory, and everyone was capitalizing on it. Now our scenario is a bit different, things are put more into perspective, and companies are playing it a bit more safe. Google has the stronghold in marketing, and as long as they don't do anything crazy they should be able to keep it. I think one of googles problems though is branching out into to many fields. When you spread yourself so thin you tend to alienate users, and your products tend to suffer. Another thing that I've been watching is the American economy, and it doesn't look too great lately. If the economy is in a slump does marketing tend to follow? This may just be googles "golden age". We will see.

  Nikolaj Nyholm [08.24.07 01:41 AM]

Nat,

To bounce off Tim's comment, I don't see how Google's market share will be affected with a downturn. The total market might plateau or dive, but Google's share could readily increase.

One interesting thing to note is that the Google country managing directors (at least the European ones I know) have one single explicit objective: have the top 100 ad spenders in each country transfer a larger proportion of their spending to online.

/n

  Simon Hibbs [08.24.07 05:00 AM]

So Google is spending under 12Bn$ a year, but earning 24 Bn$. That's a nice budiness. If the internet ad spend halves Google will still be a viable business, but of course it's increasing. A slowdown would reduce their growth, but they'd still be packing away roughly 10 Bn$ a year even with a serious hit.

Of course Gogle is very well aware of how much more money there is in TV advertising which is why they're putting ad vdioes on Youtube, upgrading Youtube to H.264, and exploring alternate distribution methods for it such as AppleTV integration. If only they had controll of their own radio spectrum for broadcast distribution, they'd be made.

  Tim O'Reilly [08.24.07 08:14 AM]

George, neither I nor any of my companies own any Google stock.

  michael schrage [08.24.07 02:30 PM]

at risk of sounding like a pedantic, semantic hairsplitter, anybody who thinks that google's growth is dependent upon the global advertising spend doesn't understand either advertising or google...

...ad budgets are exactly the wrong - repeat 'WRONG" - metric for googlewatchers to focus upon...google is gunning for (at the very least) the marketing & promotion budgets of the Fortune 5000...
marketing & promotion budgets are - conservatively - 10X the traditional 'ad budget'....please don't believe...check out how much the P&Gs, Unilevers,, GEs, Citigroups and Microsofts spend on 'advertising' and then look at what they disclose as their total marketing costs/expenses...then ask yourself, "what will google be doing to capture its unfair share of those dollars and euros and yen?'...you should ask that question because that is the question google is both asking itself - and investing to answer...

  Clifford J. Wirth, Ph.D. [11.28.08 04:28 AM]

Peak Oil means the end of Google and most modern things.

According to most independent studies, global oil production will now decline from 74 million barrels per day to 60 million barrels per day by 2015. During the same time demand will increase 9%.

No one can reverse this trend, nor can we conserve our way out of this catastrophe. Because the demand for oil is so high, it will always exceed production levels; thus oil depletion will continue steadily until all recoverable oil is extracted.
Alternatives will not even begin to fill the gap. And most alternatives yield electric power, but we need liquid fuels for tractors/combines, 18 wheel trucks, trains, ships, and mining equipment. The Energy Watch Group (funded by the German Parliament) concludes in a current report titled: “Peak Oil Could Trigger Meltdown of Society:”

"By 2020, and even more by 2030, global oil supply will be dramatically lower. This will create a supply gap which can hardly be closed by growing contributions from other fossil, nuclear or alternative energy sources in this time frame."

http://www.globaliamagazine.com/?id=482
We are facing the collapse of the highways that depend on diesel trucks for maintenance of bridges, cleaning culverts to avoid road washouts, snow plowing, roadbed and surface repair. When the highways fail, so will the power grid, as highways carry the parts, transformers, steel for pylons, and high tension cables, all from far away. With the highways out, there will be no food coming in from "outside," and without the power grid virtually nothing works, including home heating, pumping of gasoline and diesel, airports, communications, and automated systems.

This is documented in a free 48 page report that can be downloaded, website posted, distributed, and emailed: http://www.peakoilassociates.com/POAnalysis.html

I used to live in NH-USA, but moved to a sustainable place. Anyone interested in relocating to a nice, pretty, sustainable area with a good climate and good soil? Email: clifford dot wirth at yahoo dot com or give me a phone call which operates here as my old USA-NH number 603-668-4207. http://survivingpeakoil.blogspot.com/