Ad(ds) Sense now?

Google released some stupendous results for this quarter. If you thought that Apple stole the show by becoming #3 in the PC marketplace and by growing it's marketshare like nobody else did, think twice. Gross revenue@Google rose by 70% and quarterly profit rose by 92% over the same period last year. Net income this quarter was $733.4 million compared to $381.2 million in the same quarter last year. The only other companies that I can think of that posted such tremendous growth are the biggies from our own India who seem to be riding a high tide with all the offshoring cash. However, the growth models @Google and @these companies are quite different. Google is a product company, more into creating new platforms, new products and eventually new markets by innovation, risk and excitement whereas the others are into services and are growing their market share more maturedly with little to no risk and thus very unexciting :|.

Coming to risk, Google's recent acquisition raised a lot of eyebrows as it was a big investment (worth $1.65 billion) and fraught with the risk of being sued by media companies for copyright infringement. Why would a company buy a company if it was a losing proposition?

To start with, YouTube has 35 million users in the US and 100 million daily video views. That makes it around 4 cents per video stream ($1.6B divided by 100 million daily views * 365 days) and the user base is still growing. Google almost paid around $30-$35/user to acquire YouTube. Coming to Google, it almost earned $1 billion in revenues from Adsense this quarter and currently has a user base of around 100 million, which basically shows us that Google earns around $10/user/quarter. With 35 million more users, Google can earn this money back in around 5-8 quarters (35 million x $10 x (5-8))>1.65 billion! 5-8 because there will ofcourse be an overlap between Google's current user base and the user base from YouTube. Considering the fact that video advertising is going to more effective than other forms (atleast IMHO) and that Google is going to find other innovative ways to advertise, my take is that Google will recover this investment in less than 2 years! Well, would you not call that a worthy investment?

Google has done this again and again and has done this once more this time. One reason it has been able to sustain it's momentum is the stiff competition from Yahoo n Microsoft, but the sad part is that it is moving farther and farther away from it's competitors (For example, Yahoo's results were good, but not great). I am eagerly waiting for Microsoft's results due next week and I hope they are good. I hate monopolies and would hate to see Google become one. Monopoly kills creativity!


At 6:22 AM, Anonymous Anonymous said...

do you think you'll visit youtube if google starts ads on it? i don't think so.

At 11:17 PM, Blogger Vijay Challa said...

I am sure Google will manage placing the ads in without annoying the users. Seeing the big user base, companies might come up with some innovative ads and post them on YouTube. Google could possibly charge them for that. They could probably even show only relevant ads based on social bookmarking and your search profile. Intelligent/Creative placement and behavioral targeting will be the key.
Even otherwise, don't we watch TV with all those Ads. Internet will soon be at the top of the media pyramid..
I am already spending more time on the internet than TV. Surely, there are a lot of others like me and the numbers are only set to grow..

At 2:27 PM, Anonymous vdesionline said...

I really liked the breakeven formula .Obviously they(google) made their part of math.


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