

Google, Microsoft, Stall Points, and Growth - IBM
http://blog.kedrosky.com/googles-microsoft-moment-when

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ChuckMcM
It is an interesting analysis. I've followed Google's numbers pretty closely
since I left in 2010 to track trends from the outside that had started
becoming apparent on the inside. Basically there is a limit on how "good" you
can be at search advertising, and other companies are relentlessly investing
there and so as Microsoft, for example, has quarters of growing ad value both
in CPC and volume. Google has declining CPC and growing paid distribution
costs. It is often hard to hold a technological edge without moving the bar
forward, and while Google was way out ahead before, now they get fewer and
fewer gains with the investments they do. That squeezes margins and that
results in focus (good) and conservative management (not so good).

What is really spot on in the article is that when the 'luster' of being a
growth company comes off, the stock feels it disproportionately. And as RSUs
are the retention package of choice your "retention bonus" gets smaller as the
stock takes a hit. That unlocks hand cuffs and people who are smart and
aggressive opt to try something with more risk and a better potential reward.

It really is true that nothing is forever, but I know there is always the
tendency to operate as if it is. Looking forward to the next wave.

~~~
skj
> Google has declining CPC ... now they get fewer and fewer gains with the
> investments they do.

Keep in mind that the declining CPC is coupled with increased revenue, caused
by the amount of ad inventory they're moving. So, your second statement is not
supported by your first.

(disclaimer: googler, but not in ads or anything related)

~~~
ChuckMcM
That is correct, revenue is increasing, but that increase is coming through
increases in ad inventory on the core sites, and paying for more traffic (aka
Paid Distribution) as more and more people don't bother to switch off 'bing'
or 'yahoo'[1] on two big platforms (Windows and Firefox).

There is a limit on how much traffic you can buy, there is a limit on how many
ads you can put on your pages before those ads push people away. And when
those work arounds lose their effectiveness (my guess is Q3/Q4 2016) then
revenue will be flat year/year. If people decide that Google isn't a "Growth"
stock, they will reprice their value based on current revenues rather than
projected revenues, and call for the elimination of everything that cuts into
profits. As the original article points out, there are many previous examples.

[1] Currently also Bing :-) but will no doubt change when the agreement
expires.

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bkjelden
I'm not sure I agree with the author's analysis on compensation.

While RSUs at a large company don't have the growth potential of a startup,
Google, Microsoft, etc still seem to be the smarter choice for compensation-
minded engineers.

And of course the author also ignores the CEO change that occurred at
Microsoft in 2000, and the reawakening that has occurred after his departure
in 2014.

~~~
susan_hall
That is a good point. History is going to remember Ballmer as one of the worst
CEOs in history, though, unlike Jeffrey Skilling or Bernard Ebbers, Ballmer
will be remembered for mistakes of omission rather than commission. And the
revival of Microsoft should be factored in to a full understanding of the
situation.

~~~
seanmcdirmid
Ballmer grew profits, there is no denying that. He definitely missed a lot of
things, but there is no qualification for the title of "one of the worst CEOs
in history," just like Bush 2 made mistakes but will hardly be remembered as
one of the worst presidents.

~~~
robot22
I agree Ballmer was not "one of the worst CEOs in history", but Bush will
quite certainly rank among the worst presidents in history. Bush's two war
mistakes were gargantuan, scholars estimate over one million war dead in Iraq,
in addition he accelerated the decline of the American state in numerous other
aspects.

~~~
seanmcdirmid
Eh, I'm no Bush fan, and the historians will sort it out 20 or so years from
now anyways. There were plenty of bad presidents in the 19th century to
compete with.

Hyperboles are almost always inaccurate.

------
gitah
Every time someone draws historical parallels for tech businesses I think back
to Apple. Remember how the iPhone was repeating Apple's mistake vs Windows in
the 80s?

The author happens to find some factors that match Microsoft in the 2000s, but
completely ignores the ones that don't.

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frozenport
Claims of MS decline are not serious, they ignore that the beaste has been
making billions in profits every year.

~~~
millstone
Microsoft is enormously profitable! And though their growth may have stalled,
that simply means that their growth stopped accelerating - not that they
stopped growing. Being a Microsoft is pretty great!

That said, Microsoft _did_ decline. Not in revenues (which grew), but in
relevance. Their new products were perceived as chasing market leaders: Zune,
Bing, Windows Live etc. Their strategy for their most popular products seemed
ill-defined: remember Windows.NET and Office .NET? And this was reflected in
their P/E, which did decline, from the 40s to the low teens. Most tellingly,
at some point, people stopped being _afraid_ of Microsoft, which may be the
most telling. Microsoft competes with everyone, but its competitors don't
worry about Microsoft any more.

This would not be a terrible fate for Google, but it's not ideal and far less
than they're capable of. For that matter, it's less than what Microsoft is
capable of!

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manigandham
This is written by someone who isn't in the advertising business and doesn't
understand the dynamics of that industry. Extrapolating from stock prices
doesn't cut it.

Google is not going anywhere anytime soon, it's the defacto unspoken leader in
online advertising and the closest competitor these days is Facebook, and even
they have a very hard time getting to parity. Google owns so much of the
adserving stack and online ecosystem that it borders on ridiculous. Any issues
they might face with shifts in advertising would be the same challenges anyone
else will face, but Google has more talent, money and scale to solve these
problems.

~~~
millstone
The article compares Google to Microsoft. Microsoft, too, had a dominant
position in a lucrative market (and still does, with revenues ~50% higher than
Google). Microsoft also underwent a decade of a flat stock price.

Their revenue kept growing during this period. It grew by a lot! But their P/E
declined, from the 40s to 12 or so. This is because all of the action (iPod,
Google Search, iPhone) was happening outside of MSFT. The "growth genie" was
gone, and they transitioned from a growth stock to a value stock, and (as
perceived) an innovative company to a company protecting its cash cows.

The article discusses whether Google will undergo the same fate. Being the
undisputed leader in online advertising is an enviable position; the question
is whether Google can grow to be more than that.

~~~
manigandham
It seemingly can as it actively has ventures in several out of band ventures
and is encroaching in all the areas Microsoft already is, while having
search/advertising as a massive foundation which MS doesnt have.

And yes, advertising will continue to grow, native/video/mobile are all still
growing at double digits and Google is slowly rolling out their products to
extract even more value here. The ad industry is going through another
revolution and Google, while not innovating, has plenty of growth potential
still left.

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papaver
i would say i felt similar lackluster when i interviewed (engineering
position) there a few years ago. probably one of the worst interviews i've
had, completely mechanical. literally all human emotion removed from it. the
interview consisted of purely how well one did on the 5 sessions of solving
problems. not a single session even bothered to take into account personality.
the last interviewer explained they did't want to introduce any sort of bias
hence the reasoning for the robotic interviews.

was pretty sad. i love search/gmail/maps but there isn't much coming out of
google thats pushing the envelope these days for me.

once again the story of david and goliath... infinite growth is not
sustainable...

~~~
skj
> not a single session even bothered to take into account personality.

So you'd prefer that the interviewers set up situations for unconscious biases
to take hold? That would hurt the quality of engineering at Google.

~~~
Steko
Perhaps that's not the end of the world. Is Google's primary burden to growth
their quality of engineering? I doubt it, so weighing the entire interview on
coding skills seems like a mistake, one that is compounded by creating a
homogenous culture where everyone has the same blind spots.

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chrisjlee
This person doesn't know how to read a stock chart
([https://d23f6h5jpj26xu.cloudfront.net/2ihthwrngo9lfq_small.j...](https://d23f6h5jpj26xu.cloudfront.net/2ihthwrngo9lfq_small.jpg)).
They clearly ignored the years where 2007-2012 when that would be considered a
flatline. That is a huge flatline.

~~~
mbesto
Did you choose to ignore the financial crisis of 2007-8?[0]

[0] -
[http://en.wikipedia.org/wiki/Financial_crisis_of_2007%E2%80%...](http://en.wikipedia.org/wiki/Financial_crisis_of_2007%E2%80%9308)

