
How Google Could Collapse - katiey
https://medium.com/startup-grind/how-google-collapsed-b6ffa82198ee
======
panarky
Summary: more people are blocking ads and starting product searches at Amazon,
so Google will lose their core business.

And yet, the growth of Google's core business isn't declining and it hasn't
even leveled off -- growth is actually accelerating!

Year-over-year revenues are growing faster now than they did last year.

Same thing with earnings.

And margins are expanding instead of shrinking.

Source:
[https://abc.xyz/investor/news/earnings/2017/Q1_alphabet_earn...](https://abc.xyz/investor/news/earnings/2017/Q1_alphabet_earnings/)

Not exactly what you'd expect to see from a business model in decline.

~~~
Markoff
not sure about rest of Europe, but when I search for product I go to local
price comparison website, which is much more popular than Amazon, since by my
experience pretty much everything on Amazon is more expensive than in plenty
of local shops, other option would be I guess Aliexpress if it's not rushing
and doesn't have to be some specific brand

article seem to be as usual very US-centric, Google is huge in Europe, Amazon
not so much. in China Google doesn't exist and Amazon has also only leftovers

can't say I would miss either of them, since pretty much only useful products
from Google for me are search (easily replacable) and Photos (not that easy,
but there are alternatives)

~~~
Southclaws
I avoid amazon search like the plague. All that ever pops up when I search for
a product is cheap chinese knockoffs with round numbers of mysterious, broken
english, 5 star reviews and one pixelated photo. Google, specialist sites or
local places are where I'll always go for product search.

~~~
pdabbadabba
I'm not sure what country you're in, but in the U.S. I've virtually _never_
had that experience on Amazon. Sure, there are some lower quality products
mixed in with the good stuff, but I always find it pretty easy to tell which
is which. And, that being the case, I find that added degree of price/quality
diversity to be a benefit in itself.

Edit: By the way, are we still talking about "cheap Chinese knockoffs"? Seems
odd to include "Chinese" in that phrase when much of the high quality stuff is
made there as well!

~~~
ageitgey
Try any search for a phone accessory like "mobile phone vr headset" or "usb
battery pack".

~~~
pdabbadabba
Well, I see some products listed that I would not want to buy. But I also see
the Samsung Gear VR and Google Daydream, and some USB battery packs that seem
perfectly good. (In fact, I bought one of these results just the other week,
and am very happy with it.) And generally, speaking, the star ratings are
about what I would expect of most of these products, given my (modest)
knowledge of these brands. Certainly the star ratings, generally speaking,
appear to convey useful quality information.

But what I certainly _don 't_ see is any support for the claim that "All that
ever pops up when I search for a product is cheap chinese knockoffs with round
numbers of mysterious, broken english, 5 star reviews and one pixelated
photo."

------
bambax
Maybe.

My own experience is quite the opposite, though. As a user, I dislike ads and
run uBlock Origin everywhere.

But as a seller (Amazon FBA), I have found Google Ads to be incredibly
effective. Much more so than Sponsored Products on Amazon, which goes on to
suggest that not all product searches start on Amazon.

Also, using Amazon tools for sellers is not a very pleasant experience.
Everything is either broken or extremely complex, or inconsistent, or all
three at a time. And let's not mention MWS (just look at the API
documentation, it doesn't seem to have been updated since 1999).

AWS is still fantastic, but clearly Seller Central wasn't built - and isn't
maintained - by the same team!

I think it's very possible that Amazon could collapse on its own weight -- if
for example amazon.com became unavailable for a few days, and then had a hard
time coming back up, etc.

Amazon is a machine of infinite complexity, and the way they deal with it is
to add more people, which makes it super bureaucratic (very far from the lean
mean machine they project to the outside world).

We'll see.

------
soared
It is obvious the author doesn't understand advertising. Honestly, skip this
one. Here is a list of problems:

* OP is constantly misunderstanding the difference between search, shopping, display, native, and social.

* Unsubstantiated claim that youtube has 'insurmountable' problems

* Display ads having 0.06% is irrelevant - the goal isn't clicks

* Random claim that google lost a major portion of its audience already?

* "Google already missed its chance to pivot" with literally no explanation or justification at all.

* Alexa has clear monetization strategy, but google home doesn't?

This is a clickbait blog pretending to be a hit piece. Come on guy, you can do
better than this.

~~~
thunderstrike
> Search was Google’s only unambiguous win, as well as its primary source of
> revenue, so when Amazon rapidly surpassed Google as the top product search
> destination, Google’s foundations began to falter.

This is the most annoying line though. Literally his own sources don't
corroborate his assertion.

Also, it is in past tense. When the first source he links to is from 4Q 2016.
Alphabet literally beat its earnings expectations _yesterday_.[0]

[0]:[http://www.businessinsider.com/alphabet-google-
reports-q1-ea...](http://www.businessinsider.com/alphabet-google-
reports-q1-earnings-2017-4)

~~~
palakchokshi
The post is written as if it was written in the future talking about things
happening currently. See the line just below the title. Reporting from the
very near post Google future.

~~~
thunderstrike
Which, unless it's a post-apocalyptic future, isn't coming any time soon.

------
joefkelley
For context, Here's Alphabet's quarterly financial results released yesterday:

[https://abc.xyz/investor/news/earnings/2017/Q1_alphabet_earn...](https://abc.xyz/investor/news/earnings/2017/Q1_alphabet_earnings/)

Revenue is up 24% year over year. Beat analyst expectations, so the stock
jumped ~4% yesterday.

~~~
dragonwriter
And even if revenue did start dropping, unless it totally collapses overnight,
Alphabet's enormous cash stockpile buys a _lot_ of breathing room.

~~~
zipwitch
They could always try to more dirctly monetize gmail.

~~~
gpawl
Do young people use gmail?

~~~
chinathrow
Do young people use email?

~~~
fasquoika
Yes, as the username of all the accounts they actually care about

~~~
chinathrow
Sure, but my question was more whether they actually send mails these days.

------
mnm1
I find it hilarious that people think something like Alexa / Google Home is
anything but a gimmicky ad, let alone the future of computing. Like other ad
supported content--Gmail for example--it has some useful features. Also like
other ad supported mechanisms of the past, it's a huge invasion of a user's
privacy for little gain. When this thing is actually "smart" (whatever that
means) enough to do something useful without phoning back to Amazon and when
that thing isn't just buying useless shit from Amazon, let's revisit. Until
then, let's remember that this is just another medium for advertising. Nothing
more. Nothing less. Google does, however, specialize and excel at one thing:
advertising. I wouldn't count them out just yet.

~~~
Tanegashima
This.

It has the slowest and most limited I/O in the world: voice, and people think
it's the future?

Seriously?

Google Now on Tap (which they cut out, so it seems) was far more impressive
innovation, and the way computers should work in the future.

------
ggggtez
I guess it's hard to predict the future. This was published 4 days ago, before
earnings released showed that the author has no idea what they are talking
about.

------
mabbo
As an intern at Google back 7 years ago, a fairly senior developer that I
liked working with told me something that really stuck with me: "Google found
a hose that money pours out of, and it's called Online Advertising. All that
we do now is try to make that hose work better, and try to find another hose."

I think the premise of this article is that Google's money hose is drying up
and it seems they may not have found another hose.

------
theCricketer
Related: Here is an interesting piece from Benedict Evans, where he argues
that there are currently many reasons voice technology isn't ready to be the
next platform.

[http://ben-evans.com/benedictevans/2017/2/22/voice-and-the-u...](http://ben-
evans.com/benedictevans/2017/2/22/voice-and-the-uncanny-valley-of-ai)

An excerpt:

"There's a set of contradictions here, I think. Voice UIs look, conceptually,
like much more unrestricted and general purpose interfaces than a smartphone,
but they're actually narrower and more single-purpose. They look like less
friction than pulling out your phone, unlocking it, loading an app and so on,
and they are - but only if you've shifted your mental model. They look like
the future beyond smartphones, but in their (necessarily) closed, locked-down
nature they also look a lot like feature phones or carrier decks. And they're
a platform, but one that might get worse the bigger the developer ecosystem"

------
philosopherlawr
There isn't enough evidence to back up his claims, especially about artificial
intelligence. His claim that Amazon with Alexa will succeed in the marketplace
is not definite at all. It's true Alexa has a head start, but Google is
catching up to it. The situation kind of reminds me of android in 2010 vs. the
iPhone. Look what happened there.

~~~
Klathmon
Honestly in my mind Google is already passing Amazon and their Alexa.

They just released an update to their Google Home which does individual voice
recognition per person to offer individualized results for each, even going as
far as to play my favorite playlists when asked, and my wife's when she asks.

~~~
pound
I wish they'd catch up with not using company name as a wake-up word

------
jeffjose
Unnecessarily alarmist. It's true that Google isnt making free ad money
anymore and other companies are viable threats unlike Yahoo and Microsoft of
2004. Google has lots of monetizable balls in the air - Cloud, Pixel line and
few others.

~~~
partiallypro
But still ads are ~95% of their revenues. Google has a lot of balls in the air
and only one of them is profitable. Microsoft and Samsung have made more money
from Android than Google has. The alarmism is definitely overblown, but don't
paint Google as a company with diverse revenue streams, because it's not.

Alexa and Google Home are mostly gimmicks at this point, they are by no means
a threat to Google's core revenue stream. though, ad blockers are. But
Google's biggest enemy is itself, because I think if Google goes the path they
seem to be going in response to ad blockers, with Chrome's ad blocking,
(blocking competitor ads, but not their own) the FTC could very well step in
and destroy their momentum.

~~~
dragonwriter
> But still ads are ~95% of their revenues.

~88%, but there's still $3 billion quarterly in other revenue in Google.

> Google has a lot of balls in the air and only one of them is profitable.

That's not clear, because while Alphabet breaks out operating income and loss
between Google and Other Bets, they don't break out that within Google, only
breaking out Revenue. At least in summary docs. Other Bets aren't profitable,
but it's not at all clear that the non-advertising parts of Google aren't.

------
rickdg
Have we stopped evaluating companies based on vision and expectations? Because
mapping all of reality is a pretty solid strategy that Google is striving for.

~~~
woah
So far, it's an ad agency with hobbies. The inspirational quotes they feed
their employees and shareholders shouldn't distract you from their actual
business.

~~~
gpawl
You think that trying to teach a computer everything about everything doesn't
support ad revenue?

Google has a lot of ads customers. Why do those customers use Google?

------
JKCalhoun
"Ads are cool as long as they are relevant to me," said no one ever (who
wasn't in the business of selling online advertising).

(EDIT: typo)

~~~
skybrian
Game and movie trailers are ads. People not only don't mind them, they seek
them out and share them.

(There do seem to be too many movie trailers these days before the movie
starts, but I think we'd miss them if they were gone entirely.)

~~~
rhizome
I remember 10-15 years ago there was a site that had all the latest
commercials, just to show what creative stuff was going on in the advertising
world.

It got shut down for copyright.

~~~
mcphage
I liked that site, and was disappointed when it got shut down.

------
norea-armozel
I don't think the collapse of advertising is necessarily a collapse of Google.
Google (Alphabet, really) has so much IP and many other possible ways to grow
that if crap hits the fan they can change course. Not to mention they do seem
to be generating plenty of revenue to keep people interested in buying their
stock. So long as Wall Street is willing to bear the weight of their ventures
then I don't see Google going away any time soon. More likely is that Google
eventually leaves the advertising business as it becomes less relevant to
their bottom line just like how Amazon isn't about books as much anymore (they
still sell them, but they got so many other revenue streams that if books as a
market cratered they wouldn't go bankrupt from it). When that "eventually"
will happen I can't say but I'll say I'd be surprised advertising would be
relevant to them in twenty years beyond a marginal line of business.

~~~
woah
What percentage of their revenue is from advertising right now? Over 99%,
right?

~~~
dragonwriter
About 88%.

Which is a lot, but it's still $3+ billion in _non_ -advertising revenue
quarterly.

------
georgeecollins
Google won't collapse because:

Mobile search is likely to be replaced by agents, and google controls one of
the best AI agents and the world's most popular operating system.

Users hate ads but they don't necessarily hate paid responses to search
queries, if they are appropriate. That business is not going away soon.

Also, just because YouTube isn't yet profitable doesn't mean it could be made
profitable. The Author talks about how Amazon has surpassed google for product
searches. Amazon was not profitable for a long time to prioritize growth. I
think you can see the same thing with YouTube.

And, oh yeah, they get a cut of a store that is projected to have $42B in
revenue in 2021. ([https://9to5mac.com/2017/03/29/app-store-android-app-
market-...](https://9to5mac.com/2017/03/29/app-store-android-app-market-in-
revenue/))

------
socalnate1
This also came out today:

[https://venturebeat.com/2016/07/28/google-parent-alphabet-
re...](https://venturebeat.com/2016/07/28/google-parent-alphabet-reports-
strong-21-5b-in-revenue-and-8-42-eps-for-q2-2016/)

------
fidget
So short it

~~~
snarf21
Exactly, they are still at almost $20B in quarterly ad revenue. Facebook is
their only competitor because of its captive and mobile audience. Plus they
are already diversifying with more bets on the cloud plus things like Waymo,
etc.

Edit: misquoted data thinking it was yearly not quarterly.

~~~
mrdodge
More like nearly $80 billion in yearly ad revenue. $20 billion is their
profit.

------
tsunamifury
Its actually far more likely that the app economy would collapse well before
any sort of "ads economy" collapse.

------
sunstone
When I search for a product I use google because why would I want to restrict
my potential sources just to Amazon?

------
sna1l
Relevant Taleb tweet: "A man is honorable in proportion to the personal risks
he takes for his opinion."

------
Markoff
why is 35-44 years group least likely to use adblockers? looks odd to me
compared to older groups

[https://cdn-images-1.medium.com/max/1000/1*o6B3OtXfG9pqwRDru...](https://cdn-
images-1.medium.com/max/1000/1*o6B3OtXfG9pqwRDruQXwPA.png)

~~~
dragonwriter
> why is 35-44 years group least likely to use adblockers? looks odd to me
> compared to older groups

Probably because the older group has progressively greater propensity to have
other, younger people setting up their computers.

~~~
Markoff
hmm, it sort of make sense, not so young anymore, but not that old with
helpful young children (usually) plus also as other user mentioned in
combination with work computers it makes sense, but I would still think that
65+ group will get less tech support or they just don't care that much about
ads, but who knows...

------
ChuckMcM
I enjoyed the way the author laid it out, it illustrates the problem Google
has, and I tend to watch Google's responses fairly closely. But in full
disclosure mode, if this is the first you've heard me say this, and it isn't
:-), I also believe that Google's inability to create a business outside of
search advertising has put them in this spot.

I would also like to address a common response to the 'Google is doooomed'
thesis, which is "Hey, look their revenues are going up and up, you would be
stupid to think they were doomed!"

I've asserted for several years here that Google's core advertising business
is rotting from the core outward. And I used as the basis for that tracking
their reported "cost per click" erosion and their "paid traffic" growth.

The reasoning is pretty simple; At the most basic level Google puts an ad out
there, and when that ad is 'clicked' [1] they collect a fee. And if you are
familiar with the history, this was revolutionary where advertisers could pay
only when someone demonstrably both saw their advertisement and indicated an
interest in it with a click. And initially it was wonderful and then bad guys
figured out they could insert themselves in the middle, selling advertising
space to customers at a price per click and then buying the ads on google can
clicking on them with their own computers and collect some ad revenue off the
top. Easy riches except that the ads massively underperformed because most of
the clicks on them were fraudulent. And that begat a war that continues to
this day and has lead to a general disillusionment with online advertising.

So people get disillusioned, but as advertisers are setting the prices and
budgets they show this by being unwilling to pay more for ads that they aren't
sure will be effective. And since Google's system is auction based their
pulling back results in the average price Google can get for a 'click' to go
down. At which point Google has three choices, eat a revenue loss (not really
a choice), give them more opportunities to buy ads, or increase the number of
people who are getting a chance to click.

Google started by bringing more people in contact with their ads by "buying"
traffic. The way that works is you find a web property where people are
accessing the Internet and you pay the proprietor money to only show your ads
to their traffic, or to move their traffic to your web site. So in the case of
Firefox they paid mozilla to send their search traffic to Google, in the case
of Apple they paid to have all of iOS search traffic go to Google by default.
In all these cases you "lose" a bit by increasing your traffic acquisition
costs (that money comes out of ad profits) but if you get more clicks from
that traffic than you paid for it, you can cause your revenue number to
increase. As the effectiveness of buying traffic has declined (and there just
aren't that many sources out there and Microsoft is also paying for traffic so
you end up paying more and more for less and less valuable traffic) and the
cost has gone up, they moved on to stage two.

Stage two was to start increasing the number of ads you had exposure to when
you landed on Google sites. You look at how hard people work to be in the
first few search results on the page, well advertisers want to be in the first
few ads. You can also create other ways to pay to play like, for example,
charging advertisers a monthly fee in order to _enable_ them to appear in a
'shopping box' result that appears on what looks like a shopping search query
assuming they bid enough on their ad to show up there. Search engine result
pages (SERPs) for shopping 'like' queries progressively got fewer and fewer
organic results and turned into mostly ads. Google stopped surfacing organic
web pages or web sites from their index that their algorithm told them were
the best results for a query in favor of people who had paid to be on the page
in the event a given query or keyword was entered. More ads to click, heck
pretty much anything you clicked on the page was an ad, and revenue goes up.

Of course there are limits to how far you can take this, and the article
pointed out that people are pretty fatigued from all of the advertising. As
you block more ads and start avoiding things that are just ads in favor of
perceptually "better" web sites, revenue should drop at Google. And I was
surprised it didn't, but then I read this article :
[http://www.cnbc.com/2017/04/27/alphabets-google-unit-
grabbin...](http://www.cnbc.com/2017/04/27/alphabets-google-unit-grabbing-
ever-more-ad-revenue-from-partners.html) The CNBC folks had noticed that
Google's ad revenue from its own sites was growing faster than its partner
sites. And that tells me that Google had a third strategy which was "reduce
the share of ad revenues to partners." Which really sucks for partner sites
and adds commercial sites to the list of people complaining that their AdSense
revenue reduced to a trickle over the last 5 years.

Google burns though an extraordinary amount of cash. Its partly due to the
nature of their business and its partly due to the way they are investing
looking for new opportunities. The unanswerable question is what happens when
Google runs out of ways to offset their ad profit margin declines and have to
show a reduction in revenue Q/Q and then Y/Y? I don't think they will
'Collapse' any more than IBM collapsed when the computer market stopped
carrying the load for them. But will be an extraordinary test on their
leadership to avoid setting up a Blackberry like slow descent into near
obscurity.

[1] Yes there are CPI models as well but historically they are both lower
paying and a smaller fraction of revenue.

