DanielBMarkham, let me try again using quotes from Google's last two earning transcripts from the last two quarters and see whether that helps to clarify.
I'm loath to go anywhere near a subject like corporate earnings for various reasons, but Foremski says "There is no explanation from Google or Wall Street analysts that I could find," but anyone can go read Google's Q2 2011 earnings call transcript, which you can find at http://seekingalpha.com/article/279555-google-s-ceo-discusse... . The relevant sentence is "Network revenue was again negatively impacted by the Search quality improvements made during the latter part of Q1, as you will remember, and know that Q2 reflects a full quarter of this impact."
Now go read Google's Q1 earning's transcript at http://seekingalpha.com/article/263665-google-s-ceo-discusse... . The relevant section is "The Google Network revenue was up 19% year-over-year to $2.4 billion. That Network revenue was negatively impacted by two things, the loss of a Search distribution partnership deal and also, what has been broadly communicated, by Search quality improvement made during the quarter. Regarding the Search quality improvement, remember that we regularly make such trade-offs. We really believe that the quality improvements that benefit the user always serves us well both in the short term and in the mid term in terms of revenue."
So Foremski claims that "For some strange reason no one has picked up on this or noticed this huge change in its business model. There is no explanation from Google or Wall Street analysts that I could find." I would contend that Google has actually been quite clear about the reasons for the change in network revenue in its earnings calls.
In particular, Google has been clear in that it's willing to accept an impact in our revenue in order to improve the quality of our search results.
I'm obviously pursuing you into a spot you can't go, and for that I apologize, but the relevant problem here was your quoting a commenter from a blog who claimed from the earnings discussion that the effects would be transitory. That's a little too much indirection and terseness for my tastes. I also lost track of pronoun antecedents. In particular, I read it as transitory in terms of partner performance, when I guess it was meant to be transitory in terms of Google earnings performance? Still a bit unclear there. It's not worth chasing down myself, and we've beat on it enough. I was more concerned about somewhat-famous-person-makes-blanket-pronouncement-which-goes-unquestioned stuff, which is trashy for the quality of the site. Appreciate the clarification and additional resources provided for anybody who cares about this more than I do.
No worries. Going back to the original earnings transcripts is nice because then it's official Google statements, not something I'm claiming.
I'd been meaning to find those quotes anyway; back in January, a few skeptical people wondered whether Google "has a disincentive to algorithmically weed out the kind of drivel that exists for no other reason than to make its publisher money via AdSense" -- that's a quote from http://news.ycombinator.com/item?id=2127937 .
What the last two earnings calls show is that Google is willing to accept an impact in our revenue to improve our search quality. So it was a helpful exercise for me to track down the relevant bits from the earnings transcripts.
Yes but I think Google possibly are being disingenuous here. Yes its negatively impacted by some search quality improvements, but is it NETT negatively impacted, or is it also positively impacted as well.
After all, you are displaying ads that someone has paid for, so if someone isn't clicking on them, then maybe the content is no good for the ads (ie poor quality). Likewise you can tell by how much someone will bid on the keyword how valuable the content is.
That doesn't explain the sudden strong spike in Google's own earnings, it only explains the decline in network earnings. How is Google harvesting some of the Panda changes for itself? As it happens the FTC is probing whether it is unfairly intercepting too many queries itself http://online.wsj.com/article/SB1000142405270230333990457640...
"it only explains the decline in network earnings."
mapgrep, the original article was centered around the change between Google vs. network earnings. In fact, the first sentence of the article was "Google reported stellar 2011 Q2 earnings but Google's partner sites, which used to account for half of its revenues, showed a massive lag in growth." The original article went on to point out "There is no explanation from Google or Wall Street analysts that I could find."
I'm just pointing out that Google has provided guidance (in both earnings calls) about the reasons for that disparity.
You have pointed to guidance on the "massive lag in growth" by partner sites but not to the "stellar 2011 Q2 earnings" by Google sites. The latter earnings growth is truly exceptional:
Google sites grew 39 percent in Q2 2011 vs 22, 22, 23 and 20 percent in the prior four quarters (!). Foremski wrote, "Google sites' growth jumped suddenly and without any explanation." That explanation is still nowhere to be found.
Something is missing here. I'm not saying it's nefarious or not, and I'm not saying you /need/ to address it, just that you haven't, and that Foremski's question still stands. You seem to be saying (roughly) "nothing to see here," but that appears to be incorrect.