Month: October 2006

Google, Yahoo and stock prices

Yaron Galai1 Comment

I’m pretty much clueless about the stock market (unless watching Jim Cramer throw around chairs counts for anything). I guess that stuff simply skipped my DNA. So if the following sounds to you like a 2nd grader asking stupid stock questions, you are absolutely right…:

With all the Google stock mania going on, alongside the poo-pooing of Yahoo as being a terrible investment, I’m mystified about one thing:

Isn’t stock investing all about the future financial growth of the company?

Google is an incredible company, no doubt about it. Their revenues are beyond staggering. One of the main reasons their numbers are so great is that they figured out how to monetize a search query and optimized and optimized and optimized. And optimized.

They’ve done such an amazing job with optimizing revenue-per-query, that I wonder if there are any other big optimization tricks up their sleeve. If not, it seems inevitable that revenue-per-query will flatten or at least its growth rate will drop sharply. When that happens, overall *revenue* growth will result from overall *query* growth. This can come from 2 sources: New internet users, and/or converting users over from competition. Both ain’t exciting growth prospects. [1]

Yahoo on the other hand has done a terrible job at monetizing their search queries so far. Their ads were too long, the placement was by bid price and not by overall yield, the relevancy was questionable, etc, etc, etc.

But that’s all part of the past. At this point it seems like Yahoo has all the optimization growth in front of it, while Google is basically done with most of its per-query optimization growth. With Yahoo’s new Panama system being soft-launched these days, it seems like they’re focusing exactly on squeezing the hell out of each query’s revenue potential.

So, if stocks are all about the *future* financial growth prospects of a company – Is it terribly stupid to go long on Yahoo, and short Google? I’m surely missing something that the rest of the market is seeing.

[1] Of course YouTube might start generating gobbles of money, etc. That might be. But today Google is basically a 1-trick revenue pony called AdWords (AdSense is mostly a money wash because of the low margins Google is operating it on).

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Fox outfoxed by Google

Yaron GalaiLeave a comment

Gootube
According to TechCrunch, some executives at Fox are unpleasantly surprised by Google’s acquisition of YouTube:

A source inside of Fox, which owns MySpace, tells us that they were surprised that Google was aggressively pursuing a deal with YouTube, given Google’s nearly $1 billion advertising relationship with MySpace. MySpace views YouTube as a competitor, and recent Hitwise data shows Myspace Video quickly catching up to YouTube.

The only surprise is that Fox is surprised by this.

Last month when the MySpace-Google deal was announced, I wrote this:

MySpace is essentially outsourcing its kitchen
over to Google and becoming another node in its network. When that
happens, MySpace will actually deliver *less* traffic to retailers,
while feeding the Google beast and giving it an even bigger share of
web traffic. Retailers looking at their log files will see the traffic
coming from "Google AdSense", not from MySpace.

In this relationship, Google is the only one that walks away with
the long term assets of advertiser base and deep expertise in
monetizing traffic.

Google makes ~5x more money (bottom line) on each ad impression on a Google-owned page than it does on a 3rd party AdSense page. If the company wants to continue growing the way it has so far, they won’t be doing it via deals like MySpace on which their margin is negotiated down to barely nothing. They will do this by building and acquiring their own media, which is 5x more valuable to them.

Deals like the MySpace-Google deal are pretty much a trojan horse for Google to build its direct advertiser relationships and monetization expertise on the shoulders of others. The real money will be made on the content that Google owns/will own. It’s a loss-leader game.

Every time Google signs a mega-deal for powering a 3rd party media company, its almost guaranteed that they will shortly after get into that business themselves and become the biggest competitor around (with all the ad relationships). If they don’t balance Google-owned media with 3rd-party ad syndication, they risk significantly diluting their overall profit margins because of that 5x factor. And that doesn’t seem like something they’re intent on doing.

IMHO – The best use of the Google money going into MySpace, AOL, Ask.com, etc is to build or acquire their own in-house ad capabilities and eventually phase out Google. Otherwise they are bound to lose the battle both on the ad front, as well as the content front.

I wrote a couple of related posts on this here and here, and probably a few other places I can’t remember.

Full disclosure + a small plug: I am co-founder of Quigo. We offer media companies a solution comparable to AdSense, except that it is a private label. And we don’t compete with our publishers on media. So feel free to consider all of the above to be ‘interest driven objective commentary’… 😉

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Introducing Outbrain

Yaron Galai2 Comments

In the past few weeks I’ve been bugging you with posts about a mysterious ‘RSS relevancy project’ I’m working on. Here’s the story:

RSS is a great way to consume content. So you get all excited and start adding feeds to your RSS reader. And then it quickly becomes an unmanageable crazy avalanche of content.

Out of this pain outbrain was born.

The idea is simple – If every blog/post/feed is read by many people, why don’t we harness the collective wisdom of all the readers for everyone’s benefit? That way we can save each reader’s time by quickly floating the best posts and flagging the worst.

But ‘best’ and ‘worst’ are very subjective definitions. A post about ski that might be extremely interesting to my good friend, could be a total bore to me.

So we decided to try and take this one step beyond the collective ‘wisdom of crowds’ type sites (aka – Digg & clones, or should we say ‘wisdom of bored teenager sites’…), and develop algorithms that try to predict personal interest in a specific article/post before it is read.

We do this by asking all outbrain users to vote on the items they read. The algorithm then seeks out similarities in voting patterns among different outbrainers, and personalizes recommendations accordingly. The more people vote about stuff they read, the smarter their outbrain becomes in recommending the right items to them.

Which brings me to the second goal we set – We hate being bugged by sites where submissions are a 5-minute process including logins, captchas, forms, etc. We want to bug our users as little as possible, and give them the benefit of the technology wherever they’re already used to consuming their RSS feeds. Except for signing up, I don’t think you’ll ever have to visit the outbrain.com site again.

The first small step of outbrain is now available. More information about it on the outbrain blog here.

If you’re interested in joining the outbrain project – head over to the website and submit your email address. I’ll shoot you back an email with a user name and details on how to get started.

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