Categories

On Google’s Future. Part 1

From 2005 through 2012 Google site revenues[1] have risen at a rate consistent  with the growth in global Internet population excluding China[2]. The Internet population and Google.com revenues for the period 2005-2012 are shown in the following graph.

Screen Shot 2014-03-13 at 3-13-3.17.02 PM

The correlation is shown in the following graph:

Screen Shot 2014-03-13 at 3-13-3.17.21 PM

Taking into account costs and expenses, on a per-user basis profitability per user (assuming all non-Chinese internet users are Google users) is shown below:

Screen Shot 2014-03-13 at 3-13-3.17.14 PM

The simple conclusion is that Google earns approximately $1.2 per user per quarter (net income is the blue area above). This figure is relatively constant with a slight increase (~20%) over 3 years.

If the company does not alter its business model then the future potential of the business could be measured as a function of Internet (ex. China) population growth.

How hard can that be?

The next post will answer this question.

Notes:
  1. Google revenues are reported as “Google.com”, “Network”, “Motorola” and “Other”. For this analysis I am including only the Google.com revenues []
  2. Internet population is calculated as a combination of penetration as reported by the ITU and population data from the World Bank []
  • macaddict

    If anything, I see that their costs/user are going up however their net income/user is fairly constant. If they don’t change the way they are doing business, costs will continue to go up and up… Am I reading it wrong?

    • Sacto_Joe

      Looking at their income statement, Google’s taken a pretty decent knock on net income as a percentage of gross income over the last few years, down from 29% in fy ’10 to 21.6% in fy ’13. Will that continue? Hard to say.

      BTW, the stock is clearly being rewarded for its growth in revenue (a la Amazon?) of late. However, what seems to have escaped the market’s attention is that revenue growth is clearly slowing, from 32% for fy ’12 to 19% for fy ’13.

      In fact, the parallels between Apple and Google on revenue and earnings is pretty striking – and yet one is sitting at a P/E of 33.2 while the other has a P/E of 13.2. IMHO, this strongly suggests that GOOG is just about as overvalued as AAPL is undervalued.

      • obarthelemy

        Apples and oranges. Apple is mostly The iPhone Company. That’s a vulnerable position, dependent on waning subsidies and a flair that seems fragile (see iPhone 5C). Google are under much less threat and pressure, especially in the short and medium term. Hence the much lower risk premium on Google.

      • Kizedek

        “Google are under much less threat and pressure, especially in the short and medium term. Hence the much lower risk premium on Google.”

        Yeah, so say the people that can’t conceive the form that any threat to Google might take. Sure, no threats.You have simply repeated the mantra about Google that Horace is calling out. Yet, google is still very much that “one trick pony” that Apple is perceived as when called “The iPhone Company”. That’s the point: What Apple is perceived as, is very much the problem for Google. Thanks for illustrating this astounding tunnel vision, yet again.

        That was kind of the point of the last couple of articles:
        Apple is perceived as “mostly The iPhone Company” by WallStreet and pundits. Yet its other businesses are huge.

        Perhaps Apple is perceived this way because iPhone accounts for more than 50% of revenues currently, whatever. …yet, each of Apple’s “other” businesses are to die for. Even its PCs. Horace has recently profiled iTunes, which is comparable in revenue and profit to the whole of Google. And something seems to be happening with TV.

        The thing is, all the perceived “threats” facing Apple — the ones you and WallStreet and pundits love to trot out every five minutes — are “threats” that Apple has always faced… and faced down year after year.

        Meanwhile, Apple is preparing for other kinds of threats as it acquires new companies and capabilities at a fast pace; Google sheds itself of Motorola and tries Nest instead, and Apple prepares for cars, maps, wearables, and iBeacon with iOS 8…

        It’s not Apples and Oranges if Apple is working on Services — things that continue to bring value to its hardware. Conversely, Google has had trouble with hardware, and with delivering a consistent and meaningful experience with their services because they are weak at hardware.

      • obarthelemy

        “things that continue to bring value to its hardware”. That’s precisely why it’s apples and oranges: Apple is only concerned with its own hardware, and linking its global success to the continued success of its handsets. Google don’t really care how you get on the ‘net, as long as you get onto it.
        And that’s adding another obstacle for Apple: apart from being dependent on handset sales, they also need handsets *share* to make infrastructure for payments, physical tracking… worthwhile.

      • Kizedek

        Puhleeze. The internet is something that Apple is just as concerned about as anybody else. But, the world wide web has been co-opted and annexed by Google, just as MS attempted to do with IE plugins and a corrupted java.

        Hence all the hand-wringing about how Apps and Mobile are “killing” the Web. Yeah, no threats to Google as long as we live through our browsers and Google can continue to perch on top of the whole WWW like a vulture. That’s what Google is concerned about; and that is why the future of Google is a little more precarious than anyone wants to admit.

      • charly

        Internet is the core business of Google, it isn’t of Apple so i doubt that Apple is as focused on Internet as Google is.

        Apple and privacy? Compared with Facebook, Google or the NSA then the answer is yes, otherwise no

        Apple and security? Funny.

        Apple has the habit to take the high end profit until the high end dies. Which it regular does in electronics.

      • Kizedek

        “Apple has the habit to take the high end profit until the high end dies. Which it regular does in electronics.”

        Awwww. Now that you put it like that!

        Looked at another way of course: Apple makes a desirable and sustainable product that extends the lifespan of the whole category; otherwise, that whole category would have died all the sooner as everyone else playing in that category destroys it through a race to the bottom. Vis-a-viz, MP3 players; and, increasingly, PCs. Netbooks? No Apple, no extension of lifespan of that category.

        Or, Apple resurrects a category (tablets). If others can’t compete profitably because they don’t focus on the real value, how is that Apple’s problem?

      • Kizedek

        Nice list of talking points… Samsung give them to you?

        “Apple and security? Funny.”

        I’m laughing. One bug gets blown out of all proportion, because people need something to jump on. But all the malware is on Android, and Enterprise is adopting iOS devices to replace Blackberry.

        Then you read stuff about how Apple does a little bit extra, like making separate keys for each iOS device, not just each account; which apparently helps keep the NSA, etc. out.

        I sure feel all fuzzy and warm inside. Keep laughing, though.

      • charly

        Not all malware. NSA malware is also present on IOS. IOS is good at protecting against the average phishing attack but is not good at protecting against targeted attacks.

      • Sammy

        Referring to some vague PowerPoint presentation that the NSA has malware the iPhone from 2008, doesn’t support your assertion that the NSA still has a back door to iOS.

        Facts please.

      • charly

        Appstore based defense don’t work against targeted, high return type malware (like NSA malware is). This doesn’t even assume that Apple is co-operating. There is also a problem with zero day bugs in the wild. The jailbreak community obviously has them and the ones that Apple could easily fix with the appstore are obviously kept secret. They are also the ones that the NSA is most interested in.

      • N8nnc

        Translated: Apple is good at the things that matter, and doesn’t do enough about the threats that can’t be effectively defended.

        A highly motivated, highly skilled thief is going to steal your car no matter what. I value practical protection against the opportunistic thief.

      • charly

        A defeatist argument.

        Also there are ways to make it harder like for instance not having known open holes. A situation Apple creates by requiring jailbreaking to really own your phone

      • Kizedek

        “Internet is the core business of Google, it isn’t of Apple so i doubt that Apple is as focused on Internet as Google is.”

        I suspect you are correct. All the more reason that Google should be as focused on the future as Apple is.

      • charly

        The future is services. That is really Apple strength.

      • Sacto_Joe

        “Apple has the habit to take the high end profit until the high end dies. Which it regular does in electronics.”

        Careful. Your jealousy is showing….

      • Sacto_Joe

        All companies are subject to potential vagaries. But we’re not talking about flights of fantasy here, we’re talking about the cold, hard fact that Google’s revenue growth is slowing and its net income is flat as a pancake.

        I realize you have a job to do here denigrating Apple and building up Google, but you just make yourself look foolish when you ignore reality.

      • obarthelemy

        You’re saying a company’s P/E is not supposed to reflected risk ?

        Just whoa…

      • Sacto_Joe

        Since you seem to have comprehension issues, I’m saying Google’s P/E is not reflecting that it’s growth is slowing, else it would be a lot lower. I’m also saying that Apple’s P/E is not reflecting that it’s growth hasn’t completely slowed, else it would be a lot higher.

      • charly

        The expectation is that iPod sales will only go down, iPad sales will peak this year and iPhone sales will start to experience difficulty within two years. Mac & AppleTV are unimportant businesses.

      • Sammy

        How can you say that the Mac business in unimportant? It may be less important than the iPhone, but it’s still more profitable than HP, Dell, etc…. Windows PC businesses.

        The AppleTV has sold more than the roku and chrome cast combined. The AppleTV may be important to the future growth of the Apple ecosystem.

      • charly

        It is unimportant compared to the iphone business and it is unlikely to double next year so i can obviously say that it is unimportant

        The general public doesn’t know roku and chromecast is less than a year old and not worldwide. It is also something that one should expect to be included in every pricey TV in a years time.

      • N8nnc

        iPod device sales will go down, but iPod functionality ships in every iPhone & iPad so usage goes up. I doubt iPad sales will peak, but they sure aren’t going to drop anytime soon. Mac may be comparatively small, but it’s the largest player in a market that Microsoft, at least, thinks is still important. Apple TV either climbs steadily or explodes. New products are being readied to disrupt other markets. Apple’s status as the world’s largest and most profitable company seems foreseeably assured.

      • charly

        Last year they had anemic ipad growth so an actual drop in ipad sales is likely. Mac is small in comparison with windows pc and that share is mostly from American consumers and some specialized fields. Apple TV has serious usefulness problems outside of the US.

      • http://www.noisetech-software.com/Home.html Steven Noyes

        And Google is the advertising company. So what?

        I would argue that great search engines like DuckDuckGo pose a greater threat to Google’s sole revenue stream than Android does to Apple’s primary revenue post.

      • charly

        Sole? Youtube, Gmail, Chrome (the browser, not OS) and Google play are also big revenue generators. Also Google provides the ads for many non-google sites.

        ps. The feature that makes DuckDuckGo great (search that is not personalized) is also makes them not a good search engine

      • Sacto_Joe

        All those other revenue streams pale in comparison to ad revenue. Perhaps not literally “sole”,’but for all intents and purposes, yes.

      • charly

        YT, Gmail & Chrome are paid by ads but DuckDuckGo isn’t a treat to Google’s ad network but to their search engine and the direct money they make by selling ads on the search engine site.

      • Walt French

        A couple of qualifications on your remarks. First, although Google breaks out revenues from non-Google sites, those revenues have always grown more slowly than it own sites’ revenues. They are not so small as to be irrelevant, but the trends are such that they are less and less relevant, especially in not powering any new disruptions.

        Second, I’ve written before about how I used Google to find some details buried at SFBallet.Org, and as a result, ads everywhere featured the company to which I had season subscriptions. I.e., NOT a good advertising vehicle, lowering the actual results advertisers need when they pay for exposure.

        More recently, I’ve started seeing ads everywhere for FlightCar.Com (AirBNB for airport rentacars, if you will). Unless this campaign is a tiny company blanketing the US with ads, it’s somehow related to the fact that I’m one of their earlier, and more intensive users, and Google has drawn the connection—perhaps from my being quoted on NPR/NPR.Org and in the Washington Post/WashingtonPost.Com.

        Likewise, once I’ve clicked on something in an ad (say, to look at a camera-stabilizing rig for prosumer photogs), it appears in other ads I see, over and over, for weeks or months.

        Google’s efforts to make ads more “relevant” (i.e., to get more revenue per impression from advertisers) ends up providing me with some humor and recognition that all those machine-learning smarts have a long way to go. If my example is close to typical, Google is adding a slight advantage in search, plus a slight advantage in monetization, to the tsunami of internet usage. And that tsunami is increasingly coming from cellular and lower-income countries, which contribute much less well to Google’s revenues.

      • Walt French

      • obarthelemy

        The declining subsidies aspect is only in very small part a EU/US purchasing power issue. It’s first that you no longer need a $1000 handset (that requires financing) to get on the mobile Internet, a $200 handset (that mostly doesn’t require financing) is quite fine; and second that mobile contracts are no longer $150/mo (which makes bundling a premium handset at $1000/24=$41/mo=27% relatively easy), but rather $50/mo (which makes bundling $750/24=$31/mo=62% quite hard), that’s w/o interest too. And I’m being conservative, I’m personally paying $22/mo for unlimited everything in 3G…
        The main issue with Google is they’ve locked themselves out of China, which ethically is an admirable position, but business-wise is madness. As to global, Internet, and Mobile advertising spend and Google’s share of that, last time I looked it was all green lights for Google (more global spend, more .net spend, more mobile spend, GOOG share growing), but that was a year ago. The cost issue is probably more pressing.

  • Michael V.

    1. What do costs and expensed include? Is it just cost of traffic or all expenses including investments in future products?

    2. Why exclude network revenues? These are the same users just on different sites. It’s not growing fast but account for 1/3 of revenues. Seems to big to ignore.

    • http://www.asymco.com Horace Dediu

      1. Costs and expenses are the sum of operating expenses and cost of sales. Operating expenses include R&D and SG&A.
      2. Network revenues are included in the revenue/user measure. They are excluded from the correlation with internet users because I’m trying to measure Google’s “users” not those of their affiliates.

      • Michael V.

        So the caveat is that costs include investments in future products that may alter revenue per user or business model altogether.

        Also will be interesting to see how total ad spend correlates with Internet population. My guess it is slower than Internet population growth. If it is non-linear, it may again change future picture.

  • http://www.ouvre-boite.com Julien

    To me this shows one thing: the ad-based model is not very lucrative.

    I’d pay 100x ($120/quarter) eyes closed to not have the ads all over and get rid of the tracking that Google on everything I do. They would also save a lot of money by getting rid of all the tracking infrastructure, and I don’t think I’m just 1/100 people who would do that.

    • KKKDDD

      But then maybe advertisers are already paying 140$ to target your profile, and it just gets diluted in the masses.

    • obarthelemy

      Let’s look at it another way:
      1- via Android, Google has put probably around a billion new users on the Internet. With time, those will get more active there, too.
      2- via ad revenues, Google has enabled thousands of sites to flourish.

      I know we’re supposed to be sycophantic only about Apple’s designs and business model, but those are mighty achievements.

      • Justathought

        #1: How do you figure? They’ve definitely created a more ubiquitous, easier access point for 1 billion users, but these are new internet users? I don’t think there are even 50 million android owners whose smartphone was their first internet experience.

        Even if Google could instantly add 2 billion new users worldwide this year, those new users would be nowhere near as profitable as the ones they have now. How do you sell ads targeting people with no purchasing power?

      • http://www.noisetech-software.com/Home.html Steven Noyes

        There is no way Android has added 1,000,000 NEW users to the internet. At best, 5-10% are new and the rest are just shifted from another device/access method.

  • http://www.isophist.com/ Emilio Orione

    More population and more internet penetration are correlated with more revenue, so far, but for me there is an upper limit in growth: the total ad internet budget.
    Since the growth of population is concentrated in less developed countries, the correlation with ad spending will have to fade, there will be a break point.
    Just my 2 cents.

  • Rocket_man

    And even if there was no upper limit on ad budget, there is certainly a limit on total internet usage (the population of the planet) yet Wall St considers that Google revenue growth has no limit. Perhaps they believe that Google can eventually reach users from other planets, via one of their Moonshots.

    • nuttmedia

      Google’s high valuation is more predicated on the idea of a continued displacement of ad dollars from other media (TV, radio, print). There remains a dislocation in terms of eyeball time in print vs web so still room to grow. Less certain is TV, but I am sure you can at least recognize fertile ground for disruption of some extent there.

      To be clear, I’m not saying such growth is a sure thing for them, but I do believe the pathway to growth is a lot clearer than it is for say, Apple, or Facebook.

      • eric perlberg

        Even non-web ad spend is limited. I’ve seen estimates of $500B global ad spend, not much different from the global smartphone hardware estimates I’ve seen. I would have thought that Google desktop search has already usurped much of non TV adv profit. Mobile ad spend seems to be stealing from desktop ad spend much of which Google already controls but mobile seems to bring in less revenue per click from what I understand. Further it’s not like Google is in the race for ad dollars alone, it’s an increasingly competitive field with Facebook, Twitter, and many others with similar revenue models. As far as i can see there is no reason to assume that ad revenue is a slam dunk for Google growth. Can you supply any data to back up your evaluation that Google has greater prospects for growth than say Apple? I’d be interested to hear your thinking in light of the above.

      • nuttmedia

        Just to reiterate, I merely said that the pathway is clearer, and not necessarily that growth potential nor prospects are greater. I was a Mac user before Apple was doomed, and full disclosure, I am an AAPL shareholder; so my interest is not in casting a shadow on their future.

        So a couple things to help give better shape to the ad space in general and Google:

        For a macro view, Mary Meeker of Kleiner Perkins puts together a great deck on the state of the internet.

        http://www.slideshare.net/kleinerperkins/kpcb-internet-trends-2013

        On slide 5, you will see a high level view of the ad space with some headroom for internet ad spend, and a lot of meat still left to chew away from the bones of print.

        Google has harmonized ad dollars on their platform with reference to mobile and desktop via something called “Enhanced Campaigns.” I won’t go too far down the rabbit hole on this as it’s a deep topic, but think of it as a way to make advertising more agnostic as far as Google is concerned relative to desktop and mobile while ostensibly providing flexibility and greater simplicity for the advertiser.

        Yes, you are right in saying there is increased pressure on Google, particularly in mobile, and I made that point in a separate entry on this post. However, few players can match the scale, breadth, capital and expertise of Google which is why the market continues their bet on them.

        All that said, yes, there is legitimate questions on Google’s growth, particularly at a rate consistent with recent history. I for one think the market will correct for this in coming quarters. The race is on for them to establish a truly accretive growth avenue. Their “Other revenues” line saw 100%+ growth y/y consisting of hardware and Play, but it is not even 10% of top line, and likely margin dilutive depending how much hardware is a part of that.

        Google Play is something to watch. It’s growth, per Distimo, is accelerating, if only just on sheer share and volume but dislocation in engagement by users and developers remain. They want to believe they have solved the fragmentation problem with the transition to “Google Play Services” but it will take a long time for developers to follow suit.

      • http://www.asymco.com Horace Dediu

        As far as I know, neither hardware nor Play are generating margin.

      • nuttmedia

        Corporate expense allocation can descend to political alchemy, but perhaps Play has an outside chance of some margin, however dilutive to the ad business. Given the aggressive pricing on hardware, it’s only a question of how much the loss is.

      • http://www.asymco.com Horace Dediu

        Play seems to be the same business model as iTunes and iTunes could generate a thin margin but then Apple does not share the 30% it keeps with mobile operators or handset manufacturers.

      • nuttmedia

        Perhaps that falls under my aforementioned reference to political alchemy, but I haven’t seen anything re: explicit rev share on Play activity beyond the content provider/developer.

        Ultimately neither here nor there — Play is little more than tablestakes in a broader contest. Of greater interest is knowing the game in which Google believes it wants to compete.

      • charly

        Apple is the handset manufacturer, just as they do OS and hardware in the PC market, so it should be kept in mind. They don’t share with the mobile operator because they have power but will they still be so strong in 3, 4 years time.

      • eric perlberg

        Thanks for taking time to answer. I’m one of those who questions Google’s potential for growth to the extent that justifies its P/E. Enhanced Campaigns and Google’s thrust into Google+ to my mind are only tweaks to a far larger set of issues which Google seems incapable of coherently addressing. Obviously mine is an opinion which the market doesn’t share.

      • charly

        There is still a whole lot of ad money spend in legacy mode (all the dead tree newspapers, magazines etc. will disappear but that takes time as internet is not even totally baked in but mobile has just started) so internet advertising has still a large growth potential. Ad spending also has a correlation to GDP that is stable unlike for instance phones (growth with income until everybody can own a phone, after that no growth)

      • eric perlberg

        As I pointed out above from info that I’ve read (Benedict Evans) the size of the total global ad market including China (where Google doesn’t participate) is about $500B. If that’s growing at the size of world GDP growth then its not growing terribly quickly. And while advertising is apparently shifting towards digital, its also critically shifting towards mobile and not desktop and its here where Google (we are talking about Google I think) faces real challenges to their current supremacy. It seems questionable to me to equate total ad spend world wide with direct correlation to Google revenue growth (justifying its current P/E) because the online and especially mobile competition in advertising continues to heat up. And we haven’t yet seen the Chinese invasion from Tencent, Alibaba et al.

        Without any statistics to back this up I would say that as (or if) personal disposable income increases signficantly ad spend would not necessarily grow but would definitely shift from getting the punters into the shops with sales for cheaper merchandise (e.g. Android phones) to getting the punters dreaming about higher markup luxury items (which should benefit Apple). If the phone market is saturated in any one region then it doesn’t mean no growth for Apple, it simply means that it becomes a Zero Sum game, one in which Apple is well suited to benefit from if disposable income increases.

        But futurology is speculative at best. And events have a funny way of interceding.

      • charly

        Most internet ad growth is as replacement of non internet ads. I expect that in the next ten years 50% of dead tree ads spending will go to the internet and that is still a very big market.

        GDP growth should also be looked at nominal and then you get something like 4-5% growth a year in the West even for the last 10 years.
        Ad spending is just part of a relative stable percentage of price with the exception of luxury goods that spend much more on advertising. Higher income means more spending. More spending with the same percentage means more ad income and with more luxury good spending it means much more ad income.

  • stefnagel

    Google’s revenue suggests a very low engagement business model. Could be worse: cf. cable and carriers. Maybe that’s why Wall Street loves Google; it also has commitment issues.

    • Sacto_Joe

      That’s their weak point. Apple TV is growing in part because people don’t double-pay as much (Hulu has ads but they are far fewer and thus far less intrusive). Some, such as myself, still pay for full cable but that’s very, very close to ending. Once Turner Broadcasting becomes available, I’m outa there.

      • charly

        AppleTV (and the media part of XBone) always leave the taste in my mouth of being only useful in the American market.

  • febsee

    A better metric to compare would be revenue in terms of internet connected devices. Comparing revenue to number of users may hide the fact that the user might have several connected devices.

    • obarthelemy

      On the contrary. Advertisers are paying for access to eyeballs, not to screens. Someone using one screen is not using another screen at the same time.

      • chosus

        on the contrary. advertisers pay for reach and frequency, not eyeballs or screens.

    • http://www.asymco.com Horace Dediu

      So more devices implies a more inquisitive mind?

  • KKKDDD

    I believe google just breaks down it’s income into us and overseas right? Maybe this (http://www.bubblews.com/news/2557513-google-brazil-claims-to-have-paid-us-733-million-in-taxes-in-2013-after-suspected-of-default-the-company039s-president-in-brazil-sends-letter-to-communications-minister-ensures-that-all-transactions-occur-in-the-country-according-to-law) is a helpful data point? The source is not really reputable, but it was reported widely by the brazilian news sites.

  • nuttmedia

    A few additional high-level points from earnings calls that I think are relevant. Part of the narrative that developed in the transition to mobile was that it was chiefly accretive — standing on line, in the bathroom, on the bus, in the car… This dampened concern somewhat around lower ad yields via mobile for a few quarters.

    You don’t hear them saying these things anymore. Instead, the story is “higher clicks, offset by lower ad rates” — without distinction between mobile and desktop. It’s clear they recognize the decay in core KPI of their business and the ceiling on growth via the variable Horace describes is within view.

    There is promising history that suggests ad rates may normalize for mobile, plus value exists along other dimensions (location, time etc) that may allow for higher ad returns… but those are hard unknowns, with a much larger base of competition than in the past.

    The race is on to further monetize Google products/services in other ways — just today they announced price cuts on Google Drive. Nevertheless, their philosophy remains the same — increase the value of Google through breadth of audience and distribution. The more people using Google services, the more value to Google. That speaks to global-scale products/services, delivered regardless of hardware platform, at a very aggressive price. We’ve seen that in their hardware offer to date (Glass and Pixel are explained in a different light) and we continue to see that in their software/SaaS offer.

    So the question becomes… can Google be the first company who can truly make it up on volume?

    • charly

      Google is using its scale advantages. Nobody else (maybe Facebook) can offer such cheap bandwidth, storage or processing power because of Google scale. They used this with they entered the email market, bought Youtube so expecting them to use this in cloud storage is to be expected. Also their free plan is 15GB IIRC. That is not a plan to make money selling it as a service but to kill the companies that sell it as a service like they did in email.

      • pesc

        Killing for fun, not profits. Isn’t that evil?

      • charly

        Not fun, market power and killing profit centers for your competition. Plenty of people paid for Yahoo & hotmail when all you got was a few megabyte. It was an important source of revenue and it is easier to sell people more when you already have a financial relationship with them.

    • obarthelemy

      Google would be far from the first company to thrive on volume. see Dell, KMart, …

      • nuttmedia

        How did that work out?

      • obarthelemy

        Rather well compared to DEC, GRiD, Wilkes Bradford, Hédiard… ?

  • charly

    Some comments:

    Shouldn’t inflation be added?

    Also the first billion is likely to generate much more income than the last billion. For example you can sell car adds to the first billion. It would be a waste of money for the last billion

    Shouldn’t cost go down (cpu’s getting faster, using less electricity, bandwidth costing less etc.)

    • rational2

      But computation is also going up. All those machine learning algorithms ain’t cheap!

    • JaneDoe12

      I think it’s the cost of employees that is increasing. Because SG&A doubled from 2006-2008, and doubled again from 2010-2012. (2009 was the recession.) Cost of revenue did the same. R&D almost doubled twice. Property and equipment purchases didn’t go up that much.

      Here are those costs from their annual reports:
      (numbers in thousands)

      2006 2007 2008 2009 2010 2011 2012
      Cost of Revenue 4,225 6,649 8,622 8,844 10,417 13,188 20,634
      R&D 1,229 2,120 2,793 2,843 3,762 5,162 6,793
      SGA 1,603 2,740 3,749 3,651 4,761 7,313 9,988
      Property, equip 1,903 2,403 2,358 810 4,018 3,438 3,273

      Annual Reports:
      2006 (page 84, 86 of 128)
      http://investor.google.com/pdf/2006_Google_AnnualReport.pdf

      2009 (page 80, 82 of 132)
      http://investor.google.com/pdf/2009_google_annual_report.pdf

      2012 (pages 50,53 of 92)
      http://investor.google.com/pdf/2012_google_annual_report.pdf

      • charly

        Is it the effect of Motorola in 2012? Selling hardware has cost

      • JaneDoe12

        Good point. If Motorola is subtracted ($3,458), then Google’s cost goes down to $17,176 [1]. The increase from 2010 drops to 65%, but that is still high compared to a 23% increase in income.

        Is the problem the smaller devices and Google can’t display as many ads?

        1. 2012 Annual Report, page 53 of 92.

      • charly

        Nexus? Chromecast?

      • JaneDoe12

        I found Google’s 2013 costs and income in their 10-K from Dec, 2013.

        For 2013, cost of revenue was $21,993 (Motorola is excluded), and operating income was $13,966 [1]. For 2010, cost was $10,417, and income, $10,381.

        Look at the comparisons. In 2010, cost was slightly more than income, but in 2013, it was 57% more. In 2012, it was 34% more. This isn’t a good trend. Maybe there’s something wrong with their business model.

        I have never used Nexus or Chromecast so I have to guess at what you’re saying. Do they load up small screens with ads so that it doesn’t matter that they’re small?

        1. 10-K for fiscal year ended Dec. 31, 2013. Go to ‘Consolidated Statements of Income”
        http://www.sec.gov/Archives/edgar/data/1288776/000128877614000020/goog2013123110-k.htm

      • Walt French

        neither of those are even rounding error on those reports.

  • jameskatt

    Why exclude China when Apple does not?

    China is. a huge growth area for Apple. Apple already has 80% of the $500+ smartphones in Chna. Apple already has sold more iPhones in China than there are smartphone users in the US.

    Other companies are trying to profit in China. So why exclude China?

    • Sammy

      Many of Google’s services are blocked in China. They are replaced by local (Chinese) versions of similar services.

      In the US, 99.99% of android phones have Google Play Store installed, in China it might be less than 50%?

      • jameskatt

        All this means is that Google’s true future is stunted growth.

        The upper middle class Chinese consist of 400 Million people. They make up 5% of the World’s population but buy 30+% of the World’s luxury goods. Apple dominates this group.

        Since Google’s own policies and actions have placed it at a competitive disadvantage in China yet Google’s competitors are not as limited, it is only fair to add Chi a into the equation. Particularly since China is the World’s largest country by population. And since China iOS such an economic force.

      • charly

        Apple doesn’t dominate upper middle class Chinese.

        It is not Google action. No independent state allows a foreign Google. So Google can’t operate successful in Russia and China, but Russian and Chinese Google’s have the same problem in the US.

    • MarkS2002

      Your second paragraph really underlines a sales effort that has been largely ignored by the media. While I am sure that top of the line smartphone sales is not the only metric that defines the upper middle class, a la charly’s comment, given the cost and margins of the iPhone, this is a spectacular result and likely a good forward indicator, especially as those new customers begin to crossover into the other product lines. For all of the negativity that has been spread about Tim Cook’s efforts–can you say Obamacare?–all of the attention he has paid to China seems to be finally paying off.

  • http://www.auroin.com/ AuroIN LLC AuroIN SEO

    There are lots of factor which not included in this report and one is Inflation. So there is a need to plan again and sum up the process again.
    Thanks
    AuroIN

    • Walt French

      As a freshman physics major, I learned to carry the units in my calculations to be sure I was performing the right operations (and using the right formula).

      So yes: “Dollars = Y times people” is missing “times z dollars per person,” where z might vary over time. People times dollars per person is dollars. But in fact inflation has been pretty subdued over this time period; what’s missing is actually more like “times w dollars per hour of connection times x hours per person.” This better captures the ridiculous changes that’ve been going on over the past decade: Google’s initial expansion to be many people’s home portal and using them as a handy name lookup tool; the shift into mobile with at first tiny amounts of data per the few hours used, and more recently the 70%/year growth in mobile data around the world, and the very different revenues available to Google from an Indonesian versus a New Yorker.

  • SKP

    Dddd