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On the future of Google. Part 2

In Part 1 of a look at Google’s future I showed that Google’s revenues have been highly correlated with the population of Internet users in the markets it serves. If there were a causal relationship between population of users and revenue growth then the company would face a growth inflection point when that population becomes half penetrated.

In Significant Digits Episode 1 (Part 1) I showed data which suggests that the inflection point will come in 2016. Essentially the argument is that Google’s growth is ultimately limited by the population of users and that itself is a predictable number. I also used the example of the PC and smartphone penetration curves to show how the perception of the fortunes of companies whose revenues are based on those technologies were affected by inflections in their respective adoptions.

However, correlation is not causation. These users we count are not the customers who pay for Google’s services. Users (or usage) is therefore only a proxy. It may be a good proxy and intuitively it makes sense that it’s a driver of growth but fundamentally the company lives on a stream of revenues paid by advertisers[1]. In order to really evaluate the opportunity we need to “follow the money” and track down where it comes from.

We don’t have visibility into the exact sources of these revenues but we have a top-level geographic segmentation (shown below.)

Screen Shot 2014-04-17 at 11.15.09 AM

The data shows that in the most recent quarter 53% of Google’s revenues came from the US and UK. Five years ago the proportion was 61%.  Clearly then about 10% of the mix shifted to non US/UK.

If we exclude China, US and UK, in 2009 there were 1.07 billion Internet consumers. By 2012 there were 1.59 billion users in those same territories. The growth is therefore almost 50%, and this excludes 2013. The corresponding growth in the US/UK was 15%. We should also note that in the same time frame, there were almost a billion Android activations but the number of new users in the US[2] was only about 70 million (or 7%).

It’s therefore clear that whereas the population of Internet users and the ways they might access Google exploded in the last five years, Google revenues have come disproportionately from US/UK consumers. Or, at least from US/UK advertisers, which we are assuming are primarily targeting local users.

The result is the following revenue per user per year based on where the users reside:

Screen Shot 2014-04-18 at 8.28.15 AM

The disproportionate weight of US/UK income and the low growth of income from rest-of-world vs. the far faster growth of usage outside the US/UK means that the toughest nut for Google to crack is not penetration but emerging market monetization.

The disparity is enormous. US/UK revenue is on average $86/user/yr (2012) and rising. The rest of the world only manages $12/user/yr. That Rest Of World includes many wealthy countries such as all of Europe and Japan. So the problem for Google is that it has an order of magnitude less income per user in the part of the internet which remains unpenetrated and the trends show that they are not narrowing the gap.[3]

Google’s R&D efforts seem to be oriented around creating consumption (Making it Rain) but the problem is that the quality of that consumption and the indigenous sources of income are unaddressed. These problems are structural and based on social constructs which don’t change at the pace of technology adoption.

 

Notes:
  1. This is true to date and certainly it could change but hints of how that might change are still not visible to me []
  2. as measured in comScore []
  3. The ratio between average US/UK and RoW revenue per user/yr was 6 in 2009, 7 in 2010, 7 in 2011 and 7 in 2012 []
  • neutrino23

    Wow. Google has an amazingly small presence outside of US and UK. I didn’t expect that.

    If Google is not getting online ad revenues from Europe and Japan then who is?

    • djangograppelli

      I would guess Facebook, messaging apps, online shopping portals, etc

    • Walt French

      See my note. Its presence Could be fine… I suspect it is.

      • neutrino23

        Maybe not. I’ve heard that in Japan the search engine GOO is quite popular. Does this happen elsewhere?

      • http://naofumi.castle104.com/ Naofumi

        No, it’s not. Japan just has a disproportionate number of Yahoo users.

  • Alex Wolfson

    Horace, love your work as always. One point to consider. Google creates supply of attention based on number of users and number/amount of services used. On the other side of the equation is the demand side based on advertisers wanting to reach those users. Google revenue growth could occur even when there is no user growth as long as demand (and/or pricing) increases. This is where growth economies with huge populations could create big changes.

    • rattyuk

      But based on yesterday’s figures is that happening?

      • Walt French

        Recalls this from one of your countrymen

  • Stefan C

    I smell some double irish with a dutch sandwitch revenue construction, which presents us these data, but is hiding the true regional numbers of RoW.

    • Christian Huund

      This is a very interesting point that would undermine the analysis.

    • Walt French

      Those revenue realization tricks are meant to allocate high-tax country into the havens. You’re suggesting they’re moving ROW revenues to US or UK regimes, which would increase tax exposure.

      Anyway, a different set of books entirely. Google is obliged to make its investor info accurate, no matter how they might twist it for the tax man.

  • http://aaplmodel.blogspot.com/ Daniel Tello

    Transactions, not ads, fund the EM internet.

    Open Sesame ;-)

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

    US and UK are the country with higher iphone adoption, excluding japan.
    It seems google income is not correlated to android adoption,
    and their appeal in iOS is shading,
    and computing is shifting toward mobile devices,
    and advertising is/will shift toward mobile and social,
    and web usage in mobile is 14% while app usage is more than 50%,
    and google+ is for google employe.

    I wonder …

  • actualbanker

    From basic infrastructure point of view this may explain why Google and Facebook spend money thinking up “crazy” ways (balloons, solar powered airships etc.) to expand internet coverage… But perhaps it is the only way left to get more users, which the deperately need to keep growing…

  • Jared Porter

    What would happen to Google’s advertising business (and Google’s revenues) if Apple migrated over to Yahoo as their default search engine? Is the quality of Yahoo search results at all close enough to Google’s search results for this to even happen? If not, could Yahoo’s quality be good enough in the near future for this to happen? At the minimum, maybe Apple can use these overtures from Yahoo’s pursuit of Apple’s search business as a lever to negotiate higher Apple-audience click fees from Google when it comes time for Apple and Google to renew their search-service Agreement (next year?)? Unrelated, but maybe Apple and Yahoo could somehow team up to jointly combine server farm capacities and capabilities into a unified network to add depth to cloud services for BOTH companies and speed up things like Siri-search results?

    • Below$600AShareIsPathetic!}:-(

      Apple acquiring DuckDuckGo and putting it on all iOS devices by default would at least be a minor butt-hurt for Google. However, Apple’s management seems to be so feckless, I doubt it will ever happen. Wall Street investors are always boasting how omnificent and unstoppable Google is because it has its claws into everything “internet”. I’m willing to bet all those hundreds of millions of iOS devices using DuckDuckGo would make those investors think twice about always smooching Schmidt’s, Page and Brin’s behinds. Man, I get sick listening to Wall Street say how much unlimited growth Google has and Apple has no growth left.

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

      I believe Yahoo’s search engine is Bing.

  • r.d

    or EM people are not used to clicking on the ads

    or buying online. They mainly watch pirated videos not
    shown on their region. Plus their internet is slow.
    But then Google should be getting lot of money from youtube watching.

    So plausible explanation is that US/UK companies are the main customer
    and this what the graph is showing.

    a lot of people also use VPN to get around censorship and
    to watch us/uk content.

    • Walt French

      I wouldn’t imagine that a kid in Korea watching a video is a very valuable set of eyeballs.

      • obarthelemy

        http://en.wikipedia.org/wiki/List_of_countries_by_GDP_(PPP)_per_capita

        US: 53K$
        SK: 33K$

        Not that big a difference. Staying in the region, Singapore is 66K$ and HK 53K$.

        And that’s got to be adjusted for kids’ purchasing power/influence, which I think is stronger is some Asian countries.

      • Walt French

        To be honest, I’ve never understood which advertisers would pay anything to run ads next to music videos anywhere. but yes, several APAC nations are relatively wealthy.

      • obarthelemy

        Teens are sheep, probably the most brand-sensitive age group. Music videos are a great way to get at them.

      • charly

        You should look at GDP nominal. SK is in that case around $24k and US around $51K. But nominal GDP isn’t even a good measure (see for example the Ireland and its 10% of GDP that is fake or the King of Brunei). Income of 99.99% of the population is i think a better measure for ad money

      • Walt French

        So as a rough SWAG, a Won of income goes about 25% farther in buying things in Korea. Which, as you suggest, means almost nothing to Google whose expenses and profits are not for local-only, or little-traded goods and services.

        Income distributions are becoming a really hot topic in econ these days; the NYT this AM accorded “rock star” status to the author of a recent 700-page tome examining how inequality and growth interplay. (Spoiler: he thinks we’re headed for low growth and more unequal incomes.) But right now, individual countries are not terribly different in the share of income that goes to the wealthiest, and averages are about equally bad measures, the same way.

      • charly

        Not so much income distributions as some weird economies like Ireland with its 10% of GDP that is faked for tax purposes.

        ps. I don’t know what percentage of income SK spends on ads but it is the cultural heart of Asia so i expect it to be more British than German level

  • Walt French

    One of the great things about this site is that Horace notes stuff that should be obvious, but isn’t. His point here, about advertisers being Google’s real customers is one such. Something like this inspired my little-noted comments to Part 1:

    “Google can only profit from a user once she’s online, but it can’t profit very much if advertisers won’t pay much to reach her. AFAICT, non-Chinese internet usage is continuing its ridiculous rate of increase, but that hasn’t powered revenues for businesses that depend on income in US, the EU and the rest of the nations with per-cap income over $13K/year, who collectively are about 1 billion people.”

    Some people here seem to have taken the wrong impression from the charts. “Rest Of World” is a mile wide but an inch deep for Google: they may not get much revenue per user, but there are many, many more internet users that they touch outside of the US/UK. Graphically, US income should be a very tall, fairly stout bar; UK equally tall but only one-fifth as wide (63mm vs 315mm), and RoW very short but many times the width. Multiplied out, Google gets half its revenue out of this ROW segment; that’s not small potatoes. Using the logic of my quote above, I’ll guess a good share comes from the four big economies of the Eurozone. If that group of 4 could be broken out, its bar would be a bit shorter than the UK’s, almost as wide as the US’s. If it were also possible to break out Japan’s 120mm people, RoW would then be paper-thin.

    I think Google has nearly saturated its more profitable markets. Recent slower revenue growth supports that.

    A deeper dive still (Part 3, please!) would also look at different usage on mobile vs desktop. Most US/UK/EU Android users have access to a desktop PC and the “Job to be done” logic says that usage would be very different there. A desktop PC user might search for “curtains” or “Audi” as part of a shopping session, but mobile searches might more likely be bar bets or a way to access seldom-used URL that wasn’t quite remembered. Elsewhere, Google must be a much smaller part of the shopping experience. The drivers & growth of e-commerce would justify a whole site of its own. As Daniel notes above, shopping is where the money is.

    Finally, the network-vs-owned split isn’t broken out geographically, but I’ll hazard the guess that the huge influx of users are NOT going to sites where Google has a dominant share of online ads. The slower “network” growth very likely reflects the tamer growth in internet usage in Gogole’s developed markets, plus the fact that for all its “relevant ads” efforts, per-impression rates are not growing nearly as well as the number of impressions in its own properties.

    • nuttmedia

      Hi Walt… see my note elsewhere here. Would be interested in your take and whether it might affect your thinking on geography.

      re: your comment on Network, if my thinking is correct, a geographical split in that segment would give a truer sense for end user targeting as the customer here is chiefly internet publishers. I’d imagine Admob is a growing proportion, which I would tend to think is overweight US again… so again, public disclosure in this area is clear as mud.

      It is notable that next quarter they will begin breaking out CPC and paid clicks for each segment separately. As I have said elsewhere, this is part of noticeable trend in their public commentary on this topic. There are clear pressures on critical KPI, and the textbook response is to provide a degree of segmentation to further clarify a locus of momentum.

      • Walt French

        Yes, I’m happy to be advised about how data isn’t what it seems. And I don’t know the ad biz well, so I’ll take your estimates as better than my own.

        That said, I’d think there is no business that needs a local presence/understanding more than advertising. Despite big agencies’ headquartering in US/UK, wouldn’t their local subs or local firms be doing the buys in say, Brazil?

      • nuttmedia

        I’m far from an ad guy so my conjecture and estimates are certainly no better than yours. It’s entirely possible that some or all ad dollars are invoiced separately, by region, perhaps even driven by localized agencies.

        My broader hypothesis is based on the notion that operationally, invoicing at large organizations is typically centralized—not cost effective to have multiple accounts payable departments. *My* big assumption that should be hit with a stick.

        Like most things, reality is probably within the grey area in between.

      • Walt French

        OK, with the fore-warning that I just grabbed this off my Bloomberg terminal, I took global ad spending data from Zenith and calculated the percent in the US. Key element: the US share dropped from 48% in 2005 to 37% last year.

        With a flight to catch, I won’t conjecture TOO much on this; I’ll just note that the US share of ad spending is much higher than our proportion of income, which I find unsurprising for a more-“developed” economy.

        The other factoid I noted — linked from a GREAT Bloomberg.Com infographic on US mortality, of all things — was a list of the big global ad agencies. Biggest, Dentsu, which has 80% of its business in Japan; 5 of top 8 were not US or UK.

      • nuttmedia

        That infographic really is fantastic. Follow Matthew Klein on twitter if you don’t already.

        Interesting tidbit on spend/income dislocation. Makes you wonder about the driver there… institutionalized spending, principal/agency issue, cultural… It’s a puzzle.

  • nuttmedia

    Quick point of note to help add further perspective here. The geographical designations in Google’s revenue are defined by the billing address for Google’s customers (advertisers). Therefore it should not be altogether surprising that an overweight of revenue is located in US/UK as there are many global conglomerates domiciled there. The assumption, noted by Horace above, is that the ad spend is primarily meant to reach local audiences. Without proper data, I am not quite ready to take that leap. Think of ad budgets for GM, McDonald’s, Coca Cola etc and you get my drift. Marketing budget that ultimately target, say China, Brazil, continental Europe etc. are all dislocated in the US bucket. In other words, the yellow in the above graphs are ostensibly larger, the extent of which cannot be derived without further disclosure.

    That said, the concern over Google growth is very real, and in part, driven by the thesis above. The migration of internet activity to mobile resets major assumptions upon which Google’s success to date has been predicated. As the incumbent, they remain the favorite to continue that march, but they will have to re-earn every inch of shelf space on a markedly smaller aisle.

    • http://naofumi.castle104.com/ Naofumi

      Although I agree with you to a certain extent, I doubt that the marketing budgets of GM, McDonalds, etc. are being channeled to the US. Companies with a large enough regional presence will have local subsidiaries each with their own P&L and sales/marketing budgets. At least in my experience, subsidiaries pay the advertising bills for that region by themselves.

      It could be different for medium size businesses that don’t have a subsidiary and perform marketing efforts from the US.

      I tend to believe in Horace’s conclusions since they mirror what we are seeing with app store revenue, as reported by Distimo and App Annie. They both report that downloads from populous developing countries are very high, but revenue is still small. In general, software/services (incl. Ad services) seem to have trouble generating revenue in these countries.

      • obarthelemy

        Tax optimization probably leads to funny accounting on that score, though.

      • nuttmedia

        Thanks for your input. It’s difficult to know exactly what’s going on. Something as non-exacting as a physical invoice address in an electronically-driven world is bound to have inconsistencies in application. I think we agree there is some fuzziness in the delineation—just hard to know the magnitude.

        My point was to reconsider the ad spend/local audience assumption given the opaqueness of the data and criteria.

        It stands to reason Google knows exactly where clicks that generate revenue originate—which would be a much more interesting data set to breakdown—but it’s unrealistic to imagine that to be made public.

        I don’t doubt developing countries have a ways to go before generating the numbers found in mature economies. Those seeds will bear fruit eventually so planting them now still represents a worthy, albeit less profitable, pursuit.

  • charly

    You should also exclude the former USSR as Google has a much smaller share of the market there.

    Yesterday i learned that Britain spends 2% on ads while the rest of the EU that is only 1%. This matters for an ad company like Google.

    Number of internet users in Old Europe, Korea, Japan etc. (the real first world outside the US) has been nearly constant in the last 5 years so any growth there for Google is inflation & change from paper to bits ad money.

    Also those markets are smaller so less competition so i expect that there is also less payment for search terms.

  • Walt French

    Horace, I gather from @CharlesArthur’s tweets that Google reports $3 billion TAC, but he couldn’t quite attribute where it went. Is there an Apple income statement line-item that’d help illuminate the relationship?

    • Tim F.

      Charles seemed to stop at Mozilla and Apple. OEM’s, browser add-ons, OSVs (apps that install toolbars or reset search prefs), ISPs (my ISP needlessly offers a white-labled Google search), and possibly carriers are other sources of TAC costs.

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

      TAC payments from Google will show up in Services part of iTunes/Software/Services. I have a private estimate for how this has trended over a few years but I don’t think it’s detailed enough to know Google’s part of it.

      • DesDizzy

        If iTunes user base is 600m+ wouldn’t Safari users be over 1bn?

      • NostraThomas

        It would be very interesting to find out what rev breakdown exists between Android and iOS on a per user basis. I suspect that iOS may be more lucrative for Google than Android– per user.

  • Tim F.

    I was hoping to see the projections for Googles Revenue past the inflection in 2016 on to total saturation in the 2015-2020 to get a sense of what would be an upper bound to their future growth (presuming they are unable to improve monetization).

    Then it would be interesting to look at the growth of TAC (would obviously only be historical for a small portion of this whole time span and/or would then be guesswork) and the mix of domestic/non-domestic revenue (again, limited data over the full time period but a guesstimate for this value is more likely to conform to existing trend lines) and/or a historic revenue/earnings split.

    Of course, no one wants to make a projection of a decade or more, particularly only with one decade of data, but I think that picture of “this is Google’s potential revenue and earnings in 2026 when ‘everyone’ has Internet” can be very helpful.

    From there, it could be compared with how the market values Google, how the market values Apple, and would give a better sense of not only Google’s need to increase monetization of existing products or find new methods of monetization but also what sort of timeframes (windows) they have to demonstrate they will continue to grow past saturation.

    Nonetheless, excellent work, Horace. Great piece, appreciate your work.

  • Tim F.

    If there is no causation to the correlation between revenue growth and the growth of internet users, why do we still see this correlation? Thoughts? If there is data for internet usage rather than internet users, do we still see the same or better correlation? Likewise for internet usage in US and UK versus internet users worldwide?

    • Walt French

      Usage is *a* driver but not, by itself a very good measure. Different users have different hours per day, apps used, advertisers’ hunger to reach a given user…

      Off the top of my head, I think the best single proxy for Google revenues would be the wireless data charges by country/region and time. Of course, assuming Google is IN that country.

  • Zivush

    Much of google’s mobile revenue comes from the iphone. Just part of the explanation.

  • obarthelemy

    I found that chart insightful:

    https://twitter.com/chamath/status/456963026961178624/photo/1

    Summary:
    1- Only 7 “properties” (OS, Apps, Web) have >1bn users: Windows, Office, FB…
    2- Goog owns 4 of those 7: …Search, Ytube, Android, Chrome
    3- Goog’s are badly under-monetized, except Search

    Can be seen either as a huge upside potential, or as a barren field where there’s no money to be made anyway.

    • own

      Does Google own Android?

      • charly

        They are talking about Google Android not everything (Google+amazon+etc) Android. Both have billion plus users

      • obarthelemy

        In a sense, no, because the base OS is FOSS

        In several senses yes, because a) Google are the main (almost sole) creator of it thus drive direction+features, and b) because the dominant Android is not AOSP but GMS, which include Google-proprietary network services.

        In the end, charging for Android probably won’t happen soon -especially with MS on the attack-, but monetizing tracking data, eyeballs, and other services (payment, app+content stores, …) could.

      • Gary Brockie

        They give it away. (sort of).

    • Walt French

      @obarthelemey wrote, “Can be seen either as a huge upside potential, or as a barren field where there’s no money to be made anyway.”

      Yes, that’s the issue, if perhaps a bit over-dramatized. We’re watching some functions that used to be tremendously valuable (e.g., PC and phone operating systems) run pretty close to zero in what can be charged for them. Part of that is because the big challenges of them, as Horace described in a recent interview about OSS, were pretty much worked out almost a half-century ago. There’s not much of a future for people who want to charge $25/year to give you a copy of linux because you’d only run it on hardware that needed linux device drivers, etc., which’ll all be bundled with the display, audio, memory and other chips.

      $10 per copy of Windows isn’t really about the OS per se. It’s a partial payment against internal networking such as Active Directory and corporate security/provisioning. And it’s still close enough to zero.

      I personally believe YouTube is already run as fully-monetized as it can. As you & I have discussed earlier, there’s no reason for Google to under-price ads, because it won’t change viewing behavior at all. Google could conceivably be running YouTube as a “loss leader,” with the intention of raising ad prices after advertisers give up on TV, print and radio, but that seems awfully far-fetched.

      So at least as far as these Big 7 go, I’m having a hard time seeing the ARPU hockey-stick up. Now that we’re seeing the rate of internet adoption peaking, 20% growth rates are going to depend on NEW, valuable services.

      • obarthelemy

        Regarding Windows, I think people do pay for basic OS services: features, a nice UI, lotsa apps… Windows 8 is an impressive OS once you get rid of Metro (ClassicShell is it for me). I’m messing around at least yearly w/ Linux, my tally is about 1/3 install fail (grub2 not booting, missing/flaky drivers…), 1/3 major use fail (multi-screen, watching videos) and 1/3 too many niggles (remote desktop to/from Windows is a pain, multiscreen…). MacOS is not better enough to justify Apple’s hefty premium (I’d argue it’s mostly worse). In the end the only other OS I’m happy with on the desktop is Android, but that comes with severe limitations (windowing, keyboard shortcuts…). To me, whatever your use case, Windows is the best OS available.

        YouTube seems to be slowly going the pay-TV way, we’ll probably see premium content at some point in time, but no major upheaval.

        Android and Chrome OS are probably a case of revenue misattribution. The PlayStore is catching up to iOS’s store in terms of revenues, and there’s a host of other stores on its coattails. But mostly, those 2 are there
        1- on the consumer side, to capitalize on the incredible realization that ads can pay for content on computers,not just TV/Radio/press. I’m not sure what the ad/subs ratio is for TV (and the US picture is murky thanks to channel and service bundling), but Android, Chrome, and probably YouTube should end up at the same level in the long run: a bit of direct (subs) revenue, and mostly ads. YT, Android and Chrome are mostly there to feed users to Search. That Search revenue wouldn’t/won’t be here w/o Android and Chrome to corral users:iOS will drop Google Search eventually has they have Maps; WP already has…
        2- on the entreprise side, there will probably be money to be made eventually with the SSO and management you’re mentionning about Windows, but that’s still a way off.

        Now, there could be an upset with GMS-Android and Chrome starting to cost $5 or something to OEMs.That would translate to $10-$15 to consumers, and to me seems like money well spent. Probably in the mid term, if Search revenues falter, Android and Chrome continue to succeed wildly, and investors put pressure on margins over share.

      • DesDizzy

        Obarthelemy – “The PlayStore is catching up to iOS’s store in terms of revenues”. Perhaps you should read the article and not just the headlines!

        “The iOS App Store remains comfortably ahead in worldwide revenue, generating about 85% more revenue than Google Play” Strategy analytics.

        http://www.digitalstrategyconsulting.com/intelligence/2014/04/google_play_catching_ios_for_app_revenue.php

      • obarthelemy

        Q1 2013: iOS app store = 260% of Google Play
        Q1 2014: iOS app store = 185% of Google Play.

        Perhaps you should learn what “catching up” means ?

        sources:
        http://www.tuaw.com/2013/07/31/google-play-tops-app-store-in-downloads-but-app-store-still-lea/
        http://www.digitalstrategyconsulting.com/intelligence/2014/04/google_play_catching_ios_for_app_revenue.php

      • DesDizzy

        From insignificant to a little less insignificant. Yeah seems like catching up.

      • obarthelemy

        60% is not insignificant. And at that rate, it’ll catch up within a year or two. Plus Android apps also sell via other stores (Amazon, whatever they use in China…), so both ecosystems’ apps sales are probably very close to at par already.

      • charly

        $5 is not much for a $500 phone but it is 10% of a $50 phone and that is an important part of the market for the must have apps (banking, public transport, payment, etc.)

  • Ben O’Matic

    It’ll be interesting to see how Google handles their digital version of an old problem. I mean, what you describe is common in other industries. For example, when I was in Bolivia in 2003, a pack of Camels cost one Boliviano, which at the time was about $0.35, compared with, IIRC, about $5 back home at the time. Similar pricing discrepancies exist for prescription drugs, which is why there are so many companies trying to game the system and sell back to US residents.

    I assume big tobacco builds local production infrastructure in order to ensure good margins per pack. Big pharma probably does the same, and even if they don’t, I’d guess that they look at international sales as part of the long tail from whom a little profit is better than none.

    Google’s situation is a little different. They just get to ride along for free as infrastructure is built out and people jump on the web. To some degree, it may just be a waiting game, i.e. making sure to stay on top so that when those structural issues do get resolved region by region and money starts pouring into or out of a population, Google is ready to take advantage of it.

    • charly

      Tobacco price is tax so they let the state handle it

  • John Rich

    When exploring the future of Google I find these “profit” based posts disappointing. Ironically this is primarily due to Mr. Dedui’s own January 2014 “Google’s three Ps” (http://www.asymco.com/2014/01/17/googles-three-ps/) exploration of Google as an organization with a purpose that seemed to be disconnected from the profit motivation. In regards to Google, Mr Dedui stated:

    “There is no representation of themselves as a “business seeking profit” or even as a commercial entity. It’s not simply because their business model is embarrassing. It’s because all business models are embarrassing.”

    This January article made me wonder if Google’s purpose was not profit driven because business models are embarrassing but instead because Google is pursuing the Singularity and any business model is not optimal for achieving it (not to mention irrelevant once it is reached).

    The evidence for Google’s purpose primarily being the Singularity is extensive but I’ll just share today’s most recent example:

    Google scoops up another high-profile scientist for anti-death project
    http://bit.ly/GoogleImmortality

    • Kizedek

      On the contrary, both persona and nuts and bolts are relevant to discussions of any company. Particularly in light of the high valuation of Google due to the perception that it has no competition and, like Amazon, can apparently switch on profits for any service it dreams up when it feels like it. Reaching a peak in penetration would also be relevant.

      It seems like your disappointment would be akin to someone being disappointed that all this talk about the future of Ukraine keeps featuring posts about Russia for some reason. How tedious. If could but ignore Russia for a moment, the future of Ukraine could be rather rosy indeed.

      • John Rich

        Good point, all those tedious profits will help make us immortal or extinct (or perhaps both) that much sooner.

      • Kizedek

        Perhaps google are hoping that flying cars will immortalize them. All power to them. In the meantime, I rather think they are a little ashamed of the dirty business of selling their users to advertisers, not because they are so idealistic, but because, we’ll, it is a little dirty. I guess they just don’t want that on their tombstones.

    • obarthelemy

      Of note, Apple also don’t represent themselves as “a business seeking profit”, but as the maker of “the best” PCs/Phones/Tablets.
      I think both are equally misleading and hypocritical. Google don’t want to advertise that their money comes from tracking us, Apple don’t want to advertise that their money comes from making gadgets as cheaply as possible, then passing them off as premium. Apple’s recently revealed internal agenda talked about how to increase lock-in, but not about “best” anything, for example.

      • Kizedek

        Of course Apple makes them as cheaply as possible. It’s called economies of scale, supply chain management, bulk pre-orders of components, etc. And Apple goes higher up the chain by buying some equipment and means of production. It’s why they can get the margins they manage to get. You want them to make each device by hand in a California garag

        It’s why OEMs can’t build to same quality, with same materials and methods and many of the same specs that matter at competitive prices; and Apple actually turns out to have very good prices when it gets right down to it.

        This was true for years, such as BTO options for a Dell laptop to make it actually comparable to a PowerBook/MacBook Pro; and now UltraBooks, as well as “Premium” tablets like the Surface and smartphones like Galaxy S5.

        OEMs compete by pointing to spec lists of cheaper components, like pixel count of camera, mb of RAM, clock speed, card slots, the fm radio you love, etc.

  • JohnDoey

    The thing that amazes me most about Google is how the Google Search interface has not evolved into something more consumer-friendly. A search box where you can put in code like “site:apple.com +iPod -iPhone” is user-friendly in 2005 maybe, but not in 2015. Time and time again, I see regular people struggle with Google Search. They struggle to come up with relevant terms, and they just take the first result. If they tell a computer nerd what they want and he or she types in terms and finds them a result, the results are exponentially better. By now, Google Search should not need the nerd intermediary.

    If you recall that iPhone is just an “iPod phone,” you can see the user-friendliness of the click wheel from 2001 is replaced by an exponentially more user-friendly multi-touch interface only 6 years later in 2007. Apple didn’t rely on their domination of the music market via iTunes to keep selling iPods — they dramatically improved the iPods. But through all that time, Google Search still seems to be relying on their domination of Web indexing.

    • obarthelemy

      I’m not sure the two are quite comparable:
      1- the iPhone’s touch interface (and the LG Prada’s that came a bit before) were enabled by touchscreens. There’s no equivalent hardware component innovation for search
      2- most people I know have no problem finding what they want. very few use switches; most are successful just typing a few keywords or full-text queries. If it ain’t broke, why fix it ?
      3- the intelligence and added value is in the server-side algorithms that prioritize sites, analyze queries and context, add voice and geolocation,… There have been lots of improvement server-side, they’re just not visible in the end-user UI.
      4- Keeping the user side as bare as possible is probably smart. All attempts I can think of to make smarter interfaces, be it Clippy, “Advanced Search” forms, or the assistants found on numerous tech support sites, are rather worse than a good search box with lots of smarts behind it. Tellingly, competitors are still copying Google’s page, no one has come up with anything better for Google to copy the way Apple has been incorporating innovations from others into iOS.
      5- The innovations to Google Search are Android, Chrome, Chrome OS, Docs, Gmail… Making OSes, apps, and services whose sole purpose is to corral people into Google’s Search empire is a rather innovative business model, even disregarding each product’s own innovations.

      • Innovation

        They didn’t release a gold version nor go with nor without skeuopmorphism. No innovation !

  • Gary Brockie

    The situation for Google seems very much like the smartphone market. It doesn’t seem that marketshare is everything but the most profitable part of the marketshare is!

  • vastaman

    Horace, can you explain why your Part 1 analysis yields less than $6 revenue per user and your Part 2 analysis yields between $12 (RoW) and $86 (US/UK)?