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October 24, 2005



Congratulations Henry. This post has probably just become an inspirational poster in Rebdmond! My guess is that it will be on the walls Bill G and Steve B's offices by the end of the week! :)

Randy Charles Morin

You said "The other trouble is that Google's search revenue stream is so huge that it will likely be years before another revenue stream provides some real diversification."

I talked with Mike and Sergei and they've decided to cut their search revenue 90% by giving it back to the advertisers. This way it'll be easier for them to get "some real diversification".


Henry, just the point everyone seems to forget. Everytime I see the price target raised, I stop and wonder - "when was the last time I clicked on a Google text ad? who is really clicking on these that Google's revenue continues to increase?"

Everything that goes up, goes down. And when there's just one thing, thats a big problem.

PS: I admire Google for all their innovation, but I just can't get their valuation!

Kevin Brown

AdSense is not a revenue stream for Google. AdSense is the publisher side of AdWords. You still buy CPM-based ads through AdWords. The systems work together to generate revenue. Saying "AdSense generates 1/7th of the profit per dollar of revenue as AdWords" makes no sense at all. AdSense doesn't make ANY profit - period.

Perhaps you're touching on the fact that google makes somewhat less money on the ads displayed on publisher sites than they do on the ads displayed on search results, but that's hardly relevant.

Google is now the world's largest advertising company. They just happen to be in posession of the world's most popular mechanism for driving people to the content that ultimately has the advertisements on them.

There are hundreds of advertising companies out there, and none of them have the market guarantees that google has. Internet advertising has more than proven itself more effective, dollar for dollar, than television, radio, film, or print advertising, and google pretty much owns the industry.

The only things that can possibly hurt google would be a market-wide recession, (but that would hurt them anyway, one revenue stream or not), or a significant competitor.

The only companies with the money to be significant competitors who are actually in that market are Yahoo and Microsoft. Yahoo can't afford to do what's necessary in the long term (charge advertisers less AND pay publishers more than google), and they simply don't have the control over search that google does. Microsoft could potentially get on board, but they're still hell-bent on being a desktop software company rather than a web services & media company (like yahoo & google are).


I agree with Kevin,
1. AdWords=AdSense. They're two sides of the same coin.
2. Google is an advertising company. It's strategic risk is not bigger than any other advertising company. On the contrary: Google has lots of ways to diversify in the future should they want that.


The question is if you a had a choice of owning one, would you pick Yahoo over Google? This company is the boogeyman for all current incumbents. It's chipping away at every Internet business model out there. EBay buying Skype, now that to me spells "fear." You have to go with their track-record to date and that has been nothing short of stellar. However, I don't know about crazy notions like resurrecting AOL, now that would be "jumping the shark" !!!

Henry Blodget

Apologies...per two of the comments above, in the original version of this post, I blew some terminology. It's fixed now, I hope. Thanks for pointing this out.


I do think the valuation is out of wack, but we must remember, when business is down, we market for market share, when business is good we market to beat the compitation, so I think the revenue stream will be there, just how valuable, well compitetion are comming on line always.

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