Yahoo! Fizzles; Implications for Google, et al.
The good news, such as it was, was that Yahoo! managed to stretch and claw its way to its numbers. The bad news was that it did this by slowing hiring and postponing advertising spending. Why is this bad news? Because when times get tough, advertising and hiring are usually the first expenses to go (suggesting that times are getting tough), and, more importantly, because Yahoo! lives on advertising spending.
And then there was the stoppage in registered user growth (flat q-to-q) and the postponement of the new search-ad system. Of these two downers, the ad-system is, in one sense, the less worrisome, as the delay should (let us pray) be temporary. But one does begin to wonder whether Yahoo! will ever get its act together in this regard.
So what does this mean for Google? Unfortunately, for the intermediate-term, it's mostly bad news.
Yes, on Thursday, Google's relative performance should once again look (and be) amazing. Yes, Google should gain some more share. Yes, Google will once again demonstrate that what it does is far more difficult than it looks and that its leadership position is defensible. Yes, Google will have the option of using its strong currency and cash flow to snap up companies, invest in R&D, and explore strategies that Yahoo can no longer afford (a long-term advantage). But over the intermediate-term, the Yahoo! news is more ominous.
A significant chunk of Google's growth is coming from market-share gains, and Google already has more than 50% of the world search market. If Yahoo! and Microsoft continue to sputter (likely), Google will probably coast to 70%-80% of the world search market over the next year or two. After that, however, there won't be much more share to gain.
Also, assuming any of Yahoo!'s issues are market-related--and, more broadly, assuming they are indicative of a slowdown in search or ad-spending--Google will not be able to dodge this bullet forever. Given its dominance, it will survive unscathed for a quarter or two longer than most, but, eventually, in the event of a broader slowdown, it will feel the pain.
FIRST BITCHES HAAAAAAAAA YEAHH!!
Posted by: KING TROLL | July 19, 2006 at 08:09 AM
First!!!
Posted by: trollkiller | July 19, 2006 at 08:10 AM
well played.
Posted by: New troll in town | July 19, 2006 at 08:21 AM
The bad news for GOOG; due to NASA's inability to locate extraterrestrial life forms, once GOOG dominates the "world search market over the next year or two" there will nothing left to dominate.
Pity poor GOOG.
Posted by: walter | July 19, 2006 at 10:14 AM
It's amazing that you can spin an increase market share to 70-80% as a negative. You're wrong that growth is being primarily driven by market share growth. The organic growth of adwords and adsense revenue is still very strong, especially in foreign markets. China will become important just as US growth begins to taper. Google is almost a monopoly in many foreign markets (western europe, brazil, parts of asia) so they're going to benefit most from the lag of broadband uptake in those regions.
An interesting question is when does it become appealing for google to look at acquiring Yahoo? Let's say goog market cap goes to 150B and yahoo drops to 30, following a few more dismal quarters and loss of market share. Would the DOJ let Google buy Yahoo? They might be able to argue that they still face stiff competition (Ha! MSN) so the purchase should be fine. Although that would put goog in an unassailable position and i doubt the DOJ would go for that, even if it were to fend of competition from the other great monopoly
Posted by: Victor | July 19, 2006 at 10:21 AM
I'm not spinning the market share growth as a negative--it's a huge tribute to the company. I'm just pointing out market share can only increase to 100% and that, in most cases, it starts to slow significantly after exceeding 50% (which is where we are now). And I'm definitely not suggesting that market share is the PRIMARY driver of Google's growth. It isn't. But it's not insignificant, either. In any case, the other issue is more important near-term: To the extent that any of Yahoo!'s trouble is market-related, Google will soon feel that pain.
Agreed that DOJ would block GOOG-YHOO. Would also be terrible for consumers and advertisers, so I hope YHOO gets its act together.
Posted by: Henry Blodget | July 19, 2006 at 10:38 AM
I think Victor is taking crazy pills
Posted by: Josh | July 19, 2006 at 11:43 AM
the very fact that yhoo completely messed up the efficient community communication stucture they had w/the Old finance message board, and have not responded to the negative out cry, tells me (in a very strong why) all yahoo knows how to do is ACQUIRE user base, NOT develop or even maintain it.
i think yahoo's decline is yahoo specific, not related to google. google does not focus as to how many clicks or pages views they can get from their users... goog focuses on quality experience.
the better the experience, the users base will follow. simple strategy. yahoo should pay attention.
if they can f-up something so good as a financial message board, and show they have the capacity to ignore their user base, they can f-up a lot more.
IMO, yahoo has currently become the best short in the market. (w/its grossly high multiples, inept ability to create and maintain a user base, clear desire to NOT compete and its complete technical breakdown.)
if u want to play yahoo, ur better off w/TWX. (because that is what yahoo appears to have been morphining into anyway... but w/out their quality of content production)
Posted by: joe | July 19, 2006 at 03:47 PM
henry check out the informal press interview of schmidt:
http://int1.fp.sandpiper.net/reuters42/2006/07/20060714_google_ceo_sun_valley_interview.mp3
there's some deep insights in there. One thing that struck me was how eric said their services are limited by capacity. a journalist said if you had unlimited capital, would you buy all the servers you need. Schmidt responds by saying, well we build our own servers, but the real limiting factor is electricity. There a lot of details that seem pretty important to me in there. I recommend listening to it.
Posted by: Victor | July 19, 2006 at 04:23 PM
Wanna provide a translation, guys?
Posted by: Illiterate | July 19, 2006 at 10:16 PM
I agree with pifubing: Yahoo's logo does look a lot more like a penis than Google's, and that speaks to a long term staying power that Google has yet to achieve with their (still rather flacid) Google logo.
But 肤病 makes an interesting point too: engineers at Google are far less likely to get a BJ in the the parking lot because of the parking problems there, and that is bound to effect their top line sooner rather than later.
This is a very interesting discussion. I hope we're not too far off topic.
IO
Posted by: InsideOut | July 19, 2006 at 11:16 PM
KING TROLL I NEED YOUR THOUGHTS ON GOOG's EARNINGS NOW!!
Posted by: billy | July 20, 2006 at 10:48 AM
Illiterate, that's effing HILARIOUS!
Posted by: noname | July 20, 2006 at 11:22 AM
So what is the consensus estimate from this poll going into the number? Is the wisdom of a crowd more accurate?
Posted by: the number... | July 20, 2006 at 03:54 PM
Henry i came closest on top line two Qs in a row. Gimme some props!
Posted by: Victor | July 20, 2006 at 05:54 PM
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