And since there are plenty of great summaries of Google's Q1 results everywhere, I'm not going to add much to the conversation by repeating them.
After all, the intent of BuyGoogle is to tease out information and trends that aren't being widely reported. Like all the posts about Google TV well before it was accepted wisdom that Google would get into video. Or the recent conversations on game-changing consolidations in the information industry, which I haven't seen anywhere else in the mainstream media.
So instead of vapid praise for Google, here are a couple items I heard in the analyst call that I haven't seen in the press or from the analysts:
- Unspent ad budgets -- on the call, an analyst said that advertisers are having trouble spending all their ad budgets on Google. Reportedly, about $1 billion was budgeted but not spent (last year? this quarter?).
- Accelerating new product releases -- in last quarter's call, Schmidt and Reyes both said that "the rate of innovation will increase in 2006." In today's call, Schmidt said that Google is the "fastest innovator at scale," and that Google would introduce a large number of new products in Q2 and Q3.
- Dramatic capital expenditure -- Google has been investing at a blistering pace in new data centers, spending $838 million in new capital equipment, plus $600 million in expensed R&D in 2005. Already in the first quarter of 2006, Google ramped up investment again, with $345 million in capital expenditure and $247 million in R&D -- more than 40% of 2005's already giant investment in just one quarter. CFO Reyes said analysts should expect the rate of investment growth to exceed the rate of revenue growth -- with revenue growing at 79%, that means 2006 capex of at least a $1.5 billion, and R&D of at least $1.1 billion. That's a *lot* of servers and innovation.
This kind of investment would be frightening were it not for Google's big lead and proven ability to make massively distributed comptuting work well. Microsoft has a lot to learn about delivering Google-sized information products, and will take years to come up to speed. In the mean time, Google is the only company positioned to own this market. I say Google should continue to invest as fast as they can, because each quarter of investment at Google's pace puts them a lap ahead of the competition.
Update 4/22/06 9:42 a.m. - Here are excerpts from the analyst call on the topic of unspent ad budgets:
Anthony Noto - Goldman Sachs - Analyst
... we hear from advertisers about unspent budgets quite a bit, and we have heard a number thrown around in the advertising community of about $1 billion for Google that people put into the system and don't get spent. Could you talk a little bit about initiatives to unlock that value? ...
Jonathan Rosenberg - Google - SVP, Product Management
... The first issue with respect to the budget is a little bit of a legacy of the way the systems are architected. Advertisers have a strong incentive to put in a budget that is substantially greater than their actual spend. And they do that, of course, because the gross margin on each of the clicks that they receiving from us are positive, and the rate of change in terms of that margin on incremental clicks is pretty close to constant, because it's such a large system. So what the advertisers tend to do is put in an artificially high budget that ensures that, on any given day, their campaigns continue to run.
Now, that said, there are lots of opportunities for us to spend larger fractions of that budget. Certainly, one is to expand the scope of the network and the reach of our sites. But probably the most significant opportunity is just improving the statistical algorithms associated with how we target ads. So anything that we do to ensure that we serve a better ad to one of those advertisers is going to get us more budget and more budget from whichever advertiser is the best advertiser.
So I think, if you run a lot of searches, you'll see actually that although we have the strongest monetization systems in the industry, the ads are actually still pretty primitive. And there are a large number of ways, we believe, to continue to target the ads a lot better.
Sergey Brin - Google - Co-Founder & President, Technology
... we see the greater opportunity is not the people who are under budget, but rather the people who are budget-limited currently. Because for those advertisers, all we need to do is get them to increase their budget limits, which oftentimes are -- they just set it a long time ago, or they didn't really think about it. There are a lot of weird reasons. And they will right away start spending more. So we actually view the budget-limited advertisers as a great opportunity.