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Contextual dating and leaked Powerpoint notes
Google's Vulnerabilities, its Cash Hoard, and Amazon
Travel is crap?
Forbes: Google is becoming a marketplace
Microsoft is serious about search
If you can go fast, no one will ever catch up
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The program is not responding
Endangered species cookie recipe
Google promotes GWA

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InsideGoogle on BuyGoogle - 1/14/2006 08:04:00 PM

Nathan of InsideGoogle commented on my post, It's a content marketplace , not a TV channel:

[Y]ou make good points about Google presenting a new marketplace, that could really make a difference online. Most of our criticism comes from the fact that, regardless of the technology or the concept, Google Marketplace doesn't have anything worth buying.

I respect Nathan and read his blog daily. And I agree with Nathan that the content on Google Video is thin and uneven, and that the search user interface is kludgey. But I disagree that the best measure of this product is content depth or UI on day one. Thin content and weak UI don't make this a "botched" product.

My point is that Google has delivered a game-changing product even if the content and UI are sketchy. (And for the record, even in the first week I found $15 worth of content that I bought, not just to test the service, but because it was worth the money.)

iTunes video launched with Desperate Housewives and Lost - I can get those on broadcast TV. Google's marketplace will deliver content you can't easily get on prime time TV, but that millions of people like me (and not like me) will pay for. And it's got a good chance of working because the content owners get paid, their content is protected, and they keep 70% of the proceeds.

eBay wasn't a "botched" product when it launched because the content was thin or the UI weak. eBay started a $60 billion business because they created a market where none existed before. Google has done the same thing for video, and it's easy to see the same plumbing applied to other paid content like books.

Google's mission isn't only to "organize the world's information" -- it's also to solve difficult problems at scale. A content marketplace is something Google is uniquely qualified and positioned to deliver. They have the brand, the engineering talent, and the infrastructure to make this work at scale. It's not something even Microsoft can easily deliver (as reported here last June).

The purpose of the buygoogle blog is to think out loud about my own rationale for buying or selling Google stock, and to share that rationale with other independent investors. It's helped me think more clearly, and I hope it's helped others see through new eyes. I see an opportunity here that the broader market is likely to ignore until its potential is realized -- and then it will be too late to capitalize on it.

Because Google is a game-changer, they don't fit Wall Street's mental model. Consequently, the professional analysts have been underestimating Google's potential every month for the last 20 months. The independent-minded investor who can see the potential when the broad market only sees a disaster will be richly rewarded.

Europe is on fire - 1/14/2006 09:26:00 AM

Via Smart Mobs, The Times reports that European internet and e-commerce activity was ssssmokin' in 2005.

[A] survey of 7,000 Europeans found that the proportion of Europeans using the internet on five or more days per week had jumped from 51 per cent to 69 per cent since the previous year, and showed that many people who bought offline chose to research products using the internet.

Higher internet usage equals higher Google earnings. And since Google's 71.3% international market share ssssmokes any other competitor (especially in Europe), Google should gain disproportionately from Europe's rapid growth.

In another report, Nielsen/Netratings says Google was the second fastest growing web site in November, after Apple. So Google's not only large, it's large and still growing very fast.

Google and Amazon also saw significant year-over-year increases, growing 29 percent and 16 percent, respectively. Longtime leader Yahoo! attracted the largest unique audience, garnering nearly 104 million unique visitors during the month, and growing ten percent year-over-year.

And though Apple's traffic is much less than Google's, it is growing faster, 57% vs. Google's 29%. Apple's traffic is primarily generated from iTunes, and now that Google has released their Video Marketplace, that should help keep Google on the high-growth track for the forseeable future. Analyst expectations of slowing growth in 2006 and 2007 are looking increasingly shortsighted

More evidence for a blowout fourth quarter, and good things to come from Google's content (video) marketplace.

It's a content marketplace, not a TV channel - 1/13/2006 08:50:00 AM

And it's not just about TV, it's about books and other paid content, too.

Buygoogle has been a lonely voice (along with Gartner ) in support of the content marketplace (aka Video Store) that Google released this week. With the hue and cry across the blogoverse about how underwhelming and sucky the Video Store is, you'd never know that this product is really quite revolutionary. While the naysayers are griping about thin content, they're not seeing the market for paid content that Google just invented.

This week Google fired the first shot in disintermediating paid content. Content aggregators like media conglomerates and book publishers make their living by putting themselves between the media consumer and the media producer. They handle marketing, distribution and payment, and keep a giant slice for themselves.

One of the biggest naysayers, ~~Nathan~~ InsideGoogle quotes from a BBC story saying that Google may set up an online book store (with permission from copyright holders, of course). But Nathan doesn't link this with the video marketplace. Seems like the same thing to me -- a market for paid content that requires copy protection, visibility (marketing), distribution, and payment - driven by search.

Can you see it? Google could handle all this for electronic books and other premium content using the same plumbing they built for the Video Store and Google Books. This could work well for already-published works.

And it could work just as well to allow niche authors to go direct to their readers. This will unlock much more content that can't deliver the mass-market volume required by major publishers, but is still in demand in its niche.

Millions of people will make their living on the Google Content Marketplace just as they do on eBay today. If Google can sustain their substantial competitive lead, this looks like another billion-dollar business.

Schmidt on Rose on Video - 1/13/2006 12:11:00 AM

I'd dashed off a quick post a couple days ago to suggest trying out the new Google Video Store, understand the marketplace and user experience, and get some Google education all at the same time. Download and watch the hour-long interview that Charlie Rose does with CEO Eric Schmidt. It's from June 2005, and it's worth every one of the ninety-nine cents it costs. In spite of the inevitable Eric Schmidt platitudes, there are a few nuggets that can help explain the current debate over Google Video.

Experimentation

(7:35) We often make the mistake of saying, "Oh, we'll just try this new product, and then it's a headline everywhere."

Thinking differently at scale

(7:48) We decided a long time ago not to do what everyone else does. So if a company is already occupying a space, doing an important service or an important product, it makes no sense for us to do the same product. What makes sense is to solve a *different* problem. Solve a different large problem at scale. So we try them, and then all of a sudden we invent something new. And that's the genius of Google in my view.

Innovation

(8:15) Most large companies have long-term strategic plans, they have long sets of product lists, they have schedules that go years out, we have none of that. We have a *way* in which we innovate, and we intend to be the most innovative company on the planet. We spend all of our time trying to figure out how small teams can build new things very very quickly and keep trying over, and over, and over again.

The Long Tail

(39:41) People still think of the internet as a broadcast medium, when in fact it's a new medium.... The reason Google seems so personal is that the information you care about is there. When you turn on the television, some of the information you care about is there. In Google, since we have all of it, all of your interests are there.

Once burned twice shy - 1/12/2006 03:53:00 PM

I'd posted yesterday that a cursory look at analyst estimates tells me that they're way too conservative (low). While I'm not a professional analyst, my simple ratio analysis suggested that Google may surprise by 50% to 100% when it reports fourth-quarter earnings on January 31.

The argument goes like this: in the first three quarters of 2005, Google's earnings per share were three times, four times, and five times the previous year's earnings. Google's simultaneously grabbing more market share, monetizing its existing share much more effectively, shifting traffic to higher-margin Google sites, and getting a big holiday volume spike.

Given these facts, shouldn't Google's fourth-quarter earnings also be three times, four times, or five times 2004's fourth quarter, when Google delivered pro forma EPS of $0.92? If so, then 3x = $2.76, 4x = $3.68, and 5x = $4.60, while the consensus analyst number is just 1.9x, or $1.75. I'm not an expert, but the mean analyst estimate looks really low and overly conservative.

Since yesterday's post, there's been new news, and I've dug a little deeper into analyst financial models. My conclusion is that 4x and 5x are probably wild, but 3x looks reasonable to me. If true, then Google's primed to embarass the analysts with a 50% to 60% upside surprise, the analysts will have to refigure their 2006 and 2007 models, and Google at $465 will look inexpensive.

Here's the new news from today: CIBC World Markets analyst Paul Keung says Google could post "blowout" first-quarter earnings, and raised his estimate to $1.98. Keung also increased his share price target to $540 from $400.

Separately, the only analyst with a sell rating on Google said the stock is worth at most $260 a share, and says the ever-increasing price targets of other analysts are "self-fulfilling prophecies" ... "If you build a price target, will they come?" As a victim of the dot-bomb myself, ordinarily I'd agree. But in Google's case, the analysts are probably still sandbagging their estimates as a once-burned-twice-shy reflex to the tech bust.

I also went back to Safa Rashtcsky's report that called for a Street-high target of $600 per share, and his assumptions (at least compared to mine) look downright reasonable. Rashtcsky's estimate for 2005 pro forma earnings is $6.14, and since Google's already delivered $4.16 of that, the fourth quarter has to do $1.98 to make that estimate come true. That would be just 2.1x last year, which seems reasonable given that the first three quarters already grew much faster than that.

Now for the caveats. First, fourth-quarter 2004 may be a tough comparison, since Google's business was amped by all the publicity surrounding the IPO. If so, then to expect a 3x or 4x may be unrealistic. Second, it looks like the third quarter 2005 growth was huge, but that's mainly because in 2004 Google paid a $201 million patent settlement to Yahoo. After taxes, that's something like $0.43 per share, and since we're talking about analyst's "pro forma" numbers that don't include one-time charges, that makes 2005's third quarter "just" 2.4x 2004. This is the lowest EPS growth rate of the year so far, and if we use that as our conservative multiplier we still get to $2.20, still a 26% surprise. Third, analysts have their published number, and then their "whisper" number. The published number is conservative so the analyst doesn't look stupid if the company doesn't make it, but the stock can still get slammed if it doesn't make the whisper number. And fourth, Google had some big transactions this quarter, like a $90 million donation to the Google Foundation, the $1 billion AOL investment, and the $300 million in AOL ad credits. How these are accounted for could affect EPS, since every $3 million of net income translates into a penny per share.

You can play with these numbers until you have Beautiful Mind scribbles everywhere, but any way I slice it, from aggressive to conservative, the analyst mean estimate looks way too low. Even Six-Hundred-Dollar-Rashtcsky's estimates look low. My money's on a blow-out quarter.

Dupe posts removed - 1/12/2006 01:41:00 PM

Just discovered there were about 7 duplicate posts, which have now been deleted. Was posting by email to Blogger yesterday, which usually appears on Blogger within seconds. When nothing showed up after several minutes, I'd resend the message. Finally had to just post directly in Blogger. It looks like the email entries finally arrived 10 hours later, and caused the dupes. So either Blogger was backed up, or Gmail was!

Google EPS estimates look way too low - 1/11/2006 02:11:00 PM

I'm not a professional stock analyst, just an ordinary Google investor. Sometimes that's a benefit, since my vision isn't clouded by Wall Street Think, or risk-averse analysis. And sometimes that's a problem, because I'm only looking at obvious factors.

Because building financial models isn't my profession, and because I believe in Google's approach of focusing on strategic innovation instead of quarterly results, I've never attempted to publish any forecast of Google's financial results. But with Google set to release 2005 numbers on January 31, I took a look at analyst estimates in Yahoo Finance:

Is it just me, or do these estimates look really low? Here's an oversimplified view based on Google's published results:

In the first three quarters of 2005, Google's earnings per share (EPS) tripled, quadrupled and quintupled from the prior year (depending on the quarter, after adjusting for the Yahoo settlement). Yet analysts are only forecasting fourth-quarter EPS to increase 90% from last year, not even double. Why would EPS growth slow from 5x to 2x?

I assume that the fourth quarter will benefit from strong holiday traffic, juiced by increasing market share and improved monetization. If I take the midpoint of Q1-Q3 EPS growth rates, 4x, I get a Q4 EPS of $3.68 per share, more than double the mean analyst estimate. If I'm conservative and only assume 3x growth, I still get $2.71, a 55% surprise. Google's low tax rate and minimal dilution should help, and exchange rates also stabilized in the fourth quarter which is a small positive.

I'll read some analyst reports and understand their financial models in the next few days, and report back here if I find some reason to contradict these simple ratios. For example, 2004's Q4 was abnormally strong following all the IPO publicity, so maybe we shouldn't assume similar growth rates off a larger base. But for now, I'm expecting a giant upside surprise on January 31.

Do you have any idea what a 50% to 100% earnings surprise will do to the stock price?

Update 1-11-06 10:02 PM: Tomorrow's New York Times will report that Google was the "search engine of choice" driving holiday shopping traffic. "11.1 percent of all December shopping-related visits originated with Google, a 28% jump over last year." Yahoo had 4.05 percent and MSN had 0.79 percent.

Google Video Marketplace - Gartner gets it - 1/11/2006 12:37:00 PM

Blogs and pundits don't get it, but Gartner does:

Online and on-demand is how video will be done.

In 2006, TV and other video content will begin migrating to the Web in large amounts, as networks shift away from being linear programmers to creative forces working with media titans such as Google for "viral" delivery of their programming.

Google has a big head start on the competition.

Google's move into the video marketplace started early in 2005 when it began soliciting content creators to upload content. This provided a stage and discovery process to content creators, and also helped Google improve its video search and indexing, as well as learn how to best transcode video and audio codecs. This significant step propelled Google ahead of Yahoo and MSN in a rapidly accelerating segment.

Google has created a new market -- the eBay of video content -- that didn't exist before.

Google is offering key elements of an end-to-end ecosystem that provides an on-ramp for publishers, flexible options for consumers and a transaction business model for content creators of all strata. As with everything in Google's vision of the world, search is the front door to the video experience.

Content protection is key, and Google may be setting up to be the intermediary that unifies the tangled mess of competing devices, codecs and DRM schemes.

A critical element to this announcement is Google's adoption of a content protection layer. While not viewed as a digital rights management (DRM) tool per se, Google might very well use its content protection/access control scheme — coupled with the ability to return search results with the file-format- and DRM-specific options — as an interoperability mechanism. In this scenario, videos and songs would be delivered in the specific file-format/DRM wrappers required for consumer's computers and portable devices.

Once again, Google has seen the future with new eyes, and is miles ahead of the nearest competitor. Get the platform and the market right to make it easy for consumers and rewarding for providers, and the content will come. And with that content Google gets a 30% revenue share and opportunities for video ads.

Really effective ads in Web Clips - 1/11/2006 11:38:00 AM

As a veteran Web user, I consider myself to be impervious to Web advertising. I use the Adblock extension in Firefox to block most graphical ads, and I virtually never click on the ads that do get through. Adblock doesn't touch Google's text ads, but I rarely click those either.

My Google Web Accelerator says I've viewed 198,462 pages in the last eight months, and I bet I've intentionally clicked on less than a dozen ads in that time. That makes my personal CTR just 0.006%, while most effective ads should be generating CTRs above 1%. In short, I'm a Web marketer's worst nightmare.

But Google just cracked my ad defenses.

Gmail has always had context-sensitive ads on the right-hand side of each email message. They're usually pretty relevant, but I rarely look at them -- they may as well be invisible to me. Of the dozen or so ads that I've intentionally clicked in the last eight months, most of them have been in Gmail, but I usually don't notice them.

Google recently introduced Web Clips which show RSS feeds across the top of the Gmail inbox. I've found this to be mildly entertaining, and I regularly look there to see the word of the day or an interesting feed like this one:

Now Google is introducing the occasional ad into the Web Clips stream, and these have busted through all my ad blocking shields. Since I regularly look at the Web Clips bar (instead of routinely ignoring the ads on the right side of message pages), I read most every ad. And as long as they're relevant, I'm fine with that. These ads are actually useful.

I've been researching a trip to Egypt, and have several emails on Egypt itineraries in Gmail. So when this ad came up in Web Clips, I naturally clicked on it:

Good job, Google. Relevant, visible, useful, unobtrusive ads are OK with this old anti-ad curmudgeon.

As long as Google doesn't get carried away and put ads there all the time, I'll keep Web Clips enabled and continue to click on the occasional ad when it's relevant to me.

Video doubters just don't get it - 1/11/2006 07:00:00 AM

Google Video continues to get pounded by blogs and the press.

Brad Hill: "painfully disappointing," "almost completely uninteresting, even infuriating"
Greg Linden: Google Video misses the "wow"
Mike at Techdirt : "something has gone horribly, horribly wrong"
Nathan: "Botched. Totally botched."
ZDNet: "Blockbuster Video and NetFlix may not have much to worry about yet"

As much as I respect Brad, Greg, Mike, Nathan and the rest, you should expect a different perspective from Buygoogle. Rather than regurgitate what everyone else is saying, Buygoogle has consistently taken a contrarian view. When doubters said Google wasn't worth $170 a share, Buygoogle argued that Google was cheap. When observers ripped on the Google Web Accelerator, I predicted it would change the infrastructure of the Net.

And when skeptics said that Google was a one-trick pony, I said that Google TV would rock the world.

If there is one thing we've learned from Google's spectacular ascent, it's that traditional thinking can't explain what they're doing. Wall Street thinking couldn't explain Google, and Google consistently proves them wrong. And couch potato thinking can't explain Google Video.

I argued that judging Google Video by its depth of content on Day 1 is missing the point. In its beta release, the Google Video Player has leapfrogged the bloatware and nagware that Microsoft and Apple have been refining for years. Google's DRM is kinder and gentler, and doesn't frustrate the user experience.

But most importantly for those thinking about the strategic consequences of Google TV, Google just created something that doesn't exist anywhere else -- a marketplace for video content that is open to everyone. While Microsoft, Apple and Yahoo are trying to put themselves at the center, Google has put content providers and consumers at the center. Google created the platform to bring providers and consumers together. Google is the first to allow providers the flexibility to price and protect their content as they see fit, while protecting the content consumer from overzealous DRM that can make their investment in content evaporate.

In short, Google has liberated premium video content from the pricing, protection and distribution barriers that have kept it locked up for decades. Just as it did for search advertising, Google has built a better platform, and the content will come.

Don't rely on blogger buzz or Wall Street blather. See for yourself and make up your own mind. Spend a couple hours playing with the new Google Video Store. Watch an hour-long Charlie Rose interview with Thomas Friedman and learn how the world is flat. Get inside Eric Schmidt's head with another insightful hour of quality content.

Or watch Waterborne, a full-length thriller that's surprisingly good and debuted on Google Video:

Eric Schmidt on Charlie Rose - 1/10/2006 02:42:08 PM

When else does the Google investor get to try out Google's newest product and spend a full hour with CEO Eric Schmidt all at the same time?

You can see the first couple minutes of Charlie Rose's hour-long interview with Schmidt on Google Video. While you're watching the snippet, cough up the 99 cents for the entire episode. If you haven't already, the Google Video Player will be installed and you can watch the entire show, at higher resolution and better sound than available in the browser.

After you go through this exercise on the first video you purchase, then subsequent purchases will be insanely easy -- just two clicks of the mouse and you're downloading new content.

Google steals market share (again) - 1/10/2006 11:59:52 AM

Comscore and Bear Stearns report that Google's international market share has increased, up to 71.3% in November from 68.9% in October. This follows reports on the US market showing similarly dramatic market-share gains.

To the lemmings who see a share price closing in on $500 and scream "bubble," I'd ask what other company is the market share leader around the world, continues to increase share quarter after quarter, while growing 100% a year, with giant and increasing profit margins, that out-innovates its competitors, and with a brand that rivals Coke?

And that just yesterday released a platform that will deliver a completely new revenue stream.

Bubble? What bubble?

Google Video is getting traffic - 1/10/2006 09:34:00 AM

There was some discussion last week that YouTube traffic was eclipsing Google Video. That doesn't mesh with what I'm seeing.

I posted several short clips to both YouTube and Google Video, and Google is getting way more traffic. (YouTube allows you to see how many times each video was viewed. And last night with the launch of the new Google Video Store, uploaders can also see how many page views and downloads each of their videos has had.)

Now this wasn't a completely fair test, since I only had two clips on YouTube for about three weeks, while I've had eight clips on Google Video for six weeks. But since the clips are very similar ( the souk in the Arab quarter of Jerusalem), popularity shouldn't be factor.

As of today, my YouTube clips have been viewed 156 times, while those posted to Google Video have been viewed 3,331 times. Expressed in views per clip per week, that's 26 for YouTube and 69 for Google.

(And now Google allows videos to be embedded in any web page, though commenting, rating and tagging are not supported.)

It's not just video, it's a new market - 1/10/2006 03:42:49 AM

Ten months ago, Larry Page said that Google would do for TV what they did for the Web. While most observers don't seem to realize it, last night Google delivered on Page's promise.

The new Google Video Store was released Monday night, and the early reaction is decidedly negative. Not enough content, too hard to search, burdened with DRM, no support for tagging, etc.

These folks have it all wrong.

As with Google's other blockbuster innovations (AdWords, AdSense, Gmail, Maps), Google has delivered a platform that will enable users to build Google's business, not only in video but in all kinds of premium content.

This is new. There are no competitors in the market that Google just created.

Google does things differently, and there's usually a genius in their approach. While Apple's iTunes is closed and hierarchical, Google Video is open and distributed. Apple's iTunes negotiates a few blanket agreements with big content providers, then forces users into Apple-only hardware. Google Video welcomes all content providers, large and small, lets them decide how much to charge and what level of DRM to employ, and leaves it up to the marketplace to determine the winners.

Google's core business, AdWords, is a simple and elegant auction system for search advertising that created a market where none existed before. With AdWords, Google didn't start out with thousands of advertisers, but the advertisers found Google because the market just works. Likewise, Google is priming the video pump with some decent content, but content providers and content consumers will find each other in Google's new video marketplace -- and Google will keep 30% of each transaction.

But while that 30% may cover bandwidth and administrative costs it's unlikely to be as profitable as AdWords, since it's a lot more expensive to serve a 30-minute video than a four-line text ad. So once Google has scaled its content, watch for the real monetizing move -- video advertising is where the big money is to be made.

When the dust settles, we'll see that this one release is actually quite a dramatic product that will open an entirely new revenue stream:

Google delivered a revolutionary player with a better user experience than Windows Media Player or Apple Quicktime
Google created a video marketplace where content owners not only set the price, but can also customize several levels of copy protection
Google has instantly democratized DRM so it works for everybody, not just the big guys -- the independent short-film producer needs copy protection just as much as Disney in order to profit from her work
DRM is linked to you, not your machine, so the content you buy is now portable to any machines you own now or in the future, so you're more likely to invest in new content
A simple, unobtrusive micropayment system -- you can buy content with two clicks of the mouse without leaving the page you're on -- imagine the power of this platform when extended to other content like books or premium databases

There's still a lot of work still to be done with video. It needs to be playable in the living room on the TV, it needs better metadata and search tools, and it needs to be easier and faster to contribute new content to the marketplace.

These are all solvable problems. The important thing for the Google investor to realize is that Google has just created a new market where none existed before. And this market is as big or bigger than the search advertising market that made Google a $140 billion enterprise in the first place.

Google on Google Video - 1/08/2006 10:02:00 PM

Here's a fascinating 30-minute video of Sergey Brin talking to a Search Engine class at Berkeley:

- History of search - not a lot new here
- China - policy, censorship, Kai Fu Lee
- Partnering with NASA - pumping bandwidth, artificial intelligence, and building space tethers
- Tagging vs. algorithms - tagging is a waste of time since language AI is a "solvable problem"
- Desktop software - pretty cagey answers here
- Life - do what you love, make a big difference

While most if not all of the Q&A covered territory that's already public knowledge, it's worthwhile for the Google investor to hear it straight from Brin, to get a sense for his values and how he thinks.

And if you're a really dedicated Google investor, the Google Factory Tour is online as well -- though you'll need five and a half hours to see it all.

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