Once more, I don't understand how advertising revenue keeps growing. Once people install ad blockers, they don't typically remove them. And ad-blockers keep growing.
So who is actually seeing these ads? How can those numbers be going up?
I understand, intellectually, that not everyone thinks like me. But I don't fundamentally understand why people allow ads on their devices when they can prevent it. Then again, I don't understand a lot of behaviors people exhibit.
The price of the ads could be going up at a quicker rate, especially as more and more viewers from previous ad spending channels (such as TV channels) move to online options (such as Youtube).
Also, the number of people using ad blockers must be extremely low. Even crazier, most people who I talk to about content blockers on iOS zone out of the conversation before I can even get to how easy it is. They do not even care that much about the ads or notice how annoying they are.
Then again, many or most people still watch live sports and old school TV channels, which are chock full of ads. I cannot even stand too obvious product placement, much less ad breaks. So while I will go out of my way to remove ads from my life, there are probably 9 others who will not spend a single second thinking about it.
Sounds like a bad pitch then. Shorten it up, better not to overdo a sales pitch than to do too short a pitch.
I don't pitch Signal, but when I do see it pitched those that are most successful pitch 1 directly useful feature as why you should install it.
Eg: Get Signal, our videos won't look like a fuzzy potato lens image
Remember, your reason should be a problem the person your pitching to has faced and would like to see fixed. If they are having trouble with a different issue, pitch that instead!
> Then again, many or most people still watch live sports and old school TV channels, which are chock full of ads. I cannot even stand too obvious product placement, much less ad breaks.
Everybody is different. Back in the early 2000s when I used to watch TV, I actually enjoyed ads, because they tended to be more entertaining than the TV shows themselves (remember the Budweizer lizards and eTrade babies). Even when online ads because popular, when they were still contextual, I really did not mind. It was only when ads began to follow people around online that I put an end to it.
But I still watch live sports - only online, since I no longer have TV service. I get around ads on NFL games by having more than one game streaming on different tabs, then switch to the one that's not in an ad break.
Online, there are no ads during football (the real one), tennis and volleyball matches, so I have very little to complain about.
> So who is actually seeing these ads? How can those numbers be going up?
Advertising spend could be going up without more people seeing the ads. Since businesses compete for limited advertising space, they are likely to keep increasing the size of their bids for click.
Alphabet's revenue could be growing as a result of eroding the margins of other businesses, who are now forced to spend more money for the same amount of clicks.
I don't claim this to be the exact scenario that reflects reality, but it is a very plausible scenario nonetheless. A nice little lesson in why lots of things are zero-sum (even though we'd like to pretend they aren't)
Assuming Google has a good handle on click fraud and the growth is real:
* Some % of people install adblockers, but that number doesn't grow that much.
* There are more people being reached by advertising than ever before. 7.7 billion people in the world & still only about half are online. So overall the number of users they're reaching is growing even if they lose some to adblockers.
* You currently have to install an adblocker per device or even application (unless you are in the minority putting it on your router at home). This means that adblock rates vary and a user installing an adblock somewhere doesn't mean that user is globally lost from advertising reaching them somehow.
* There are multiple modalities for ad networks (app, web pages, etc etc). Google is involved in all of them. Ad blocking has variable performance across those networks unless you really know what you're doing (e.g. in-app advertising is very hard to block on iOS).
* The price of ads can vary driving up revenues. Not all ads are priced equivalently so Google can drive value that way by making the ads more valuable to advertisers or making more expensive ads more appealing.
* Inflation will naturally increase total dollar amounts even if everything else remained constant.
Ads become more expensive, conversions and ROI keep sliding down, but Google and Facebook are almost the only game in town for online advertising. Where would you go that’s not one of their properties?
> Once people install ad blockers, they don't typically remove them. And ad-blockers keep growing
> don't fundamentally understand why people allow ads on their devices when they can prevent it
The market share of iOS also has increased a bit, and iOS does not allow ad blocking very easily. You have to configure some sorta DNS-based ad blocking, which is harder than the traditional desktop firefox/chrome adblockers to install.
Usage of computers has also shifted towards phone/tablet apps, away from desktop browsers... And ad-blocking in apps is hard to impossible compared to on desktops.
I'm not surprised people continue to see a lot of ads as we move from the web, where mature ad-blockers exist, to apps, where ad-blocking is harder and less mature.
Even very technical people usually don't bother with pi-hole and see ads in free android apps.
Oh, and also, there are occasionally cases of an ad-blocker removing itself somewhat, i.e. adblock plus used to be the go to recommendation for ad-blocking, but they started allowing google ads through in an update (https://adblockplus.org/en/acceptable-ads)... so maybe someone installed adblock plus because that's what they remembered from 10 years ago (and adblock plus has better SEO than ublock origin too), and thus still gets google ads now.
>The market share of iOS also has increased a bit, and iOS does not allow ad blocking very easily. You have to configure some sorta DNS-based ad blocking, which is harder than the traditional desktop firefox/chrome adblockers to install.
Are you considering installing a content blocker not easy? Or not ad blocking? Firefox Focus is free and a few taps away from the app store.
Seems easier to me than installing ublock origin on desktops. Which people can easily be misled into installing ublock, or adblocker, or any the other scammy ones that do not really block ads or do something else nefarious. It is harder for a non technical user to get fooled by an iOS content blocker.
> Are you considering installing a content blocker not easy? Or not ad blocking?
If you google how to install an adblocker on iOS, you get garbage results which will mostly only work for safari, and will mostly not block google's ads ("acceptable ads").
If I google 'ios ad blocker' and install the apps in the order recommended, I think I'd have to go through ~10 garbage apps before I got to firefox focus.
... And I think for a lot of people, firefox focus isn't viable because they want their chrome bookmarks to sync etc.
When I said "DNS-based ad blocking, which is harder than the traditional desktop firefox/chrome adblockers to install.", I was mostly thinking of installing pi-hole since that's the reliable way to block stuff on iOS, since otherwise the matrix of content blockers is a total mess. I'll stand by pi-hole being too much for most people.
They can adjust Quality Score parameters or bid floors to increase the CPC and/or make ads look more like organic results to increase the ad CTR. Both will increase their earnings per pageview.
More auction participants mean higher bids.
Removing match types such as phrase, while automatically shifting phrase to broad modified helps increase their fill rate & number of participants per auction.
Eliminating second price proxy auctions in display ads (search likely soon to follow?) will likely yield measurable increases in CPC.
A few years back they went from up to 10 ads to 7 on most-- they have that dial to adjust if necessary.
Products like Google Shopping take up more and more space on the SERPs and are typically pay to play. They have higher CTR due to carousel images & once you click into that ecosystem, nearly every click yields ad revenue.
Chrome behavior with URLs is conditioning users to search for brands (versus typing in the full domain name), who then have to pay to defend their brand terms from brand poachers.
>adjust Quality Score parameters or bid floors to increase the CPC and/or make ads look more like organic results to increase the ad CTR.
That's not really how auctions work. Raising the price floor would just exclude ads with CPCs below the floor from paying, and since they're already getting paid for the maximum CPC bid at the time anyways they would just make less revenue.
If they messed with quality score discounts in an exploitative way, the entire billion-dollar SEO industry watching it would notice and cry foul.
Ad Rank is a function of bid and QS (heavily weighted towards CTR). Adjusting weighting of any of the three public components of QS will impact all participants, ignoring cases of exceeding max bids, all bids should increase proportionately-- with some participants having different impacts, but overall a net increase.
Bid floors will exclude ads from showing unless a certain ad rank is met. If users want to continue (or start) receiving impressions, they need to meet the adjusted threshold. This won't be as common on terms like "chicago movers", but when you get into the longtail and use an Alpha/Beta structure, it can be relatively common to get a "bids below threshold" for lower volume terms that have less (think <5) auction participants as shown in search insights & sampling the SERPs manually. When you get into these niche terms, you assume terms will be cheap due to lack of participants, but that isn't typically the case.
I think you are missing the big picture in the details.
For the long-term growth is constrained by the sum of all campaign budgets, and those budgets are set by advertisers themselves.
What the company needs to do is to keep advertisers happy enough to have them increase the budgets, and also prevent the software engineers from breaking the system with bugs enough that the advertisers would walk away.
1. More people are getting on the internet all the time, especially new markets like India (who likely don't use ad blockers).
2. We're still early internet, and people rely on the internet more and more (and therefore search more). E.g. in Covid, people are likely transitioning more of their life online, which is good for Google.
3. As companies and the broader economy do better, companies will invest more in growing themselves, often by buying more ads. Companies are doing very well right now (see stock market), so there are more ads being bought AND the price per ad will likely go up because there is more competition.
4. There is still plenty of untapped ad real estate for Google to monetize as well (searches that could generate ad revenue, and web pages that can surface better ads).
I would say, with regard to (1), that the people getting on the internet now have to have far less disposable income (at least on average). I mean, sure it's 1/2 of humanity, but it's not 1/2 of the ad audience value.
1. There's a sizable amount of budget in a process of migrating away from offline advertising market, partially thanks to COVID. This increases auction competition.
2. Online advertising still have a room for better optimization in many ways. You'll be surprised on how primitive bidding systems are for a large fraction of advertisers. Better bidding means ads more likely to convert.
Also note that HN readers are extreme outliers compared to usual people who actually spend money on ads. My gut feeling is that perhaps >90% of people don't care much about whether it's ads or not if it seems relevant enough for them.
Please mind that google started to show search results in a fashion that if search "A company" then the first link is the ad pointing to the "A company" website and only next is the same exact link to that company website. This is pure cheating and I'm amazed how they can both: laugh at advertisers face and keep it legal.
Don't advertise that way if you don't want to? I'm failing to see what the issue is. If you don't mind and advertiser saying, hey, look at me instead, then don't pay google to advertise.
Because google has created a market you can't possibly ignore now since your competitors will buy your brand name as a search term. Say I want to buy a widget from Joe's widget barn so I type in "Joes widget barn" into my computer machine and the first link that comes up is an ad for "Jims Cheap Widgets". That is because Jim outbid Joe for his own name. If google didn't exist that customer would have come to my shop or called me or whatever, but because it does that customer went to Joe.
Google has built a nice perpetual money machine by creating a shadow copyright system where you don't need to own the rights to someone's name, you just need to have more money than them.
Your impression of ad blockers and the market for them is a bubble/wildly off. Likely drop in bucket compared to rest of real world out there! c'mon.
(aside: what ads? why are you surfing so many sites with ads where they're a nuissance? I don't even notice them on the few sites I come across them/what I do see is manageable, no plugins or extensions needed ever)
Search is the key - so many listings intermixed with search results, and search is a major part of everyone's life. And whether people are clicking them or noticing them is another thing but alot of ad sales are on the page impressions alone, so that's not nothing based on billions of daily searches.
I mean, if you don't use YouTube, go to any search engine or go to any news site you can avoid ads. But I'm hardpressed to think of a major website that lacks them. Then again, I block most ads, so ads could disappear from the internet and I wouldn't notice for a while.
Hacker News isn't representative of mainstream society. ~27% of Internet users block ads.[1]
> How can those numbers be going up?
People continue to shift various activities online. Against, HN isn't representative here -- most of us probably already do most things online. There's still a very large chunk of time watching broadcast television, reading printed (offline) media, etc.
The reality is vast majority of people are fine with some ads.
Not to mention Ads are not just on the Web, but also In-App as well. In App Ads works way better than on the Web as it function more like TV ads. Especially as newer generation trends towards online media consumption vs old TV box. These are just Ads revenue shifting from TV to Youtube.
I dont think the Fundamental of Ads has changed much at all. It might have changed medium, but ads, from a marketing and product strategic perspective remains pretty much the same as in the 80s.
But then again, this is HN, defending Ads is contrarian.
That's money given to people and businesses. Secondary effects could go into the stock market but not directly and I definitely would not call that dumping into the stock market considering most was probably used to keep business and people afloat.
This squarely falls into the anecdotal camp, but my understanding based on online commentary and more specifically the actual experiences of four of my friends who run businesses ranging from a two-employee, furniture-building firm that probably generates $300-$500k in annual revenue all the way up to a major concrete contractor with a thousand employees and hundreds of millions in revenue applied for and were granted government funds and not a single one of those companies needed the money to keep staff on the payroll because their businesses continued to operate as normal for the extent of the pandemic. At least one of those folks fully admitted to putting their entire $80k+ "loan" into the stock market (the cruise lines in particular when they were getting beat up early on). It's appalling. And yes I said friends. I'm not condoning it, but business people will justify by saying "that's why I pay taxes."
I can't prove the scale, but I believe the op (or was it gp?) is right and those funds, to some extent, went directly into stocks, real estate, luxury automobiles, luxury watches, artwork and other assets, and a large percentage of the remainder found its way to those same places indirectly.
I have no concrete evidence or source for this, but I don't think my friends are unique here. For as many businesses as you heard were struggling there were countless others doing ok or even well during the pandemic.
Just trying to offer a different perspective on your comment.
Umm, a pandemic is not good for business. Many of the ads are bought by real businesses.
"Alphabet has been viewed as a key beneficiary of the **reopening trade**, given it stands to gain from a pick-up in travel-related searches and advertising on Google Search." (** emphasis mine **)
A lot of "real businesses" are online and saw a massive boom of people searching for, and buying products online. Additionally, a lot of marketing campaigns on TV/radio were stopped when the lock-downs started, and the budgets were shifted online. Same real businesses (think fast-fashion retailer), simply shifting more money to Google while they figured out if, and how to shoot new ads to replace those that depicted happy people at crowded parties.
There's a part of Chaos Monkey where the author describes driving past Google on a weekend and seeing empty parking lots while Facebook's were full (this was during Google Plus). He concluded that Google no longer had a fire in the belly and facebook was going to overcome it, not just in social mindshare, but ad revenue.
They don't Facebook their friends either, and email is now integrated into schools. Every kid I know has Gmail and none of them have Facebook (although, many do use Instagram).
But not “not only in social mindshare, but in ad revenue”.
Social is just (fom a business perspective) a tool for getting an audience. The thing both Google and Facebook are selling is advertisement placement. Winning in one area of free “services” to build an audience to deliver ads to but not winning in actually selling ads…isn’t winning.
What makes you think it was the same people inside Google that did social instead of cloud computing, and that was the choice going through leadership?
Well, I worked there at the time and had significant insight into the cloud leadership (and some into the social leadership), it wasn't the same people at all. Basically, Eric Schmidt wanted Google to make an enterprise cloud product years before it did, and saw no point in social, while Larry somehow got conned by Vic Gundotra and a few good PM decks that social was Google's future. Larry never had any interest in cloud computing and even the cloud leadership was skeptical that it could ever present an opportunity worth the small profit margins.
As I recall from my outside/user perspective: Google Plus pretty much co-opted the entire organization in an supposed "all hands on deck, existential fight" against Facebook. Every product and feature had to have a "social" layer (including GMail!); YouTube even adopted a "Real Name" policy but still amazingly managed to worsen the comment system.
Can you imagine what a similar level of effort on the cloud would have produced? Maybe they wouldn't be a distant #3 in that space today.
Thats an insane conclusion imo. Weekend work being normalized leads to unhappier employees. Working longer also doesn't just mean more productivity, there's been many cases of four day work weeks causing no change.
Employees are a company's most valuable resource. A company looking to grow and innovate must take care of its employees and part of it is respecting their time.
Try working 30 hours a week in a top research lab and then come back and say that. Research is one of the least code monkey things you can do (requires the most creativity) yet everyone is working 80-100 hour weeks.
4 day work weeks causing no change means those engineers weren't productive in the first place. Which, in my experience, is the case in a lot of FAANGMULA teams.
The dirty secret of tech is that markets matter more than effort or smarts. If you have product/market fit and a decent technological lead in a market that is large and growing, you will do better than a company that does not have PMF or a good market, regardless of how hard you work. (This explains so much about Oracle.) Social media mentions are probably a better sign of how well you'll do than full parking lots.
I'd bet that Google & Facebook's current run-up is largely driven by inflation and higher ad prices. FB even said as much in a recent earnings call. Jerome Powell did more for their business than any employee up through the CEO did.
markets and moats matter. Anyone can get revenue selling tomatoes, the problem with tomato farming is that there is no moat, you will not be able to sell at a price much higher than the next farmer down the street.
If there were 100 good search engines the price for advertising would be 90% lower
>If there were 100 good search engines the price for advertising would be 90% lower
Would it really be that much though?
I thought search ads were auctions - i.e. competition for impressions/clicks directly correlates to the price of advertising.
If you have search users distributed across 100 platforms, the competition for impressions/clicks is going to be super low on all platforms, but you'd have to advertise on 100 platforms to get the same level of engagement, adding it all back up but with 100 middle men this time.
> If there were 100 good search engines the price for advertising would be 90% lower
Why do you think that? The revenue is determined by the number of searches showing ads, the click-through rate, and the cost per click. The total across all companies would clearly not change for the first two metrics. Would the cost per click change? Given it's determined by an auction, I don't see how it could change. If you have an incentive to bid $1 on an ad on a single site with 100x traffic, you'd be equally willing to bid $1 on each of 100 separate sites with 1x traffic.
If competition existed company A would offer a better product than just cost-per-click. Then company B would offer another product better than company A, and so on. Google is like a person that owns the only road between two towns. You have to pay them until other people can build ferries or airports or trains. At which point you can exit the mentality of "we have to take this road and pay per drive"
Sorry, that still makes no sense to me. Why would company B have to make a better product in reaction? They're not being impacted at all. Company A having more and cheaper ads certainly won't make any users switch from B to A. It also won't make any existing advertisers stop spending on ads on B and run more ads on A, since the ads on B must have been profitable at the current price, and those ads are reaching a different set of users than the ads on A.
Is it possible that those cheaper ads could create more demand for ads somehow? It seems hard to believe it could. Either it's a search term that people were already willing to buy more expensive ads for, and are now just happy to pay less, or it's a search term that nobody was willing to bid even minimum price for.
What's actually going to happen in your scenario is that company A loses 90% of their revenue, goes bankrupt, and their domain is sold for a fair price to Company B or one of the other 98 remaining competitors.
> If there were 100 good search engines the price for advertising would be 90% lower
If there were 100 good search engines for end users, but opinions of different users on quality were highly correlated, the traffic would be very disproportionately on the one that was perceived as even very slightly better.
And they’d make the bulk of the advertising dollars.
And they’d have the bulk of the money to throw at improvements.
And the next year, unless some competitor got more access to outside investment to make up for that, the gap would be bigger, they’d have even more of the search audience, and even more of the advertising money, etc.
When you can’t sell your slightly-less-good product for a lower price to make it value-competitive to slightly-more-good one, there’s very little reason for all the users not to go to the slightly-more-good one. With free services given away to get an advertising audience, that makes slight advantages very prone to positive feedback loops.
Inflation is uneven, and it tends to pool in markets that are:
a.) close to the point where the money is injected
b.) have quick-adapting prices, ideally ones where competitors bid against each other
c.) are dominated by 1-2 firms with little competition, so they have pricing power.
Google and Facebook tick all the boxes. In COVID money was injected directly to the consumers (thanks to stimulus payments) and to small or mid-size business (PPP loans). Google and Facebook run up-to-the-minute ad auctions, so prices adapt immediately to additional money becoming available. And they have little real competition, so it's not like they can be undercut by competitors.
By contrast, wages (for example) a.) require that your employer have more money, which generally requires that it have trickled down through the whole value chain b.) get updated usually once per year and c.) generally require that your competition also decide they're going to ask for more money too, less your employer just decide to employ someone else. That's why wages are often the last and stickiest place that inflation shows up.
The general phenomena of certain businesses being able to raise prices earlier, faster, and more than others in response to rising money supply is called the Cantillon Effect, and is a pretty fertile ground for making lots of money in an inflationary environment.
Google's revenue growth came at least in part by creating two new markets that it has control over: youtube ads and mobile ads. In both areas, Google was able to couple a rapidly growing product with new ad space that it auctioned. I doubt most people appreciate quite how effective Youtube and Google Play are at delivering ads to users and money to Google. It's not just inflation and higher prices- it's a massive growth of the market.
> In January 2021, we completed an assessment of the useful lives of our servers and network equipment and
adjusted the estimated useful life of our servers from three years to four years
Does anyone know what the observation was here that made this possible? Have Google's internal workloads not grown in size as quickly as they thought, or is this a "Moore's law is slowing down" thing?
Googler, opinions are my own. I know nothing about this.
I wonder if this was Google's response to the chip shortage? Maybe the cost/benefit (and just sheer inability to get certain parts) made them hold on to hardware for longer.
Could also be the fact that Google has built a ton of new data centers in the last two years. Newer hardware, infra, utilization, etc. could lead to better quality/lifespans.
I don't think the workloads would have much to do with this, probably saw that they were having less failures than anticipated or memory/chip shortages have them keeping equipment around longer than they planned.
My assumption is the hardware was more reliable than expected. If it was about slowing workload growth one might expect them to switch to a usage-based (instead of time-based) depreciation schedule.
I wouldn't be surprised if the decision was driven by Google's army of accountants.
Extending the life of an asset would affect the depreciation schedule, which would affect when depreciation is recognized / recorded on their books in a given tax year.
While I'm unsure of the the reason the computers are lasting longer, I would bet this observation was originally triggered from the public company accounting firm that audits Alphabet's financials. The accounting firm likely asked Alphabet to prove out why they used a 3 year estimate and found out 4 years was more accurate (FYI 3 years is a standard useful life for computers for most companies - sometimes even shorter).
If Alphabet wanted to prove they lasted three years, they would have found a way to prove it. Auditors don't go around challenging on things like this. In particular, they don't go around challenging companies on depreciation because that is a key lever that management can pull if they need to hit numbers.
It is very difficult to discern exactly why they will have done this but the functional answer is: they have done this because they needed earnings to increase. In this case, it looks like the difference between a 15% and a 20% beat (I believe the change was made in January, I think they had quite a big beat in that quarter after some flattish momentum, middle of the year very strong anyway).
Umm, intel flatlined basically on chip development. Chip shortages also hit the sector. And the long tail has gotten to point where folks keep systems in workloads even if "better" solutions exist - because existing systems are working fine. 4 years is not unreasonable (now). Once chip shortages ease and development picks up again at intel useful life may decrease again.
I worked in audit for several years and the auditors will challenge any estimate made by management that the auditors deem material to the financial statement readers. And the useful life of how long computers last is an estimate by management. While at most companies useful lives might not be an estimate worth looking at, Alphabet has enough computers for this to be a material estimate (likely due to GCP) that is subject to management bias. The public auditors are there to ensure (to a reasonable extent) that management can't manage earnings by changing estimates like this.
This is probably less exciting than you imagine. It's hard to estimate HDD and CPU failure rates 5 years into the future, especially on new-generation hardware. 3 years was an informed guess.
AFAIK it comes down to some degree to a tradeoff between the projected density and power efficiency gains of newer gear vs the cost savings of keeping older gear around and in the racks. Some datacenters simply can't support higher density due to power constraints and if the newer gear isn't offsetting the capital costs by pulling in more revenue then you might as well keep the old gear around longer.
I don't know why people always mention density. Google isn't constrained on floor space. If they need another 100 acres of Iowa for their servers to stand on, they'll just buy that for a comparative $0 cost.
Density is an issue for people who are still renting from Equinix.
Sure but that's the opposite trend from density, is it not? A dual 64-core EPYC Rome machine - and we know they are using these for web search, from published research papers - has 400W of CPU TDP alone, which is a more than double the per-host TDP of a Westmere EP (as an example of a retired platform). So if anything there is more empty space in the racks in 2021 than there would have been in 2011, based on the design power load of existing buildings.
The cycle for servers is 3 years, the cycle for the building is 30 years. What I'm trying to say is that if you can deliver more widgets per watt per sq ft by replacing the server than you go for that. If you can't why not keep the already depreciated server operating for another year. The incremental costs are mostly the power (and ac) plus the opportunity cost of putting a more efficient server in a year later. If it fails you just put in the newer server. If it doesn't you may save a bit.
Probably because intel chips feel like they have stagnated somewhat performance-wise while they milked the market IMHO.
Why upgrade to the latest intel CPU when you get a paltry 100Mhz clock increase for the bother? May as well wait another year if 3 year old CPUs are pretty much the same performance as current models (give it take a few %)
Uh, both 3 and 4 are radical understatements of the economic lives of servers. They are TCO+ for 10 years in reality. For a company like Google or any other company designing their own equipment the usual reason to retire equipment (end of warranty) does not exist.
There are still Sandy Bridge CPUs available in GCE. Sandy Bridge came out in Q2 2011.
No, computers typically have a service life of 5 years, but depreciating them faster gives you more loss to to write down against your income.
What you are seeing though is the trick they used to make 'net income' pop. Let's say they had a million servers and a server costs $5K each. When depreciated at 3 years that is $1.6 billion dollars a year of depreciation. But you stretch that out to 4 years and now its only $1.25 billion dollars in appreciation. Since depreciation is subtracted from revenue you just "bumped" up your revenue by $350M and you didn't have to do anything at all (except change how you treated your assets).
That they had to resort to this level of shenanigan to get their revenue numbers up is interesting to me.
> Since depreciation is subtracted from revenue you just "bumped" up your revenue by ...
No, you bumped your net income. Revenue is unaffected by the depreciation change. Revenue is up 61%.
Also, nobody would be fooled by an accounting trick like this. Analysts routinely compute EBITA, earnings before interest, taxes, and depreciation, exactly for this reason - filtering out the more purely financial/virtual expenses that are less informative for understanding the core business.
They likely did it because you're required to report things like depreciation in a way that reflects reality. There could be tax implications for instance, since you can count depreciation expenses against your taxable earnings (though often companies maintain separate depreciation accounting for financial reporting vs taxes due to the different rules for each).
When I was younger, I took an accounting class from Santa Clara University (it was part of their Executive MBA program although I did not get an MBA) because I knew that I'd like to start my own company some day and needed to know how accounting worked.
> Also, nobody would be fooled by an accounting trick like this.
The course specifically covered "accounting tricks" that would create the most favorable impression in the eyes of the public and in the eyes of the analyst community. Playing around with depreciation rates was one of them. The assertion in class (which I've never had a chance to test) was that the IRS rarely, if ever, cared about your depreciation tables. That was damn close to 20 years ago so it most certainly could be different now, and I am not a tax accountant. If it has changed since then I am sure someone who has taken the class will correct me.
I don't think it "fools" analysts, but I suspect they might trade on an understanding that retail investors might have a different take on what was reported than what the analysts read.
Looking at it from a naive point of view, could it just be an actual change in what they estimate to be the useful life of their servers? Accounting shenanigans for a (relatively) small bump in revenue seems not really worthwhile.
Bing search, edge browser and windows phones? Amazon owning youtube? Companies would step up, but not sure if that would be a better scenario than what we have now.
Don't see how your claim follows. If another company would have stepped in to provide a similar or better service instead of Google, then it would have been that company worth 0.5% of world GDP.
0.5% of global GDP would be more reasonable, although a fraction is an odd way of writing it.
It also doesn't tell us much other than Google and Facebook are large companies with significant earnings. You can probably provide a similar percentage for VW/Toyota, Boeing/Airbus, Walmart/Amazon, or any other pair of large companies that are the leaders in their respective markets. Indeed, if you lumped the entire Fortune 500 together, they're probably make up a sizable portion (if not the majority) of world GDP.
1/2 = 0.5 last time I checked but if you find 0.5 more reasonable that's fine.
Seriously though, Wal-Mart has $500 billion revenues but it's not growing at the rate of these companies. By lots of metrics these companies are increasingly globally significant in a way that most of the examples you quote aren't.
Hmm, I don't understand what would make that fraudulent, could you explain? Many users, and presumably many shareholders, click on ads that aren't relevant to them, or search for things that aren't relevant to their interests or purchases -- I would think that's just one of the many assumptions built into the advertising market.
> Every so often I'll google something like Criminal Defense Attorney, send money, or file taxes and click on the highest ads.
The original poster is deliberately searching for some of the highest cost per click ads [1]. They have no intention of using these services, and they're moving lots of money from the ad purchaser to Google. Up to $50 per click.
This person owns stock in Google and has a vested interest in seeing their revenues go up.
These effects are minuscule, but it's not far off from stealing a furniture item every time you go to Target. Someone is paying for these and it has a nonzero effect on Google stock.
I do not understand this financial books and lingo enough to understand this correctly so have to ask "Is google cloud business gone really down as compared to previous years? Am I reading this correctly?"
Google Cloud Revenue went up from $3.4 billion for Q3 2020 to $4.9 billion for Q3 2021
Google Cloud operating losses went down from $1.1 billion in Q3 2020 to $640 million in Q3 2021. (Though it looks like this change is almost exactly accounted for by a change in depreciation expense due to revised estimate of the useful life of servers.)
So they are bringing in significantly more money through the front door with Cloud, though they are still losing money (either about the same or half as much, depending on how you look at it) on Cloud.
I'd love to have access to a free search engine, email, and a video platform. But objectively running and improving those systems takes money that people is not really willing to pay for. Wikipedia is a good example on how our anchor on that everything digital must be free keeps us from developing free systems. I wish we could change that.
Now, what value do those systems provide? I would definitely be living a much different (and likely worse) life if I didn't had access to the Internet and systems like those since middle school.
it's not free, you pay with your data, privacy and is not "free" of capitalistic censorship (shadowing actual result with value because entity X bought the spot to get included at the top of your 'free' search)
wikipedia actually is free, and we do not empower it for the value it provides to our society
Once more, I don't understand how advertising revenue keeps growing. Once people install ad blockers, they don't typically remove them. And ad-blockers keep growing.
So who is actually seeing these ads? How can those numbers be going up?
I understand, intellectually, that not everyone thinks like me. But I don't fundamentally understand why people allow ads on their devices when they can prevent it. Then again, I don't understand a lot of behaviors people exhibit.
The price of the ads could be going up at a quicker rate, especially as more and more viewers from previous ad spending channels (such as TV channels) move to online options (such as Youtube).
Also, the number of people using ad blockers must be extremely low. Even crazier, most people who I talk to about content blockers on iOS zone out of the conversation before I can even get to how easy it is. They do not even care that much about the ads or notice how annoying they are.
Then again, many or most people still watch live sports and old school TV channels, which are chock full of ads. I cannot even stand too obvious product placement, much less ad breaks. So while I will go out of my way to remove ads from my life, there are probably 9 others who will not spend a single second thinking about it.
Sounds like a bad pitch then. Shorten it up, better not to overdo a sales pitch than to do too short a pitch.
I don't pitch Signal, but when I do see it pitched those that are most successful pitch 1 directly useful feature as why you should install it.
Eg: Get Signal, our videos won't look like a fuzzy potato lens image
Remember, your reason should be a problem the person your pitching to has faced and would like to see fixed. If they are having trouble with a different issue, pitch that instead!
"Get Signal, it _probably_ won't send random pictures to your friends."
> Then again, many or most people still watch live sports and old school TV channels, which are chock full of ads. I cannot even stand too obvious product placement, much less ad breaks.
Everybody is different. Back in the early 2000s when I used to watch TV, I actually enjoyed ads, because they tended to be more entertaining than the TV shows themselves (remember the Budweizer lizards and eTrade babies). Even when online ads because popular, when they were still contextual, I really did not mind. It was only when ads began to follow people around online that I put an end to it.
But I still watch live sports - only online, since I no longer have TV service. I get around ads on NFL games by having more than one game streaming on different tabs, then switch to the one that's not in an ad break.
Online, there are no ads during football (the real one), tennis and volleyball matches, so I have very little to complain about.
Out of curiosity, which ad-blocker/content-blocker on iOS do you try to steer people towards? Or do you propose a DNS based solution?
> So who is actually seeing these ads? How can those numbers be going up?
Advertising spend could be going up without more people seeing the ads. Since businesses compete for limited advertising space, they are likely to keep increasing the size of their bids for click.
Alphabet's revenue could be growing as a result of eroding the margins of other businesses, who are now forced to spend more money for the same amount of clicks.
I don't claim this to be the exact scenario that reflects reality, but it is a very plausible scenario nonetheless. A nice little lesson in why lots of things are zero-sum (even though we'd like to pretend they aren't)
Assuming Google has a good handle on click fraud and the growth is real:
* Some % of people install adblockers, but that number doesn't grow that much.
* There are more people being reached by advertising than ever before. 7.7 billion people in the world & still only about half are online. So overall the number of users they're reaching is growing even if they lose some to adblockers.
* You currently have to install an adblocker per device or even application (unless you are in the minority putting it on your router at home). This means that adblock rates vary and a user installing an adblock somewhere doesn't mean that user is globally lost from advertising reaching them somehow.
* There are multiple modalities for ad networks (app, web pages, etc etc). Google is involved in all of them. Ad blocking has variable performance across those networks unless you really know what you're doing (e.g. in-app advertising is very hard to block on iOS).
* The price of ads can vary driving up revenues. Not all ads are priced equivalently so Google can drive value that way by making the ads more valuable to advertisers or making more expensive ads more appealing.
* Inflation will naturally increase total dollar amounts even if everything else remained constant.
I manage near 1M$ in Google Ads per year and can tell you CPC is going up while impressions are stable.
Is your ROI decreasing? (i.e. CPC could be increasing, but conversions / order value could be increasing as well)
Ads become more expensive, conversions and ROI keep sliding down, but Google and Facebook are almost the only game in town for online advertising. Where would you go that’s not one of their properties?
I also think there's a lot of negative ROI on ad campaigns, with no shortage of new players queuing out the door to try their luck in digital space.
> Once people install ad blockers, they don't typically remove them. And ad-blockers keep growing
> don't fundamentally understand why people allow ads on their devices when they can prevent it
The market share of iOS also has increased a bit, and iOS does not allow ad blocking very easily. You have to configure some sorta DNS-based ad blocking, which is harder than the traditional desktop firefox/chrome adblockers to install.
Usage of computers has also shifted towards phone/tablet apps, away from desktop browsers... And ad-blocking in apps is hard to impossible compared to on desktops.
I'm not surprised people continue to see a lot of ads as we move from the web, where mature ad-blockers exist, to apps, where ad-blocking is harder and less mature.
Even very technical people usually don't bother with pi-hole and see ads in free android apps.
Oh, and also, there are occasionally cases of an ad-blocker removing itself somewhat, i.e. adblock plus used to be the go to recommendation for ad-blocking, but they started allowing google ads through in an update (https://adblockplus.org/en/acceptable-ads)... so maybe someone installed adblock plus because that's what they remembered from 10 years ago (and adblock plus has better SEO than ublock origin too), and thus still gets google ads now.
>The market share of iOS also has increased a bit, and iOS does not allow ad blocking very easily. You have to configure some sorta DNS-based ad blocking, which is harder than the traditional desktop firefox/chrome adblockers to install.
Are you considering installing a content blocker not easy? Or not ad blocking? Firefox Focus is free and a few taps away from the app store.
Seems easier to me than installing ublock origin on desktops. Which people can easily be misled into installing ublock, or adblocker, or any the other scammy ones that do not really block ads or do something else nefarious. It is harder for a non technical user to get fooled by an iOS content blocker.
> Are you considering installing a content blocker not easy? Or not ad blocking?
If you google how to install an adblocker on iOS, you get garbage results which will mostly only work for safari, and will mostly not block google's ads ("acceptable ads").
If I google 'ios ad blocker' and install the apps in the order recommended, I think I'd have to go through ~10 garbage apps before I got to firefox focus.
... And I think for a lot of people, firefox focus isn't viable because they want their chrome bookmarks to sync etc.
When I said "DNS-based ad blocking, which is harder than the traditional desktop firefox/chrome adblockers to install.", I was mostly thinking of installing pi-hole since that's the reliable way to block stuff on iOS, since otherwise the matrix of content blockers is a total mess. I'll stand by pi-hole being too much for most people.
Well, youtube videos open in the youtube iOS app. It's hard to block ads in a native app.
Is there a way?
Uninstall YouTube app and have yt links open in brave. Works like a charm.
Safari content blockers dont block in-app ads, though, do they?
Similar issue on Android, you need a DNS based or VPN based solution to block ads in apps. Thats probably too technical for 99% of the market.
They can adjust Quality Score parameters or bid floors to increase the CPC and/or make ads look more like organic results to increase the ad CTR. Both will increase their earnings per pageview.
More auction participants mean higher bids.
Removing match types such as phrase, while automatically shifting phrase to broad modified helps increase their fill rate & number of participants per auction.
Eliminating second price proxy auctions in display ads (search likely soon to follow?) will likely yield measurable increases in CPC.
A few years back they went from up to 10 ads to 7 on most-- they have that dial to adjust if necessary.
Products like Google Shopping take up more and more space on the SERPs and are typically pay to play. They have higher CTR due to carousel images & once you click into that ecosystem, nearly every click yields ad revenue.
Chrome behavior with URLs is conditioning users to search for brands (versus typing in the full domain name), who then have to pay to defend their brand terms from brand poachers.
>adjust Quality Score parameters or bid floors to increase the CPC and/or make ads look more like organic results to increase the ad CTR.
That's not really how auctions work. Raising the price floor would just exclude ads with CPCs below the floor from paying, and since they're already getting paid for the maximum CPC bid at the time anyways they would just make less revenue.
If they messed with quality score discounts in an exploitative way, the entire billion-dollar SEO industry watching it would notice and cry foul.
Ad Rank is a function of bid and QS (heavily weighted towards CTR). Adjusting weighting of any of the three public components of QS will impact all participants, ignoring cases of exceeding max bids, all bids should increase proportionately-- with some participants having different impacts, but overall a net increase.
Bid floors will exclude ads from showing unless a certain ad rank is met. If users want to continue (or start) receiving impressions, they need to meet the adjusted threshold. This won't be as common on terms like "chicago movers", but when you get into the longtail and use an Alpha/Beta structure, it can be relatively common to get a "bids below threshold" for lower volume terms that have less (think <5) auction participants as shown in search insights & sampling the SERPs manually. When you get into these niche terms, you assume terms will be cheap due to lack of participants, but that isn't typically the case.
I think you are missing the big picture in the details.
For the long-term growth is constrained by the sum of all campaign budgets, and those budgets are set by advertisers themselves.
What the company needs to do is to keep advertisers happy enough to have them increase the budgets, and also prevent the software engineers from breaking the system with bugs enough that the advertisers would walk away.
1. More people are getting on the internet all the time, especially new markets like India (who likely don't use ad blockers).
2. We're still early internet, and people rely on the internet more and more (and therefore search more). E.g. in Covid, people are likely transitioning more of their life online, which is good for Google.
3. As companies and the broader economy do better, companies will invest more in growing themselves, often by buying more ads. Companies are doing very well right now (see stock market), so there are more ads being bought AND the price per ad will likely go up because there is more competition.
4. There is still plenty of untapped ad real estate for Google to monetize as well (searches that could generate ad revenue, and web pages that can surface better ads).
This combination is great for Google.
I would say, with regard to (1), that the people getting on the internet now have to have far less disposable income (at least on average). I mean, sure it's 1/2 of humanity, but it's not 1/2 of the ad audience value.
1. There's a sizable amount of budget in a process of migrating away from offline advertising market, partially thanks to COVID. This increases auction competition.
2. Online advertising still have a room for better optimization in many ways. You'll be surprised on how primitive bidding systems are for a large fraction of advertisers. Better bidding means ads more likely to convert.
Also note that HN readers are extreme outliers compared to usual people who actually spend money on ads. My gut feeling is that perhaps >90% of people don't care much about whether it's ads or not if it seems relevant enough for them.
Please mind that google started to show search results in a fashion that if search "A company" then the first link is the ad pointing to the "A company" website and only next is the same exact link to that company website. This is pure cheating and I'm amazed how they can both: laugh at advertisers face and keep it legal.
Don't advertise that way if you don't want to? I'm failing to see what the issue is. If you don't mind and advertiser saying, hey, look at me instead, then don't pay google to advertise.
Because google has created a market you can't possibly ignore now since your competitors will buy your brand name as a search term. Say I want to buy a widget from Joe's widget barn so I type in "Joes widget barn" into my computer machine and the first link that comes up is an ad for "Jims Cheap Widgets". That is because Jim outbid Joe for his own name. If google didn't exist that customer would have come to my shop or called me or whatever, but because it does that customer went to Joe.
Google has built a nice perpetual money machine by creating a shadow copyright system where you don't need to own the rights to someone's name, you just need to have more money than them.
> when they can prevent it.
Most people wouldn't know where to start to install an ad blocker.
They don't even understand the concept, much less know that it even exists.
Search ads and Youtube ads are unaffected by ad-blockers, and that's a big chunk of their revenue.
Um, YouTube ads and search ads are all blocked for me. It’s definitely something as blockers can block.
wait, what!? what kind of blocker are you using? adblock plus with "acceptable" ads??
Your impression of ad blockers and the market for them is a bubble/wildly off. Likely drop in bucket compared to rest of real world out there! c'mon.
(aside: what ads? why are you surfing so many sites with ads where they're a nuissance? I don't even notice them on the few sites I come across them/what I do see is manageable, no plugins or extensions needed ever)
Search is the key - so many listings intermixed with search results, and search is a major part of everyone's life. And whether people are clicking them or noticing them is another thing but alot of ad sales are on the page impressions alone, so that's not nothing based on billions of daily searches.
I mean, if you don't use YouTube, go to any search engine or go to any news site you can avoid ads. But I'm hardpressed to think of a major website that lacks them. Then again, I block most ads, so ads could disappear from the internet and I wouldn't notice for a while.
> So who is actually seeing these ads?
Hacker News isn't representative of mainstream society. ~27% of Internet users block ads.[1]
> How can those numbers be going up?
People continue to shift various activities online. Against, HN isn't representative here -- most of us probably already do most things online. There's still a very large chunk of time watching broadcast television, reading printed (offline) media, etc.
[1] https://www.statista.com/statistics/804008/ad-blocking-reach...
Only on HN will you see All Ads = Bad or Evil.
The reality is vast majority of people are fine with some ads.
Not to mention Ads are not just on the Web, but also In-App as well. In App Ads works way better than on the Web as it function more like TV ads. Especially as newer generation trends towards online media consumption vs old TV box. These are just Ads revenue shifting from TV to Youtube.
I dont think the Fundamental of Ads has changed much at all. It might have changed medium, but ads, from a marketing and product strategic perspective remains pretty much the same as in the 80s.
But then again, this is HN, defending Ads is contrarian.
Net income up 68%, that's terrifying high for a company that size. Good job everyone at Alphabet/Google.
More like the pandemic is good for pushing activities onto the internet of which Google takes its slice.
And $2T dumped into stock market, portion of which companies have used on online ads to compete for increased revenue.
Where are you getting your $2T number from?
Looking at https://www.investopedia.com/government-stimulus-efforts-to-... and roughly guesstimating $1.5T from direct loans / PPP and additional $0.5T from the knock off stimulus and inflation effects.
That's money given to people and businesses. Secondary effects could go into the stock market but not directly and I definitely would not call that dumping into the stock market considering most was probably used to keep business and people afloat.
In a trickle up economy it doesn't matter where you drop it, it will go into the stock market.
This squarely falls into the anecdotal camp, but my understanding based on online commentary and more specifically the actual experiences of four of my friends who run businesses ranging from a two-employee, furniture-building firm that probably generates $300-$500k in annual revenue all the way up to a major concrete contractor with a thousand employees and hundreds of millions in revenue applied for and were granted government funds and not a single one of those companies needed the money to keep staff on the payroll because their businesses continued to operate as normal for the extent of the pandemic. At least one of those folks fully admitted to putting their entire $80k+ "loan" into the stock market (the cruise lines in particular when they were getting beat up early on). It's appalling. And yes I said friends. I'm not condoning it, but business people will justify by saying "that's why I pay taxes."
I can't prove the scale, but I believe the op (or was it gp?) is right and those funds, to some extent, went directly into stocks, real estate, luxury automobiles, luxury watches, artwork and other assets, and a large percentage of the remainder found its way to those same places indirectly.
I have no concrete evidence or source for this, but I don't think my friends are unique here. For as many businesses as you heard were struggling there were countless others doing ok or even well during the pandemic.
Just trying to offer a different perspective on your comment.
Umm, a pandemic is not good for business. Many of the ads are bought by real businesses.
"Alphabet has been viewed as a key beneficiary of the **reopening trade**, given it stands to gain from a pick-up in travel-related searches and advertising on Google Search." (** emphasis mine **)
Source: https://finance.yahoo.com/news/alphabet-google-reports-q3-20...
A lot of "real businesses" are online and saw a massive boom of people searching for, and buying products online. Additionally, a lot of marketing campaigns on TV/radio were stopped when the lock-downs started, and the budgets were shifted online. Same real businesses (think fast-fashion retailer), simply shifting more money to Google while they figured out if, and how to shoot new ads to replace those that depicted happy people at crowded parties.
There's a part of Chaos Monkey where the author describes driving past Google on a weekend and seeing empty parking lots while Facebook's were full (this was during Google Plus). He concluded that Google no longer had a fire in the belly and facebook was going to overcome it, not just in social mindshare, but ad revenue.
Conditions changed.
> empty parking lots
people working remote
During the Google Plus days? Not so much.
And indeed FB did eat their lunch in social.
At the same time Facebook tried and failed to take on Gmail.
I would not argue they failed. Young people don't email their friends.
They don't Facebook their friends either, and email is now integrated into schools. Every kid I know has Gmail and none of them have Facebook (although, many do use Instagram).
Instagram and WhatsApp are Facebook.
Because they worked more hours, or because they chose to build something less stupid?
Because FB took it extremely seriously and iterated like crazy, where as Google never really did. It was a mindset issue in addition to product taste.
But not “not only in social mindshare, but in ad revenue”.
Social is just (fom a business perspective) a tool for getting an audience. The thing both Google and Facebook are selling is advertisement placement. Winning in one area of free “services” to build an audience to deliver ads to but not winning in actually selling ads…isn’t winning.
and in doing so, set themselves up for much larger failure. Google instead pivoted that energy into cloud, which is now broken out in their earnings.
I was one of those googlers who, when Plus was announced, wondered "why aren't we announcing an AWS competitor?"
What makes you think it was the same people inside Google that did social instead of cloud computing, and that was the choice going through leadership?
Google can walk and chew gum at the same time.
Well, I worked there at the time and had significant insight into the cloud leadership (and some into the social leadership), it wasn't the same people at all. Basically, Eric Schmidt wanted Google to make an enterprise cloud product years before it did, and saw no point in social, while Larry somehow got conned by Vic Gundotra and a few good PM decks that social was Google's future. Larry never had any interest in cloud computing and even the cloud leadership was skeptical that it could ever present an opportunity worth the small profit margins.
> Google can walk and chew gum at the same time.
As I recall from my outside/user perspective: Google Plus pretty much co-opted the entire organization in an supposed "all hands on deck, existential fight" against Facebook. Every product and feature had to have a "social" layer (including GMail!); YouTube even adopted a "Real Name" policy but still amazingly managed to worsen the comment system.
Can you imagine what a similar level of effort on the cloud would have produced? Maybe they wouldn't be a distant #3 in that space today.
Thats an insane conclusion imo. Weekend work being normalized leads to unhappier employees. Working longer also doesn't just mean more productivity, there's been many cases of four day work weeks causing no change.
Employees are a company's most valuable resource. A company looking to grow and innovate must take care of its employees and part of it is respecting their time.
Try working 30 hours a week in a top research lab and then come back and say that. Research is one of the least code monkey things you can do (requires the most creativity) yet everyone is working 80-100 hour weeks.
4 day work weeks causing no change means those engineers weren't productive in the first place. Which, in my experience, is the case in a lot of FAANGMULA teams.
The dirty secret of tech is that markets matter more than effort or smarts. If you have product/market fit and a decent technological lead in a market that is large and growing, you will do better than a company that does not have PMF or a good market, regardless of how hard you work. (This explains so much about Oracle.) Social media mentions are probably a better sign of how well you'll do than full parking lots.
I'd bet that Google & Facebook's current run-up is largely driven by inflation and higher ad prices. FB even said as much in a recent earnings call. Jerome Powell did more for their business than any employee up through the CEO did.
markets and moats matter. Anyone can get revenue selling tomatoes, the problem with tomato farming is that there is no moat, you will not be able to sell at a price much higher than the next farmer down the street.
If there were 100 good search engines the price for advertising would be 90% lower
>If there were 100 good search engines the price for advertising would be 90% lower
Would it really be that much though?
I thought search ads were auctions - i.e. competition for impressions/clicks directly correlates to the price of advertising.
If you have search users distributed across 100 platforms, the competition for impressions/clicks is going to be super low on all platforms, but you'd have to advertise on 100 platforms to get the same level of engagement, adding it all back up but with 100 middle men this time.
> If there were 100 good search engines the price for advertising would be 90% lower
Why do you think that? The revenue is determined by the number of searches showing ads, the click-through rate, and the cost per click. The total across all companies would clearly not change for the first two metrics. Would the cost per click change? Given it's determined by an auction, I don't see how it could change. If you have an incentive to bid $1 on an ad on a single site with 100x traffic, you'd be equally willing to bid $1 on each of 100 separate sites with 1x traffic.
If competition existed company A would offer a better product than just cost-per-click. Then company B would offer another product better than company A, and so on. Google is like a person that owns the only road between two towns. You have to pay them until other people can build ferries or airports or trains. At which point you can exit the mentality of "we have to take this road and pay per drive"
Sorry, that still makes no sense to me. Why would company B have to make a better product in reaction? They're not being impacted at all. Company A having more and cheaper ads certainly won't make any users switch from B to A. It also won't make any existing advertisers stop spending on ads on B and run more ads on A, since the ads on B must have been profitable at the current price, and those ads are reaching a different set of users than the ads on A.
Is it possible that those cheaper ads could create more demand for ads somehow? It seems hard to believe it could. Either it's a search term that people were already willing to buy more expensive ads for, and are now just happy to pay less, or it's a search term that nobody was willing to bid even minimum price for.
What's actually going to happen in your scenario is that company A loses 90% of their revenue, goes bankrupt, and their domain is sold for a fair price to Company B or one of the other 98 remaining competitors.
> If there were 100 good search engines the price for advertising would be 90% lower
And the number of ads and hidden ads would be like Cable.
> If there were 100 good search engines the price for advertising would be 90% lower
If there were 100 good search engines for end users, but opinions of different users on quality were highly correlated, the traffic would be very disproportionately on the one that was perceived as even very slightly better.
And they’d make the bulk of the advertising dollars.
And they’d have the bulk of the money to throw at improvements.
And the next year, unless some competitor got more access to outside investment to make up for that, the gap would be bigger, they’d have even more of the search audience, and even more of the advertising money, etc.
You are describing 99 shitty search engines and 1 good one.
Sure, if “slighty worse that good” is “shitty”.
When you can’t sell your slightly-less-good product for a lower price to make it value-competitive to slightly-more-good one, there’s very little reason for all the users not to go to the slightly-more-good one. With free services given away to get an advertising audience, that makes slight advantages very prone to positive feedback loops.
> I'd bet that Google & Facebook's current run-up is largely driven by inflation and higher ad prices.
What does this mean? The dollar didn't inflate 68%.
If you mean that companies are investing more capital into advertising because capital markets are looser, sure, but why is that a bad thing again?
Inflation is uneven, and it tends to pool in markets that are:
a.) close to the point where the money is injected
b.) have quick-adapting prices, ideally ones where competitors bid against each other
c.) are dominated by 1-2 firms with little competition, so they have pricing power.
Google and Facebook tick all the boxes. In COVID money was injected directly to the consumers (thanks to stimulus payments) and to small or mid-size business (PPP loans). Google and Facebook run up-to-the-minute ad auctions, so prices adapt immediately to additional money becoming available. And they have little real competition, so it's not like they can be undercut by competitors.
By contrast, wages (for example) a.) require that your employer have more money, which generally requires that it have trickled down through the whole value chain b.) get updated usually once per year and c.) generally require that your competition also decide they're going to ask for more money too, less your employer just decide to employ someone else. That's why wages are often the last and stickiest place that inflation shows up.
The general phenomena of certain businesses being able to raise prices earlier, faster, and more than others in response to rising money supply is called the Cantillon Effect, and is a pretty fertile ground for making lots of money in an inflationary environment.
2 -> This is the only part of the comment I agree with, inflation is slower to show up in sticky prices.
The rest is wrong - you can look to an economist https://www.themoneyillusion.com/it-really-really-really-doe... if you want an explanation.
I'll not there is a tension between 2 and 3 as highly competitive markets tend to not have sticky prices.
tl;dr You advance a claim of strong monetary non-neutrality. I think that outside of sticky prices, your claim is overstated.
Google's revenue growth came at least in part by creating two new markets that it has control over: youtube ads and mobile ads. In both areas, Google was able to couple a rapidly growing product with new ad space that it auctioned. I doubt most people appreciate quite how effective Youtube and Google Play are at delivering ads to users and money to Google. It's not just inflation and higher prices- it's a massive growth of the market.
Lockdowns and money printing are great for business. No wonder Google is deplatforming scientists and engaging in mass censorship.
> In January 2021, we completed an assessment of the useful lives of our servers and network equipment and adjusted the estimated useful life of our servers from three years to four years
Does anyone know what the observation was here that made this possible? Have Google's internal workloads not grown in size as quickly as they thought, or is this a "Moore's law is slowing down" thing?
Googler, opinions are my own. I know nothing about this.
I wonder if this was Google's response to the chip shortage? Maybe the cost/benefit (and just sheer inability to get certain parts) made them hold on to hardware for longer.
That would be an interesting adjustment
Could also be the fact that Google has built a ton of new data centers in the last two years. Newer hardware, infra, utilization, etc. could lead to better quality/lifespans.
I don't think the workloads would have much to do with this, probably saw that they were having less failures than anticipated or memory/chip shortages have them keeping equipment around longer than they planned.
My assumption is the hardware was more reliable than expected. If it was about slowing workload growth one might expect them to switch to a usage-based (instead of time-based) depreciation schedule.
Seemingly the latter. Less benefit between generations and more stress resistance in hardware compared to earlier data center practice
I wouldn't be surprised if the decision was driven by Google's army of accountants.
Extending the life of an asset would affect the depreciation schedule, which would affect when depreciation is recognized / recorded on their books in a given tax year.
While I'm unsure of the the reason the computers are lasting longer, I would bet this observation was originally triggered from the public company accounting firm that audits Alphabet's financials. The accounting firm likely asked Alphabet to prove out why they used a 3 year estimate and found out 4 years was more accurate (FYI 3 years is a standard useful life for computers for most companies - sometimes even shorter).
It doesn't work this way.
If Alphabet wanted to prove they lasted three years, they would have found a way to prove it. Auditors don't go around challenging on things like this. In particular, they don't go around challenging companies on depreciation because that is a key lever that management can pull if they need to hit numbers.
It is very difficult to discern exactly why they will have done this but the functional answer is: they have done this because they needed earnings to increase. In this case, it looks like the difference between a 15% and a 20% beat (I believe the change was made in January, I think they had quite a big beat in that quarter after some flattish momentum, middle of the year very strong anyway).
Umm, intel flatlined basically on chip development. Chip shortages also hit the sector. And the long tail has gotten to point where folks keep systems in workloads even if "better" solutions exist - because existing systems are working fine. 4 years is not unreasonable (now). Once chip shortages ease and development picks up again at intel useful life may decrease again.
But sometimes it does.
I worked in audit for several years and the auditors will challenge any estimate made by management that the auditors deem material to the financial statement readers. And the useful life of how long computers last is an estimate by management. While at most companies useful lives might not be an estimate worth looking at, Alphabet has enough computers for this to be a material estimate (likely due to GCP) that is subject to management bias. The public auditors are there to ensure (to a reasonable extent) that management can't manage earnings by changing estimates like this.
This is probably less exciting than you imagine. It's hard to estimate HDD and CPU failure rates 5 years into the future, especially on new-generation hardware. 3 years was an informed guess.
AFAIK it comes down to some degree to a tradeoff between the projected density and power efficiency gains of newer gear vs the cost savings of keeping older gear around and in the racks. Some datacenters simply can't support higher density due to power constraints and if the newer gear isn't offsetting the capital costs by pulling in more revenue then you might as well keep the old gear around longer.
I don't know why people always mention density. Google isn't constrained on floor space. If they need another 100 acres of Iowa for their servers to stand on, they'll just buy that for a comparative $0 cost.
Density is an issue for people who are still renting from Equinix.
the substation has a limit, so do all of the power distribution systems.
Sure but that's the opposite trend from density, is it not? A dual 64-core EPYC Rome machine - and we know they are using these for web search, from published research papers - has 400W of CPU TDP alone, which is a more than double the per-host TDP of a Westmere EP (as an example of a retired platform). So if anything there is more empty space in the racks in 2021 than there would have been in 2011, based on the design power load of existing buildings.
The cycle for servers is 3 years, the cycle for the building is 30 years. What I'm trying to say is that if you can deliver more widgets per watt per sq ft by replacing the server than you go for that. If you can't why not keep the already depreciated server operating for another year. The incremental costs are mostly the power (and ac) plus the opportunity cost of putting a more efficient server in a year later. If it fails you just put in the newer server. If it doesn't you may save a bit.
Probably because intel chips feel like they have stagnated somewhat performance-wise while they milked the market IMHO.
Why upgrade to the latest intel CPU when you get a paltry 100Mhz clock increase for the bother? May as well wait another year if 3 year old CPUs are pretty much the same performance as current models (give it take a few %)
Uh, both 3 and 4 are radical understatements of the economic lives of servers. They are TCO+ for 10 years in reality. For a company like Google or any other company designing their own equipment the usual reason to retire equipment (end of warranty) does not exist.
There are still Sandy Bridge CPUs available in GCE. Sandy Bridge came out in Q2 2011.
No, computers typically have a service life of 5 years, but depreciating them faster gives you more loss to to write down against your income.
What you are seeing though is the trick they used to make 'net income' pop. Let's say they had a million servers and a server costs $5K each. When depreciated at 3 years that is $1.6 billion dollars a year of depreciation. But you stretch that out to 4 years and now its only $1.25 billion dollars in appreciation. Since depreciation is subtracted from revenue you just "bumped" up your revenue by $350M and you didn't have to do anything at all (except change how you treated your assets).
That they had to resort to this level of shenanigan to get their revenue numbers up is interesting to me.
> Since depreciation is subtracted from revenue you just "bumped" up your revenue by ...
No, you bumped your net income. Revenue is unaffected by the depreciation change. Revenue is up 61%.
Also, nobody would be fooled by an accounting trick like this. Analysts routinely compute EBITA, earnings before interest, taxes, and depreciation, exactly for this reason - filtering out the more purely financial/virtual expenses that are less informative for understanding the core business.
They likely did it because you're required to report things like depreciation in a way that reflects reality. There could be tax implications for instance, since you can count depreciation expenses against your taxable earnings (though often companies maintain separate depreciation accounting for financial reporting vs taxes due to the different rules for each).
Fair, it bumps net income not revenue.
When I was younger, I took an accounting class from Santa Clara University (it was part of their Executive MBA program although I did not get an MBA) because I knew that I'd like to start my own company some day and needed to know how accounting worked.
> Also, nobody would be fooled by an accounting trick like this.
The course specifically covered "accounting tricks" that would create the most favorable impression in the eyes of the public and in the eyes of the analyst community. Playing around with depreciation rates was one of them. The assertion in class (which I've never had a chance to test) was that the IRS rarely, if ever, cared about your depreciation tables. That was damn close to 20 years ago so it most certainly could be different now, and I am not a tax accountant. If it has changed since then I am sure someone who has taken the class will correct me.
I don't think it "fools" analysts, but I suspect they might trade on an understanding that retail investors might have a different take on what was reported than what the analysts read.
Looking at it from a naive point of view, could it just be an actual change in what they estimate to be the useful life of their servers? Accounting shenanigans for a (relatively) small bump in revenue seems not really worthwhile.
This was announced back in July:
https://www.convergedigest.com/2021/07/google-extends-deprec...
Alphabet + Facebook revenue now represents 1/2% of world GDP and still growing rapidly.
Edit: possibly not quite but almost certainly 1/2% excluding China.
Considering the world would be more than 0.5% worse without Google, I guess they're still undervalued?
You're making the assumption that no company, or companies, would step in and provide a similar service for a similar or better value.
Bing search, edge browser and windows phones? Amazon owning youtube? Companies would step up, but not sure if that would be a better scenario than what we have now.
Don't see how your claim follows. If another company would have stepped in to provide a similar or better service instead of Google, then it would have been that company worth 0.5% of world GDP.
This isn't even close to being true.
It's not quite half a percent by most accounts of GWP, but it's around there.
0.5% of global GDP would be more reasonable, although a fraction is an odd way of writing it.
It also doesn't tell us much other than Google and Facebook are large companies with significant earnings. You can probably provide a similar percentage for VW/Toyota, Boeing/Airbus, Walmart/Amazon, or any other pair of large companies that are the leaders in their respective markets. Indeed, if you lumped the entire Fortune 500 together, they're probably make up a sizable portion (if not the majority) of world GDP.
Walmart on its own has more revenue than Google and Facebook combined.
Yup, WMT most recently reported $566B in revenue.
1/2 = 0.5 last time I checked but if you find 0.5 more reasonable that's fine.
Seriously though, Wal-Mart has $500 billion revenues but it's not growing at the rate of these companies. By lots of metrics these companies are increasingly globally significant in a way that most of the examples you quote aren't.
World GDP is $80T. Google's run-rate is $240B revenue and Facebook's is $116B. That's $356B / $80T => 0.445%. Close enough for internet math.
Judging from all the comments below I guess I am the only one confused.
Because I interpreted it 1 or 2% of world GDP.
I like to think I'm doing my part as a sharehholder.
Every so often I'll google something like Criminal Defense Attorney, send money, or file taxes and click on the highest ads.
That seems like fraud, especially if you were to do it at scale.
A lot of things we do are a little fraudulent, no? The measure is probably impact.
You won't want to know what AdNauseam does.
It's one thing to click ads. It's quite another to do it for a company you own stock in.
Hmm, I don't understand what would make that fraudulent, could you explain? Many users, and presumably many shareholders, click on ads that aren't relevant to them, or search for things that aren't relevant to their interests or purchases -- I would think that's just one of the many assumptions built into the advertising market.
> Every so often I'll google something like Criminal Defense Attorney, send money, or file taxes and click on the highest ads.
The original poster is deliberately searching for some of the highest cost per click ads [1]. They have no intention of using these services, and they're moving lots of money from the ad purchaser to Google. Up to $50 per click.
This person owns stock in Google and has a vested interest in seeing their revenues go up.
These effects are minuscule, but it's not far off from stealing a furniture item every time you go to Target. Someone is paying for these and it has a nonzero effect on Google stock.
[1] https://www.wordstream.com/blog/ws/2017/06/27/most-expensive...
You mean like owning Tesla stock and buying a Tesla?
What about owning McDonalds stock and buying dinner?
Obviously fraud is not easy to label.
Quick summary.
Revenue up 41%!! Incredible for an already very large company.
Op Margin also up to 32%?
When you realize how hard walmart and friends works for every point of margin and growth - these guys are literally printing millions.
Automated bidding, Google's greatest invention yet. Google decides how much you pay them now...
They are also doing a good job at turning unsellable searches into sellable searches with their suggested search queries.
I do not understand this financial books and lingo enough to understand this correctly so have to ask "Is google cloud business gone really down as compared to previous years? Am I reading this correctly?"
You're misunderstanding, the numbers show 4990 million in 2021 vs 3444 million in 2020.
Thanks for explaining.
No.
Google Cloud Revenue went up from $3.4 billion for Q3 2020 to $4.9 billion for Q3 2021
Google Cloud operating losses went down from $1.1 billion in Q3 2020 to $640 million in Q3 2021. (Though it looks like this change is almost exactly accounted for by a change in depreciation expense due to revised estimate of the useful life of servers.)
So they are bringing in significantly more money through the front door with Cloud, though they are still losing money (either about the same or half as much, depending on how you look at it) on Cloud.
The server depreciation changes affect all of Google. GCP accounts for only a portion of Google's server usage.
> The server depreciation changes affect all of Google.
Good point. Not sure why I miscontextualized that number.
What value do they provide to our society?
We empower the wrong things..
I'd love to have access to a free search engine, email, and a video platform. But objectively running and improving those systems takes money that people is not really willing to pay for. Wikipedia is a good example on how our anchor on that everything digital must be free keeps us from developing free systems. I wish we could change that.
Now, what value do those systems provide? I would definitely be living a much different (and likely worse) life if I didn't had access to the Internet and systems like those since middle school.
it's not free, you pay with your data, privacy and is not "free" of capitalistic censorship (shadowing actual result with value because entity X bought the spot to get included at the top of your 'free' search)
wikipedia actually is free, and we do not empower it for the value it provides to our society