Takeaways from Google’s 4Q09 earnings

January 22, 2010

Google generated probably the strongest annual revenue growth, 17%, of any large U.S. company this past quarter.

  • Given that Google is exceptionally non-transparent, the minimal guidance and insight that Google is required to provide as a public company always provides a rare glimpse into what is really going on at Google.

What are the big takeaways from the earnings call?

First, Googleopoly continues to gobble revenue market share at a voracious rate because we know Google’s revenues are up 17%, and Google’s only significant competitors, Yahoo and Microsoft are continuing to lose ground, (as Yahoo is expected to report a revenue decrease on Tuesday so its search revenues can be assumed to badly lag Google’s 17%, and Microsoft Bing’s modest search share gains are not keeping up with Google’s torrid search growth in a weak economy.)

Second, Googleopoly continues to show strong evidence of its dominant market power in pricing as its revenue growth of 17% is outpacing its paid click growth of 13% — by roughly 30%. There is no stronger evidence of monopoly power than pricing power and Google clearly has pricing power aplenty.

  • Google is very good about keeping its pricing power hidden from public view by letting no relevant market information escape Google’s “Black Box” auction process.

Third, Google’s CEO Eric Schmidt reaffirmed that Google is on an acquisition spree with some “big” buys coming — and with almost $25B in cash and roughly $10B in annual free cash flow — Google can afford to buy most whatever it wants.

  • The big point that most everyone is missing here is that, as a DOJ detemined monopoly, Google’s grand acquisition ambition strategy inevitably puts Google on a collision course with the DOJ and the FTC.
  • Remember the FTC is investigating the Google-AdMob acquisition and I believe it is likely to block it. See Googleopoly V for the detailed case.

Fourth, Google is boasting that display will be the “next huge business” for Google. This is significant as this is the core strength of Google’s main search advertising competitor, Yahoo, which is expected to have down revenues this quarter. Why? Because Google is leveraging its search advertising monopoly to gobble display share from Yahoo as well.

  • What this reminds us of, is that the FTC blew its investigation of the Google-DoubleClick acquisition in approving it 4-1. The detailed case I made in my Senate Antitrust Subcommittee testimony at the time was that allowing Google to buy DoubleClick would tip Google to monopoly because it would give Google the hundreds of top global advertisers that Google did not have and allow Google to reach the 25% of the Internet audience that they did not yet reach.
  • Less than a year after the FTC saw no potential competition problems with the DoubleClick acquisition, the DOJ had to intervene and block Google’s attempt to cartelize the search advertising business in its ad agreement with… the display ad leader Yahoo. The FTC clearly failed to “connect the dots” between search and display in its Google-DoubleClick review.
  • Hopefully, the FTC will learn from its DoubleClick misjudgement and its initial lack of appreciation for Google’s growing monopoly power, and will seriously investigate and block Google’s proposed AdMob acquisition and Google’s attempt to buy dominance in mobile advertising.
  • All this also suggests that the DOJ is very likely to approve the proposed Microsoft-Yahoo search agreement in order to try and muster a competitive alternative to Googleopoly.

Lastly, the Google call sent mixed signals on Google’s plans in China. A couple of weeks ago Google told the world and the human rights community that Google “had decided” it was not going to censor search results anymore. Now on an earnings call with investors, a very different audience with very different priorities, Google CEO Eric Schmidt appeared to back pedal on whether Google would follow through on its world-announced vow to no longer censor search results for China.

  • The “open” question is whether Google is potentially flip-flopping on its China policy, or whether Google is just telling a different audience what they want to hear.

 

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