GOOGL - Google

[Guest valueInv]

I want to turn down the hyperbole just a bit. 

 

Good, then lets not talk about what we like and don't like but what the statistics show. The numbers re very clear. Despite Google signing up almost everyone who uses their products, few bother to use G+. Even the niche services that Palantir mentioned have passed G+ in a big way.

 

Google keeps adding good features are redesigns but FB copies them a few months later. In effect, we need to thank Google for improving FB!

 

As far as the tech circles go, Hacker News is a much better place to have a conversation. If you want technical questions answers then Stackoverflow.

 

But this conversation may be moot. g+ maybe just a way for Google to integrate identities across their product. The game Google maybe playing is to track users better by disguising it as a social layer.  Best of luck with that in the wake of PRiSM.

[Palantir]

 

I disagree. Facebook got started with a handful of users and was popular because of its exclusivity, not because it had the most users.  Myspace was on top until Facebook got the critical mass of users to bring the new growth strategy of being a real social network. G+ is integrated across most of google's services including YouTube which was already the 3rd largest social platform on the web.  The convenience, design, and services are exactly why I'm there and everyone else who uses it. Its still a social platform but I find myself discussing ideas and themes with strangers as opposed to friends (no different than this board). All it takes is enough people to adopt it and it will hit the same critical mass Facebook did that put its growth into hyperdrive and made myspace obsolete in less than two years.

 

I like G+ a lot better, and spend just as much time on it as I do Facebook,  with only 2 friends who use it. That should scare the shit out of anyone bullish on facebook. G+ won't be a moneymaker anytime soon, but if it makes it to the top it'll stay there because the services are better than the competition's.

 

How old are you? Just curious. I got on FB when I went to college, and that was pretty much THE social network. I signed up on it to meet other people in my class - back then it was restricted to your university, so it had a neat niche focus. Now that focus is not needed, so it doesn't need to be exclusive.

 

Going back to the FB as a platform theme, just because there are a few kinks in the user experience doesn't doom the product - being a platform it can easily modify itself, or plug in additional products that are useful for the UX. Tomorrow Twitter becomes really important, they can buy Twitter, or they can introduce a Twitter like product, because they already have the users.. It gives them a lot of flexibility to absorb emerging technologies.

[VAL9000]

G+ is to Facebook as Bing is to Google Search.

 

It's an investment made to ensure that the market isn't completely ceded to a rival.  It cuts the profits that go to the competitor by raising the cost of inputs (cost of labour, cost of infrastructure, cost of IP) and reducing revenue by providing an alternative (in the case of G+ the alternative is for the users not for the advertisers, but that still hurts FB).  FB now has to "keep up with G+" instead of deploying more resources to developing Graph Search.

 

There are a number of other reasons to make these investments, but keeping your competitors busy and focused on their primary business means they won't send their smartest people to start thinking about how to cut into your primary business.  It's a great reason to make the investment.

 

Plus sometimes these competition-driven investments pan out more positively than expected (see Android v. iPhone).

 

[rkbabang]

 

I disagree. Facebook got started with a handful of users and was popular because of its exclusivity, not because it had the most users.  Myspace was on top until Facebook got the critical mass of users to bring the new growth strategy of being a real social network. G+ is integrated across most of google's services including YouTube which was already the 3rd largest social platform on the web.  The convenience, design, and services are exactly why I'm there and everyone else who uses it. Its still a social platform but I find myself discussing ideas and themes with strangers as opposed to friends (no different than this board). All it takes is enough people to adopt it and it will hit the same critical mass Facebook did that put its growth into hyperdrive and made myspace obsolete in less than two years.

 

I like G+ a lot better, and spend just as much time on it as I do Facebook,  with only 2 friends who use it. That should scare the shit out of anyone bullish on facebook. G+ won't be a moneymaker anytime soon, but if it makes it to the top it'll stay there because the services are better than the competition's.

 

How old are you? Just curious. I got on FB when I went to college, and that was pretty much THE social network. I signed up on it to meet other people in my class - back then it was restricted to your university, so it had a neat niche focus. Now that focus is not needed, so it doesn't need to be exclusive.

 

Going back to the FB as a platform theme, just because there are a few kinks in the user experience doesn't doom the product - being a platform it can easily modify itself, or plug in additional products that are useful for the UX. Tomorrow Twitter becomes really important, they can buy Twitter, or they can introduce a Twitter like product, because they already have the users.. It gives them a lot of flexibility to absorb emerging technologies.

 

Exactly.  Myspace died because it was targeted at only teens so it never built a wide userbase.  When the teens left, it was dead.  I like G+ better myself, but I use FB more.  All of my family (from all over the country) is on FB, my old friends from school, etc....  No one uses G+, a social network is about keeping in touch with people not about having the most features.  As google discovered you can't kill FB by creating something almost like it, but better.  As long as FB is adequate people will stay there, because everyone else uses it.  It is like Windows.  Windows was never the best desktop OS, technical people who knew better have always hated it, but it was adequate and everyone else already used it, so software companies developed software for it making it enough of a hassle to switch that almost no one did.  Apple always had a better OS, Linux started off slow, but quickly became much better than Windows, but no one in the general public cared until the way they used their computers changed.  When software compatibility got better between platforms and more people started doing everything online and/or on their phones/tablets not their PCs Windows no longer had its moat.  FB will have its moat until something which works on a completely different paradigm comes along to replace it, the way digg was no longer necessary after FB came along.  No FB isn't just a news sharing site, but now people can share news at the same place they go to keep in touch with people, there is no longer a need for a stand alone news sharing site.  Whatever kills FB will be something everyone wants for some other innovative reason, which will be something FB can't or doesn't do. If everyone uses what this new thing will be for this other reason and realizes that they can also use it to keep in touch with people, chat, and share news stories there will no longer be a reason for FB to exist, and people will just stop using it.  G+ is about the same as FB only much better, that won't cut it at this point.

[Guest valueInv]

G+ is to Facebook as Bing is to Google Search.

 

It's an investment made to ensure that the market isn't completely ceded to a rival.  It cuts the profits that go to the competitor by raising the cost of inputs (cost of labour, cost of infrastructure, cost of IP) and reducing revenue by providing an alternative (in the case of G+ the alternative is for the users not for the advertisers, but that still hurts FB).  FB now has to "keep up with G+" instead of deploying more resources to developing Graph Search.

 

There are a number of other reasons to make these investments, but keeping your competitors busy and focused on their primary business means they won't send their smartest people to start thinking about how to cut into your primary business.  It's a great reason to make the investment.

 

Plus sometimes these competition-driven investments pan out more positively than expected (see Android v. iPhone).

 

I love the theories people come up to rationalize things  ;D ;D ;D

 

It would me much cheaper for Microsoft to let go of MSN and let Google take the web, same with Google and FB. MSFT has lost billions trying to compete in a web business and they will lose billions more if they do not quit. They cause more damage themselves than to their competitors.

 

The point of having a strong moat is not having to spend all your money trying to defend it.

[VAL9000]

I love the theories people come up to rationalize things  ;D ;D ;D

 

It would me much cheaper for Microsoft to let go of MSN and let Google take the web, same with Google and FB. MSFT has lost billions trying to compete in a web business and they will lose billions more if they do not quit. They cause more damage themselves than to their competitors.

 

The point of having a strong moat is not having to spend all your money trying to defend it.

 

This isn't a one-time rationalization for the sake of Google.  I made the same argument regarding Bing and Microsoft 2 years ago.

 

The thing about web services is that the variable cost is virtually zero, so additional market share is pure profit.  By denying Google 25% of the market, Microsoft denies Google about $3bn in potential profit for the US alone.  The cost to Microsoft is about $1.5bn/year and dropping.  Plus it raises costs on Google - a couple of years ago Google spontaneously gave out bonuses and 10% raises to all employees.

 

If you want to see what happens when businesses elect not to compete, take a look at Internet Explorer.  After capturing 95%+ of the market, Microsoft virtually abandoned all efforts to improve the browser.  IE 6 was released in 2001.  IE hit 95% in 2002. Microsoft did nothing for 5 years before finally releasing IE7 in 2006.  5 years is an eternity - by comparison, Chrome was released 5 years ago.  So that's what happens when nobody competes with you.  You don't have to lift a finger.  You maintain your hegemony while your costs go to zero.

 

So apply the same theory to Facebook and Google+ and you can see what part of the reasoning is.  Same with Android and iPhone.  I think after Microsoft, everybody in the industry understands the true cost of allowing a monopoly to form.

 

[Guest valueInv]

I love the theories people come up to rationalize things  ;D ;D ;D

 

It would me much cheaper for Microsoft to let go of MSN and let Google take the web, same with Google and FB. MSFT has lost billions trying to compete in a web business and they will lose billions more if they do not quit. They cause more damage themselves than to their competitors.

 

The point of having a strong moat is not having to spend all your money trying to defend it.

 

This isn't a one-time rationalization for the sake of Google.  I made the same argument regarding Bing and Microsoft 2 years ago.

 

The thing about web services is that the variable cost is virtually zero, so additional market share is pure profit.  By denying Google 25% of the market, Microsoft denies Google about $3bn in potential profit for the US alone.  The cost to Microsoft is about $1.5bn/year and dropping.  Plus it raises costs on Google - a couple of years ago Google spontaneously gave out bonuses and 10% raises to all employees.

 

In that case, Bing must be making $3 Bln of profits in US alone. Do you see that in their financials?

 

If you want to see what happens when businesses elect not to compete, take a look at Internet Explorer.  After capturing 95%+ of the market, Microsoft virtually abandoned all efforts to improve the browser.  IE 6 was released in 2001.  IE hit 95% in 2002. Microsoft did nothing for 5 years before finally releasing IE7 in 2006.  5 years is an eternity - by comparison, Chrome was released 5 years ago.  So that's what happens when nobody competes with you.  You don't have to lift a finger.  You maintain your hegemony while your costs go to zero.

 

So apply the same theory to Facebook and Google+ and you can see what part of the reasoning is.  Same with Android and iPhone.  I think after Microsoft, everybody in the industry understands the true cost of allowing a monopoly to form.

This is a different issue. Consumers may benefit but that does not mean that the competitor will. Google+ is great for consumers and Facebook. Google comes up with all the new features and designs. They release them and test them with their small audience. Facebook cherry picks the best of them and copies them. Facebook not only saves in R&D, they also have to take fewer risks because Google tests what features are the best.

 

Google is saving money for FB, allowing them to dedicate resources to building up ad infrastructure instead of dreaming up new features and designs.

My guess is Apple is beginning to realize this too.

 

 

 

[VAL9000]

This isn't a one-time rationalization for the sake of Google.  I made the same argument regarding Bing and Microsoft 2 years ago.

 

The thing about web services is that the variable cost is virtually zero, so additional market share is pure profit.  By denying Google 25% of the market, Microsoft denies Google about $3bn in potential profit for the US alone.  The cost to Microsoft is about $1.5bn/year and dropping.  Plus it raises costs on Google - a couple of years ago Google spontaneously gave out bonuses and 10% raises to all employees.

 

In that case, Bing must be making $3 Bln of profits in US alone. Do you see that in their financials?

I do, but I can't help you if you don't understand the difference between fixed costs and variable costs.

 

If you want to see what happens when businesses elect not to compete, take a look at Internet Explorer.  After capturing 95%+ of the market, Microsoft virtually abandoned all efforts to improve the browser.  IE 6 was released in 2001.  IE hit 95% in 2002. Microsoft did nothing for 5 years before finally releasing IE7 in 2006.  5 years is an eternity - by comparison, Chrome was released 5 years ago.  So that's what happens when nobody competes with you.  You don't have to lift a finger.  You maintain your hegemony while your costs go to zero.

 

So apply the same theory to Facebook and Google+ and you can see what part of the reasoning is.  Same with Android and iPhone.  I think after Microsoft, everybody in the industry understands the true cost of allowing a monopoly to form.

This is a different issue. Consumers may benefit but that does not mean that the competitor will. Google+ is great for consumers and Facebook. Google comes up with all the new features and designs. They release them and test them with their small audience. Facebook cherry picks the best of them and copies them. Facebook not only saves in R&D, they also have to take fewer risks because Google tests what features are the best.

 

Google is saving money for FB, allowing them to dedicate resources to building up ad infrastructure instead of dreaming up new features and designs.

My guess is Apple is beginning to realize this too.

 

So just to clarify, you think that it's better for Google to allow Facebook to have a monopoly on social networks?  And it's better for Microsoft to allow Google to have a monopoly in search?  I want to make sure I understand what your opinion is.

 

 

[Guest valueInv]

This isn't a one-time rationalization for the sake of Google.  I made the same argument regarding Bing and Microsoft 2 years ago.

 

The thing about web services is that the variable cost is virtually zero, so additional market share is pure profit.  By denying Google 25% of the market, Microsoft denies Google about $3bn in potential profit for the US alone.  The cost to Microsoft is about $1.5bn/year and dropping.  Plus it raises costs on Google - a couple of years ago Google spontaneously gave out bonuses and 10% raises to all employees.

 

In that case, Bing must be making $3 Bln of profits in US alone. Do you see that in their financials?

I do, but I can't help you if you don't understand the difference between fixed costs and variable costs.

 

We're talking about profits, not costs.

 

http://www.bloomberg.com/news/2012-07-02/microsoft-will-write-down-6-2-billion-related-to-aquantive-deal.html

 

 

So just to clarify, you think that it's better for Google to allow Facebook to have a monopoly on social networks?  And it's better for Microsoft to allow Google to have a monopoly in search?  I want to make sure I understand what your opinion is.

 

Yes, their purpose is improve returns to their shareholders. Focus on the business in which they can drive profits, not blow their profits on a quest to take over the world.

 

http://theinvestmentsblog.blogspot.com/2011/11/buffett-on-institutional-imperative_18.html

[VAL9000]

In that case, Bing must be making $3 Bln of profits in US alone. Do you see that in their financials?

I do, but I can't help you if you don't understand the difference between fixed costs and variable costs.

 

We're talking about profits, not costs.

 

http://www.bloomberg.com/news/2012-07-02/microsoft-will-write-down-6-2-billion-related-to-aquantive-deal.html

 

 

Well if you don't understand the relationship between profit and variable costs, then I don't even know where to begin.

 

So just to clarify, you think that it's better for Google to allow Facebook to have a monopoly on social networks?  And it's better for Microsoft to allow Google to have a monopoly in search?  I want to make sure I understand what your opinion is.

 

Yes, their purpose is improve returns to their shareholders. Focus on the business in which they can drive profits, not blow their profits on a quest to take over the world.

 

http://theinvestmentsblog.blogspot.com/2011/11/buffett-on-institutional-imperative_18.html

Okay, we have a fundamental disagreement here.  I think you are undervaluing the power of a monopoly.  You think competing as the #2 player is a waste of company resources.  I can live with that disagreement.

 

[Guest valueInv]

In that case, Bing must be making $3 Bln of profits in US alone. Do you see that in their financials?

I do, but I can't help you if you don't understand the difference between fixed costs and variable costs.

 

We're talking about profits, not costs.

 

http://www.bloomberg.com/news/2012-07-02/microsoft-will-write-down-6-2-billion-related-to-aquantive-deal.html

 

 

Well if you don't understand the relationship between profit and variable costs, then I don't even know where to begin.

 

 

Well, since you understand it so well, could you tell me how much money their online services division made last year?

 

Also, how much did it make cumulatively? Could you make sure you subtract the cost of acquisitions from that?

[VAL9000]

In that case, Bing must be making $3 Bln of profits in US alone. Do you see that in their financials?

I do, but I can't help you if you don't understand the difference between fixed costs and variable costs.

 

We're talking about profits, not costs.

 

http://www.bloomberg.com/news/2012-07-02/microsoft-will-write-down-6-2-billion-related-to-aquantive-deal.html

 

 

Well if you don't understand the relationship between profit and variable costs, then I don't even know where to begin.

 

 

Well, since you understand it so well, could you tell me how much money their online services division made last year?

 

Also, how much did it make cumulatively? Could you make sure you subtract the cost of acquisitions from that?

 

I think what you've missed here is that Google can make $3bn from Bing's search share even if Microsoft can't.  What I see in Bing's financials is that they have the ability to generate a decent amount of revenue with that search share, but their fixed cost structure is way too high.  Hence I know that Google would be able to make a killing with that market share, because their variable cost at this scale is basically zero and Microsoft's revenue figures show that the market is there.  So, even if Bing costs $1.5bn to operate, it keeps Google from gaining another $3bn in profits. 

 

What is the part that's wrong with this argument?  Or, "rationalization" as you called it earlier.

 

[Guest valueInv]

I think what you've missed here is that Google can make $3bn from Bing's search share even if Microsoft can't.  What I see in Bing's financials is that they have the ability to generate a decent amount of revenue with that search share, but their fixed cost structure is way too high.  Hence I know that Google would be able to make a killing with that market share, because their variable cost at this scale is basically zero and Microsoft's revenue figures show that the market is there.  So, even if Bing costs $1.5bn to operate, it keeps Google from gaining another $3bn in profits. 

 

What is the part that's wrong with this argument?  Or, "rationalization" as you called it earlier.

 

1, Revenue from search is not proportional to search marketshare

2, MSFT has lost many billions i.e. they have a huge negative rate of return and that money might as well have been flushed down the drain

3, Variable cost is not zero

 

[VAL9000]

I think what you've missed here is that Google can make $3bn from Bing's search share even if Microsoft can't.  What I see in Bing's financials is that they have the ability to generate a decent amount of revenue with that search share, but their fixed cost structure is way too high.  Hence I know that Google would be able to make a killing with that market share, because their variable cost at this scale is basically zero and Microsoft's revenue figures show that the market is there.  So, even if Bing costs $1.5bn to operate, it keeps Google from gaining another $3bn in profits. 

 

What is the part that's wrong with this argument?  Or, "rationalization" as you called it earlier.

 

1, Revenue from search is not proportional to search marketshare

 

Considering MSFT is generating > $3bn from its Online Services Division today, most of which is from search, I think this is a reasonable estimate.  Google would be able to get way more out of that same market share.

 

2, MSFT has lost many billions i.e. they have a huge negative rate of return and that money might as well have been flushed down the drain

 

And how much has Google lost using the proposed framework?  Just the missed opportunity on revenue is very damaging.  Plus the loss of a monopoly.  Think about the extra investment they've made to keep ahead of Bing.  Bing today is better than Google in 2008.  Maybe even 2010.  That's a lot of R&D cost they wouldn't incur if they weren't pressured by a competitor.

 

Granted Microsoft has lost a lot in the search business, but they would lose even more if Google were a monopoly.  Nobody knows this better than Microsoft.

 

3, Variable cost is not zero

Yeah it's pretty close to zero.  I would guess their variable costs are < 10% for the search + AdWords business.  I bet they could absorb 100% of all search queries today and not even break stride.  The only additional cost would be supporting the increased AdWords business.  So sure, their true profit potential is $2.7bn.

 

[Guest wellmont]

 

Yes, their purpose is improve returns to their shareholders. Focus on the business in which they can drive profits, not blow their profits on a quest to take over the world.

 

http://theinvestmentsblog.blogspot.com/2011/11/buffett-on-institutional-imperative_18.html

 

I agree bing and all of online has been a disaster for msft shareholders. goog+ is a small investment not on the same scale. msft basically put yahoo out of the search business. yahoo would have been a very strong #2 if msft had not gone on their crazy bing sojourn. I don't think companies should invest shareholder capital in value destroying projects simply to make things harder for someone else. This has not phased goog one bit. Msft had a monopoly with windows; and now it's in decline. market forces and technological change will do the job on monopolies, which in tech land tend to be transitory. msft should have focused on getting stronger in the enterprise, and buying back stock. mobile phones and xbox are two questionable projects and have brought down the corporate ROE.

[ItsAValueTrap]

It's worth it for Microsoft to try to break into new markets.  They tried to make office software and now it accounts for almost half of their profits.

[Guest valueInv]

 

Yes, their purpose is improve returns to their shareholders. Focus on the business in which they can drive profits, not blow their profits on a quest to take over the world.

 

http://theinvestmentsblog.blogspot.com/2011/11/buffett-on-institutional-imperative_18.html

 

I agree bing and all of online has been a disaster for msft shareholders. goog+ is a small investment not on the same scale. msft basically put yahoo out of the search business. yahoo would have been a very strong #2 if msft had not gone on their crazy bing sojourn. I don't think companies should invest shareholder capital in value destroying projects simply to make things harder for someone else. This has not phased goog one bit. Msft had a monopoly with windows; and now it's in decline. market forces and technological change will do the job on monopolies, which in tech land tend to be transitory. msft should have focused on getting stronger in the enterprise, and buying back stock. mobile phones and xbox are two questionable projects and have brought down the corporate ROE.

Google blows money in plenty of other ways other than G+.

[Guest valueInv]

 

Considering MSFT is generating > $3bn from its Online Services Division today, most of which is from search, I think this is a reasonable estimate.  Google would be able to get way more out of that same market share.

Have they disclosed how much is from search?

 

2, MSFT has lost many billions i.e. they have a huge negative rate of return and that money might as well have been flushed down the drain

 

And how much has Google lost using the proposed framework?  Just the missed opportunity on revenue is very damaging.  Plus the loss of a monopoly.  Think about the extra investment they've made to keep ahead of Bing.  Bing today is better than Google in 2008.  Maybe even 2010.  That's a lot of R&D cost they wouldn't incur if they weren't pressured by a competitor.

 

Granted Microsoft has lost a lot in the search business, but they would lose even more if Google were a monopoly.  Nobody knows this better than Microsoft.

You seem to not understand that the purpose of a corporation is to generate value for its shareholders, not take down competitors.

 

3, Variable cost is not zero

Yeah it's pretty close to zero.  I would guess their variable costs are < 10% for the search + AdWords business.  I bet they could absorb 100% of all search queries today and not even break stride.  The only additional cost would be supporting the increased AdWords business.  So sure, their true profit potential is $2.7bn.

How do you know that? A guess? We know that Bing handles less than 40% of search queries. So, according to you,  they have built up capacity for 100% meaning that 60% of their capacity is now unused. In other words, they have invested in a massive amount of unused capacity at a time when they are losing almost a billion a year. Do you think they are that dumb?

[Palantir]

I think Bing has been a great investment. People complain about MSFT not doing anything outside of its desktop business, but when it builds out a great search engine which strengthens their online presence, it's bad for shareholders...kind of hypocritical. For value investors, that is some serious short term thinking.

 

A few billions a year is not a big deal, and even if it doesn't work out....no matter.

 

[Guest valueInv]

I think Bing has been a great investment. People complain about MSFT not doing anything outside of its desktop business, but when it builds out a great search engine which strengthens their online presence, it's bad for shareholders...kind of hypocritical. For value investors, that is some serious short term thinking.

 

A few billions a year is not a big deal, and even if it doesn't work out....no matter.

 

They have lost far more than $10B on their online business. In other words, they'll have to make another $10-$15B Billion before they have a return of capital , leave alone return on capital. Not a big deal indeed.  ;)

 

When you core cash cow is stable and growing, people turn a blind eye to this sort of thing, even encourage and rationalize it. When that business comes under pressure, shareholders wake up.

 

Google has the same problem.

[VAL9000]

 

Considering MSFT is generating > $3bn from its Online Services Division today, most of which is from search, I think this is a reasonable estimate.  Google would be able to get way more out of that same market share.

Have they disclosed how much is from search?

They haven't but if you read the quarterly filings and take into account the aQuantive write-down, you can make an educated guess.

 

 

2, MSFT has lost many billions i.e. they have a huge negative rate of return and that money might as well have been flushed down the drain

 

And how much has Google lost using the proposed framework?  Just the missed opportunity on revenue is very damaging.  Plus the loss of a monopoly.  Think about the extra investment they've made to keep ahead of Bing.  Bing today is better than Google in 2008.  Maybe even 2010.  That's a lot of R&D cost they wouldn't incur if they weren't pressured by a competitor.

 

Granted Microsoft has lost a lot in the search business, but they would lose even more if Google were a monopoly.  Nobody knows this better than Microsoft.

You seem to not understand that the purpose of a corporation is to generate value for its shareholders, not take down competitors.

No, that's wrong.  I just have a different view on the long term implications of letting a rival operate uncontested in an outrageously profitable market.  You think it's ok.  I think it's not.

 

3, Variable cost is not zero

Yeah it's pretty close to zero.  I would guess their variable costs are < 10% for the search + AdWords business.  I bet they could absorb 100% of all search queries today and not even break stride.  The only additional cost would be supporting the increased AdWords business.  So sure, their true profit potential is $2.7bn.

How do you know that? A guess? We know that Bing handles less than 40% of search queries. So, according to you,  they have built up capacity for 100% meaning that 60% of their capacity is now unused. In other words, they have invested in a massive amount of unused capacity at a time when they are losing almost a billion a year. Do you think they are that dumb?

No, more like they are that smart.  Google's entire operation is run on software.  They can very easily roll their servers on to "query handling" and "ad serving".  The amount of processing needed to capture 100% of the search market pales in comparison to demands of the hundreds of applications Google runs today.  It would be a blip on their radar.  Maybe a 5% bump in capacity considering they already have to index 100% of the web as it is.  It's just additional query handling and ad matching.  If you think Google doesn't plan for 5% unexpected capacity, then you are probably underestimating them.  For comfort, invert the problem, would Google miss a beat if 5% of their servers (one big data center) went down?  There's your answer.

 

So that's how they can absorb it.

 

As for the 10% variable cost guess, it's a guess, but a pretty good one I think.  I figured it out by looking at Google's prospectus from '04.  The economics of the search game haven't changed that much - they've probably just gotten better.  There's a much greater R&D cost now, but that has nothing to do with variable cost.

 

[Guest valueInv]

Have they disclosed how much is from search?

They haven't but if you read the quarterly filings and take into account the aQuantive write-down, you can make an educated guess.

 

Please do tell us how much. While you're at it, please also tell us how much they have made so far - my previous question that you haven't answered.

 

 

 

 

2, MSFT has lost many billions i.e. they have a huge negative rate of return and that money might as well have been flushed down the drain

 

You seem to not understand that the purpose of a corporation is to generate value for its shareholders, not take down competitors.

No, that's wrong.  I just have a different view on the long term implications of letting a rival operate uncontested in an outrageously profitable market.  You think it's ok.  I think it's not.

So Berkshire should enter the the investment banking business at the cost of enormous losses just because Goldman is making a lot of money in it?

 

 

How do you know that? A guess? We know that Bing handles less than 40% of search queries. So, according to you,  they have built up capacity for 100% meaning that 60% of their capacity is now unused. In other words, they have invested in a massive amount of unused capacity at a time when they are losing almost a billion a year. Do you think they are that dumb?

No, more like they are that smart.  Google's entire operation is run on software.  They can very easily roll their servers on to "query handling" and "ad serving".  The amount of processing needed to capture 100% of the search market pales in comparison to demands of the hundreds of applications Google runs today.  It would be a blip on their radar.  Maybe a 5% bump in capacity considering they already have to index 100% of the web as it is.  It's just additional query handling and ad matching.  If you think Google doesn't plan for 5% unexpected capacity, then you are probably underestimating them.  For comfort, invert the problem, would Google miss a beat if 5% of their servers (one big data center) went down?  There's your answer.

 

So that's how they can absorb it.

 

As for the 10% variable cost guess, it's a guess, but a pretty good one I think.  I figured it out by looking at Google's prospectus from '04.  The economics of the search game haven't changed that much - they've probably just gotten better.  There's a much greater R&D cost now, but that has nothing to do with variable cost.

 

1, We are talking about Bing not Google. They have different economics

2, You're guessing i.e. pulling numbers out of thin air. well, I can do that too. I claim variable costs at 90%. How did I get that - I guessed ;)

 

Substantiate what you say. Provide supporting data points.

[VAL9000]

Please do tell us how much. While you're at it, please also tell us how much they have made so far - my previous question that you haven't answered.

 

I told you from the beginning of this debate that it was Google who could make $3bn with the search share, not Microsoft.  Microsoft loses the $1.5bn/year to keep Google from having that search share.  This is the same thing I've said multiple times.  I am using a combination of Google's revenue figures and Microsoft's revenue figures to come up with my $3bn estimate.  What are you using to show me I'm wrong?

 

No, that's wrong.  I just have a different view on the long term implications of letting a rival operate uncontested in an outrageously profitable market.  You think it's ok.  I think it's not.

So Berkshire should enter the the investment banking business at the cost of enormous losses just because Goldman is making a lot of money in it?

I'm only explaining why something is done.  I'm not dabbling in figments.  Bing, G+, Apple Maps all exist and they are second rate, but they are important none-the-less.

 

Apple Maps arguably pushed Google into spending $1bn+ on Waze.  Another example of why competition is not as linear as you make it out to be.

 

 

1, We are talking about Bing not Google. They have different economics

 

We're talking about Google's profits if they had Bing's additional market share.

 

2, You're guessing i.e. pulling numbers out of thin air. well, I can do that too. I claim variable costs at 90%. How did I get that - I guessed ;)

 

Substantiate what you say. Provide supporting data points.

Uh, no, how about you disprove the statement?  I did the math from the '04 prospectus.  I refuse to share it because you'll just nit-pick it to shit while ignoring the broader truth.

 

Why don't you lift the costs, break them into what's fixed and variable, and show me how 10% is way off the mark ?

 

Here, I'll do it for you:

Google's profit margin today is 25%

100% - 90% variable costs => profits of less than 10%

25% > 10%

Therefore you're wrong.

 

And a terrible guesser.

 

[Guest wellmont]

I think Bing has been a great investment. People complain about MSFT not doing anything outside of its desktop business, but when it builds out a great search engine which strengthens their online presence, it's bad for shareholders...kind of hypocritical. For value investors, that is some serious short term thinking.

 

A few billions a year is not a big deal, and even if it doesn't work out....no matter.

 

I guess in an upside down world where losing massive sums of shareholder capital is a good thing, then you could call bing a great investment. I call it a terrible one.

[Palantir]

 

I guess in an upside down world where losing massive sums of shareholder capital is a good thing, then you could call bing a great investment. I call it a terrible one.

 

You know nothing, John Snow!  ;)

 

What else would you do really? Winding down operations and returning cash to shareholders is NOT an option, on one hand it's core business is in decline, what else are they going to do but use operating cash to finance a new business line? Anyways, Bing is nearing profitability and has seen some strong growth since inception.