My first reaction to Google's earnings was Wow!

So I listened to the call, and may have genuine thoughtful opining later, but for now, I'm just gonna dump my notes into a post. Enjoy.

Intro / Main Strategies

1. Better Search quality
2. More Traffic

Main Results:

1. Gaining share in all key markets
2. Google's reach is largest (contra Terry Semel) but no specific numbers

Other key stuff we're gonna talk about:

• China important
• Products: transcoder, maps, mobile - blackberries Google employees all use 'em
• Locally targeted ads

I'm not sure if Eric Schmidt says "Billion" more like Dr. Evil or more like Carl Sagan?

Finance Stuff

• REV - after Traffic Acquistion Costs (TAC): 1.5B
• TAC 723M - 32%
• DataCenter, Ops, CC: 181M 8%
• 887M Non-Gaap Op margins: 39% - compression warning from George...
• UK rev contribution : 15% 343M

What a headache - listening to all the exclusions / GAAP vs non-GAAP accounting is harder than trying to optimize ROI on an AdWords campaign...

Robin Williams was right that Larry Page does sound like Mr. Rogers.

Larry on their acquistions. Makes them sound very active.

• dMarc extend targeted ads to radio
• Writely? 4 people?!
• AtLast - 3D authoring

"Google is world's fastest innovator at scale" - Eric.

No Marissa today...

Onto the Q&A

Safa in the house - 1st question on CPM and brand ads.

Jonathan Rosenberg (JR) answer new ad formats - i.e. CPM ads. Large brand advertisers have access to demographics. Graphic ads have to fight text ads - they don't have that figured out. Wants to push more graphic ads

Q2: Mary Meeker. It's all-star day. Mobile transcoder a Google advantage? "The transcoder". Automatically get any format to work on your phone. All content needs to be available on all the phones. Eric: "We have a better transcoder than anyone else".

Q3: Asks about Yahoos query volume. JR: Google sees the same external data - and they have internal data. "External data is 'directionally correct'". Wow, that's faint praise. (Susan Decker at Yahoo disagrees, btw) JR won't answer how much query volume is growing.

Google thinks China is up for grabs. They think they are #2 now.

Pay per call - JR calls it "early alpha". Very exciting because "you are delivering a customer that has high odds in engaging in a transaction."

Spending Q: wants more info on the CAPEX: George: No details but we're in investment mode.

Q: Will Google buy any wireless spectrum coming up for sale this summer?

Larry: Ad supported wifi with Earthlink is being done at a relatively small scale (i.e. San Francisco and Mt. View). Larry sounds unsure that it will be profitable. No answer on spectrum.

Q: Partner deal with Dell. Vague answer on Dell deal financials George:- "both companies have done well."

JR's key to getting more ad budget spent: Improve ad targeting - gets more ad budget and more money. "Ads are still primitive". Could do better with better ads.

EBITDA - is it close to $1B? Margin: 65.4% EBITDA margin. George: Yes, EBITDA = $1B.

Question again on branded advertising - display ads - JR: opportunity outside search for branding efforts. Larry: "We don't have any philosophical issues with branding ads on our own sites" - Search is not the right place, but Orkut, Video, etc. they are open to branded ads.

Japanese market: questioner asks are you going from 15 -> 25% share in search. Is Japan a material percentage of share? A: Yes. It's Yahoo vs Google.

Q: Are Click thru rates going up? Larry does vigorous hand-waving. "Don't get fixated on CTR metrics". "Easy to make more money by reducing CPCs, and running more ads." We look carefully at revenue generated per query. JR chimes in: "Think about it in the limit -- commercial pages get more ads, non-commerical pages get fewer ads".

Q: Social network search? Sergey: Orkut - very successful social site - but much better known in Brazil than the US... Odd definition of success.

Q: New partners - Washington Post are these new? A: Yes, mostly. Q: Did they lose any? Larry says: No.

JR on Google Base - intent is to collect more info to improve Google search results. Free distribution, flexible, define metadata for your content. They haven't really planned on monetizing like a traditional classified product.

George: They added 1000 employees in the quarter. They plan to keep hiring domestically and especially internationally. Revenue per employee should trend down.

Pricing question that translates as: Are you fleecing the newer advertisers? Larry answers: Initial prices are low in auction model in new markets - early adopters get rewarded with cheaper buys. Tools to track conversions are getting more adoption - "We love that" - people using analytics. Because people know that they are making money.

Tax rate question: how did the tax rate work out and what's it gonna be in the future?

Note on this question, at Henry Blodget's www.internetoutsider.com there was a bit of a conspiracy theory in the comments. The commenter believes Google is cookin' the books.

Anyone listen to the conference call? When an analyst asked how in the world did Google manage to get a 27% tax rate for this quarter, George Reyes (the CFO) started to answer but literally only got one word in before Eric Schmidt cut him off, told him "we're not going to discuss that" and told the operator to move on to the next question.

That simply didn't happen on the call I listened to! George answered and was not cut off.

Tax rate is 30% for the year - came in a little lower this quarter.

Q: Seasonality: "Internet is predominant in the Northern Hemisphere." - Eric on seasonality. I.e. summer is slow, and the southern hemisphere isn't a big traffic source relatively.

Final question:

TAC trending down - will that continue? George: not much pressure on TAC so yes TAC is low and staying there. Large deals that are contested, you see higher prices. Generally, the model works.

What wasn't asked: Not a single mention about click fraud.

¶ 4/20/2006

Before Google's results come out, here's a couple quick points on Yahoo's

1. YSM! / Overture is really screwing up big time.

   Semel has said his advertising business has two "brilliant children" (display + search). One of those is currently failing kindergarten, however.

   Overture's lateness in copying Google's AdWords model is costing Yahoo a ton. They've been working on a revamp to the original Overture system for about 2 years. This is a subsidiary of Yahoo that has over 2,000 employees.

   On this call, Semel has to admit that they are getting their ass kicked in paid search and he spends 5 minutes to offer additional caveats about how slow the rollout will be. This shouts how badly the Overture team is performing. I can hardly imagine how happy Semel must be about this.

2. Luckily for Yahoo, graphical display advertising (targeted banners) is killing their numbers.

3. Terry Semel's opening statement on the conf call was full of intimation about how Yahoo is better than Google.

   I think this set of rationalizations implicitily dinging Google is just odd. Yahoo is getting killed by Google head-to-head. Here are some of the odd points Semel points too:

   • Yahoo being chosen for a technical excellence award by PCMag or somesuch - highlighting innovation - i.e. Yahoo is more techie, and ostensibly bigger than Google.
   • Yahoo is big in Japan. #1 in search in Japan and Taiwan... (China - not so much )
   • Time spent on the web - Yahoo has the largest share.
   • Yahoo has 50% reach on the web.

   What do these points add up to - other than Semel's got a Google chip on his shoulder?

4. Henry Blodget has a good post that shows that Yahoo's margin is declining by about 3 points.

Interestingly, CFO Susan Decker gives a one-time smack-down to 3rd party search traffic statistics providers. She says Yahoo's search query traffic has been growing 15-20% each quarter for the last 3 quarters - contrary to what's been widely reported.

Schoolmarm-ishly, she says she's not gonna repeat this info every quarter. As I've argued before, the comScore's and Nielsens of the world are not really tracking what the big players are really seeing traffic wise.

Summary: Yahoo has a lot of good stuff going for it - primarily a dominant Mail platform, and a unique targeted display advertising model with huge volume. Imagine how strong things would be if they could fix their paid search problems. The hour is late, however.

Let's see how Google does later today.

¶ 4/20/2006

Podcasts.

I want my content delivered and processed as fast as possible. Reading text is 10-20X faster than listening to audio. And it's easier to do.

And to save time, here's a summary of part II of this series: Video on mobile phones.

¶ 4/19/2006

Lately I'm seeing more and more bloggers including Alexa traffic graphs in their blog posts, usually to compare some sites' relative success. Here's an example post that has Alexa graphs.

Since they are the only statistic that most people can find on web traffic, people will naturally use Alexa. VCs do it, pundits do it. No one mentions that the Alexa sample can be very mis-representative of the traffic for certain types of sites.

Simply put, alexa traffic numbers are heavily skewed in odd ways, because they depend on toolbar data from an ancient toolbar. For example, did you know:

• Alexa doesn't count any Firefox users?
• Alexa doesn't count any Mac users?
• Alexa massively undercounts AOL users?

It's great of Alexa to publish all this data. But all the people that include an Alexa graph on their blog or in their pitch to investors are just reinforcing Alexa's position as the arbiter of what's successful on the web. Caveat emptor.

Now if Google or Yahoo cared, they have all this data from their toolbars and other sources, and they have a much, much more accurate sample of worldwide internet usage. 20% project anyone? Or are you gonna let Amazon be the only big internet company that actually gives some interesting data away?

¶ 4/16/2006

I've always wanted to pronounce that something has "jumped the shark". And now I'm here to tell you that it is Web2.0 itself.

My proof? The blasé daily reviews of a Web 2.0 blog like Mashable and the 40000+(!) feed readers of TechCrunch give you hints. And perusing Museum of Modern Betas, I felt a shadow and a threat has been growing in my mind. But it took this insanely long list of Web2.0 sites at VentureBlog to really crystalize it.

The fact that categories like "Bookmarking", "Community", "Economy" all have 20+ cutely-named indistinguishable competitors is the sign of the incipient utter doom of any site associated with "Web 2.0".

As soon as some wag coins the equivalent put-down phrase to "dot-bomb" people are gonna be fighting to differentiate themselves as so NOT web 2.0. They are gonna be un-rounding those corners and stripping the CSS of all the green, orange, and light grey faster than you can say: "Post-It notes for web pages"

Mark my words, six months from now, people will be re-positioning like mad to be as far from Web 2.0 as possible. So get ahead of the curve - disassociate yourselves while you still have time!

¶ 4/15/2006

More email from the MS AdCenter team. These look like improvements:

With these new features, you will be able to:

• Add multiple keywords when creating campaigns, rather than manually typing each keyword.
• Sign up for MSN adMail with the new Communication Preferences checklist.
• Print billing statements through our updated Billing tab.
• Estimate bids to help reach position one ad ranking through our improved price estimation tool.
• Insert text dynamically into an ad title or ad text (formerly known as parameters).

However, something bugs me here - the next sentence says this:

Please note that MSN adCenter will be down briefly while it's being updated on the afternoon of April 18. This should have no effect on your existing data or campaigns, which will remain live during this time. However, you will not be able to access your account or its features while we update adCenter, so we encourage you to make any needed immediate changes to your account beforehand.

Is it just me, or is the inability to do a live update of the service a really bad sign for Microsoft?

¶ 4/11/2006

Yahoo! has recently started mailing out keyword promos reminding people to bid up the most competitive holiday related terms. Those are probably good words to steer clear of paying for. Many ignorant bidders jumping into the market at the same time creates an ugly overpriced playing field, although if you can sell them their PPC traffic the overpriced bidding may be a beautiful thing. Keyword terms with a large standard deviation may create good arbitrage opportunities.

Advising you to steer clear of industry-recommended buy lists applies equally well on Wall St. See Aaron's article for more detail on what a "large standard deviation" is.

The main things holding the PPC keyword market back from being a full NASDAQ-like marketplace are:

• Transparent pricing and cost information
• Standardized buying and selling from different providers

Later this year, when Yahoo! changes it's PPC model to look a lot more like Google's, the standardization aspect will get a little bit better.

¶ 4/10/2006

It's the first Annual CSS Naked Day.

I'm old school, and a big fan of the text-only internet, so it sounded fun to strip the CSS for a day (or for however long it takes 'til I get around to putting it back).

It's all about the content baby!

Update: I put the CSS back. I did like the au naturel look, though.

¶ 4/05/2006

Pundit is such an over-used term, like genius, you know. But Bob Cringely really is one. The thing that makes a pundit is his ability to comment on stuff no one else can make heads or tails of.

Here's a great piece which piles on Microsoft, uncovers otherwise unknown information, and ends with a cliff-hanger prediction.

Cringely presents this kind of info almost every week. And I love it.

¶ 4/02/2006

Having decried corporate April's Fools stunts, I find Matt Cutts and Jeremy Zawondy's trick - a kind of wife-swapish trade of superstar bloggers, from Google to Yahoo rather intriguing.

Why don't innovative companies trade key players the way the Yankees and Red Sox would? I suppose the labor market isn't as constrained as it is in pro sports. And there are those non-compete agreements for certain executives.

But for bloggin' superstars like Matt and Jeremy, I doubt that Google and Yahoo! actually have them under contract - there'd be no Kai-fu Lee contract stuff to deal with.

Google could try to poach JZ away for a few million bucks. Wouldn't that be worth it? (If you say "no", I'll remind you that Google easily paid over $10mil to get Lee.) You tellin' me that Zawodny ain't worth 1/4 of a Kai-fu Lee?

But if Zawodny was stolen away, I don't think you'd hear Terry Semel say what Ballmer allegedly screamed: "I'm going to f---ing kill Google!" (BTW, how's that going Steve?)

On the other side of the trade, Cutts is probably untouchable for under $50mil due to his early join date and Google's share value. So he probably can't be bought.

Anyway I don't know if Jeremy would be worth it or not, but I'm intrigued by the possibility in the near future of a famous corporate blogger being treated like a free-agent. Certainly there are some out there that would be worth that type of money...

Any candidates come to mind?

¶ 4/02/2006