Google's Black Box
My friend Paul asks, "Why Was Everyone Wrong-sided on Google?"
I am not sure, but an anonymous emailer has a theory. He notes that like GE Google (GOOG) also has their own form of a Black Box. Its the magic in between Google AdWords and Google AdSense.
"Stupid bloggers have no idea what they are getting paid for their Google ads. What is the CPM? You don't know. That gives Google a tremendous financial flexibility to "adjust" the payout on the fly to make up any revenue shortfall."
That all might be true -- it could account for some of the 42% revenue growth -- but it doesn't explain how Google managed a 20% click through rate on ads.
Question: Can (and does) Google change the rates they pay to meet their quarterly numbers?
Previously:
Kryptonite Caused GE's Miss
http://bigpicture.typepad.com/comments/2008/04/ge-loses-the-ma.html
Friday, April 18, 2008 | 10:00 AM | Permalink
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The boys at Google are shrewd beyond belief...low-balled their IPO back in 2004, so they could award themselves boatloads of dirt cheap stock options. Remember when it came out...the media panned it, saying there was no info in the filings to warrant more than 100 in the Dutch auction. Came out at 85 and they got huge grants with strikes in the low 100s in late 2004. Now execs are cashing them out everyday.
Posted by: Steve Barry | Apr 18, 2008 10:03:36 AM
A 20% click-through rate??!!?!??
Well, I know how they did that. They lied. Or they stacked the deck somehow.
That's an absurd figure. Lots of media planners out there spitting coffee this morning when they see that one.
Posted by: dark1p | Apr 18, 2008 10:06:23 AM
Comscore only counts US click throughs. International made up the difference..
I would note that GOOG beat estimates that have been lowered over the last few weeks due to sell side worries about click throughs.
Posted by: Vermont Trader | Apr 18, 2008 10:09:59 AM
We're witnessing a high-level example of honor among thieves. If you think that any publicly traded company is presenting honest numbers right now (despite all of the "regulatory controls"), go ahead and jump in with both feet. Something is big-time wrong with this picture, and I, for one, don't need to know or understand the underlying scheme to see that major manipulation of the markets is taking place.
Is there a chance that all of our troubles are simply a bump in the road? Sure. But it ain't likely.
Posted by: Marcus Aurelius | Apr 18, 2008 10:15:55 AM
You know how Google hit their numbers? The same way they did back in the fall.
Let me educate you, since I am a web master that actually uses their product (I have Adsense on my sites) and there's a pattern here that you're ignoring.
In the fall, I was getting roughly 52 cents in eCPM. That's my net.
Until two weeks before Google's earnings period closed, when I suddenly saw the eCPM drop to 26 cents.
It looked like an anomaly at the time. It wasn't.
Google hit their numbers, but did their advertising suddenly fall off a cliff? Yes. To compensate they simply adjusted the "knob" that keeps more of the advertisers money, paying the web sites less. All this is 100% opaque; its not in their 10Qs how they compute the split or how it has changed.
It stayed at that "new" number, on average, until last month.
March 20th it happened again. eCPM dropped to FOURTEEN cents. And no, it hasn't improved since, although we're only most of the way through April. I guess it could be an "anomaly", but I wouldn't bet on it.
Now I'm sure you can do the math on this, so I won't insult you. But here's reality Don - they're simply cutting the pie into different size pieces as it shrinks out from under them, keeping more of the advertising dollars for themselves. My click-through rate hasn't changed but on a per-exposure basis I'm now being paid roughly 1/4 what I was in the fall.
I am now developing my own ad-management software for my web sites and will soon replace them entirely. Then they will have a 100% loss on my placements. Not that there's much more for them to siphon off - they're already damn close to zero, and even if I don't fill all the slots I could hardly do worse.
I'm sure you can figure out why this sort of crap is unsustainable, but it makes damn good theatre when you have options that you granted employees at $750 and are now underwater by nearly 50%. The drive to try to get them back up above the surface of the waves does powerful things - including ****ing off your partners.
Note that this sort of "knob twisting" is extremely common in opaque businesses. Want to know why Google doesn't set guidance? That's why - they diddle the knobs right up near the end when the analysts have set THEIR expectations so they can hit the numbers.
The fact is that they're getting squeezed on both ends. It will show up, just as it did with CROX. Remember, just a few months ago CROX was going to save the world and make billions in China.
Check their stock price lately?
California's unemployment rate is now well north of 6%.
You think this is a $250 billion problem? Then you're really a fool.
There is somewhere between $2.5-$3 trillion in real economic losses on the underlying- that is, real credit losses - that will be taken on home mortgages across the US before this is said and done. The losses thus far taken are almost all on DERIVATIVES.
The underlying credit losses are being hidden in "Level 3" and otherwise obfuscated. How do I know this to be a FACT? Because 97% of the foreclosure auction properties in California are going back to the banks and they're keeping them on on their books at the loan value even though they tried to sell them at an average discount of 22% to that loan amount and failed.
Truth is they got bids but refused them and also didn't mark the houses down to the bid amounts.
Its a scam and a fraud Donald.
The median home cannot sell for more than 3x the median income. It is mathematically impossible with safe and sound underwriting. It simply can't happen and no amount of armwaving changes this.
California is still a good 20-30% over those values.
I suggest that you watch this short video - this is a guy with 20 years in the business - he knows his stuff.
Get educated Donald, and start being honest with people - or you will get exposed, as I'm fixing to feature your foolhardy claims in my Ticker come next week. The white-hot spotlight of reality is about to coming shining on in.
You're one of those folks that Warren Buffett was talking about when he was referring to people swimming without a bathing suit, and the tide is receding.
Posted by: AC | Apr 18, 2008 10:22:26 AM
Google has unexpectedly terminated my account right before they were supposed to pay me 10K for the clicks that my websites had generated in March. They sent me a stupid email, “we have determined that your websites are dangerous to our advertisers”, blocked my account, and did not pay. When I asked them about my $10K for the clicks, they told me that I had agreed to their agreement, which states they can cancel my account at any time, and they do not have to pay me a cent.
Google has stolen 10K from me and I have agreed to this robbery by clicking “I agree to Google terms and conditions” when I signed up for their adSense. I am sure there were other publishers that Google has tricked like me.
I cannot wait for adSense like program from Microsoft.
Posted by: Google Thieves | Apr 18, 2008 10:25:12 AM
people getting excited about a monopolistic business that makes money....they should be doing better than that since they have ZERO competition
Big party when a company that gives NO guidance, loaded the boat with employee options (weren't they supposed to cut back on hiring??) was handed a way to permanently fix the ad score biz (thanks FTC) and it only does that kind of result???
Given it's status as the only game in town they're results should have been better. But hey when you hand out a 1/4 of trillion in options each qtr. it's tough man....
Ciao
MS
Posted by: michael schumacher | Apr 18, 2008 10:32:19 AM
As a Google advertiser, I totally agree with the black box theory. The self-policing Google is supposed to do on the affiliate sites is just too tempting to fiddle for a public corporation.
If I run a new block and forget to opt-out of the affiliates, my budget is used-up in 2 hours. All 2 clicks per site on crap parking-lot sites that pose as interest sites.
Google Thieves, can you provide a URL to one of your sites--are they real?
Posted by: wnsrfr | Apr 18, 2008 10:35:08 AM
Short interest on GOOG, like all the other big Nasdaq names is virtually non-existant...would not be surprised if this gap closes soon.
Posted by: Steve Barry | Apr 18, 2008 10:35:43 AM
With a $14B dollar cash position it would suprise me quite a bit if Google was not able to operate other black boxes (ala GE Finance) that could account for their revenue and earnings as well.
Posted by: B. Walthrop | Apr 18, 2008 10:38:55 AM
MS,
You are 100% correct. They do not have any competition to their adSense -- none, zero, nada, zilch. Most of Google's revenue is coming from adSense.
I do not understand why Yahoo (in development and testing Yahoo! Publisher Network Beta) and Microsoft (in development MS adCenter for publishers) are dragging their feet for years.
Posted by: Google Thieves | Apr 18, 2008 10:44:54 AM
marcus-
you get the feeling that there are several sets of books now??? one for the "investors" one for the accountants, one "real" one.
I get the sense that we've gone through the looking glass (not in a good way) and that these prick banker's (IB's) just might get away with this crap for the forseeable future.
How can you compete with the destruction of capital (at a record rate) and these pricks in washington keep providing more to them.
When did the laws of mathematics change that made secondary offerings not dilutive??
answer me that one.....LOL
Unbelievable that this shit continues unabated .....all in the name of 'merica
Ciao
MS
Posted by: michael schumacher | Apr 18, 2008 10:45:07 AM
MS:
I'm with you. Frustrating as hell, and sad. The only solace I take is that when the bottom comes, I'm climbing on top for the (safe) ride up.
Posted by: Marcus Aurelius | Apr 18, 2008 10:50:28 AM
Wow. BR posts: "I am not sure" why everyone was wrong on google, but here is one fairly random, entirely unsubstantiated, theory from an "anonymous emailer." This is the extent of the comment on a major surprise by one of the largest public companies in the world.
Nothing wrong with a blogger posting little snippets like this, but it is a bit strange for a financial blogger who is so adamant on fact driven analysis...
BP jumping the shark?
~~~
BR: My friend Paul asked a question, and since I wasn't sure of the answer, I wrote "I'M NOT SURE."
I know you are not used to people saying, "Hey, gee, I don't know." Most people try to bullshit their way through. I don't -- I simply say I do not know. What do you do?
Posted by: Bob Abouey | Apr 18, 2008 10:50:32 AM
wnsrfr,
My sites are 100% real (no click farms). The clicks that my sites had generated were 100% real too. I cannot provide the links because someone will be able to ID me by visiting the sites. Sorry, I need to stay anonymous.
Posted by: Google Thieves | Apr 18, 2008 10:53:23 AM
this post about their changes in clickable ad area looks prescient right about now.
i bought a few shares of google in the 430s because i thought they were cheap, debating whether to sell today.
Posted by: tom pitts | Apr 18, 2008 10:56:59 AM
Most of Google's revenue does not come from adsense.
The company's partner sites -- known as the AdSense network -- generated $1.69 billion, or 33% of total revenue during the quarter -- a 25% growth in network revenue compared to the same period last year, and a 3% rise since the fourth quarter of 2007.
Source: Google Shares Jump as Profits Impress
Also I don't believe that Google had a 20% click through rate, they increased their CTR by 20%.
Adsense CTR is generally 5% or less in my experience. Paid search is probably higher.
Posted by: tom pitts | Apr 18, 2008 11:11:22 AM
Tom Pitts appears correct, from transcript:
"Aggregate paid clicks include clicks related to ads served on Google properties, as well as ads served on our partner sites. Aggregate paid clicks grew approximately 20% over Q1 2007 and approximately 4% over Q4. Paid click growth on Google.com in the U.S. remains healthy and other markets are showing strong growth as well."
http://seekingalpha.com/article/72846-google-inc-q1-2008-earnings-call-transcript?source=wildcard&page=-1
Posted by: Bob Abouey | Apr 18, 2008 11:25:03 AM
Yes, but who controls that click rate tally? Think the tech that tracks clicks isn't manipulated or faulty? Google rev partners take whatever checks arrive in the mail. Google has the upper hand.
Posted by: Bud | Apr 18, 2008 11:25:19 AM
The reason Google had a higher click through rate is that all the companies are very slow due to the downturn. The employees sit around at work surfing the web. Next month they may be laid off so then they'll be at home clicking through even more. Google is in a win win situation for now.
Posted by: Rosevillebill | Apr 18, 2008 11:27:31 AM
Hey Bob Abouey!
Since you are complaining about anonymous emailers, how about posting your real name and website?
Or are you just another in a long line of anonymous cowards and hypocrites?
Posted by: Rocco | Apr 18, 2008 11:28:52 AM
bud understands.......
It's not about what they report.....it's ALL about what they do not.
OK 20% increase??...increase from what level of measurement???
Answer that and the cracks appear a bit more...
It's like saying "stocks are cheap"
relative to what???
Ciao
MS
Posted by: michael schumacher | Apr 18, 2008 11:30:01 AM
BR - Nothing wrong with saying I don't know.
Saying I don't know, but then giving prominent treatment to an anonymous quote with no factual support, that is different.
And you know it. If CNBC pulled that stuff - we're not sure if home sales are declining, but here's a random guy who says its recovering, you'd call them on it.
~~~
BR: This isn't TV, its a blog. Different standards of appropriateness. (You should understand that).
Its not the emailer,but the concept he raised that was so intriguing. And I must hasten to point put that neither of your comments responded to the issue of does Google have a blackbox, and can they change what they payout for clicks.
Can BA or anyone else answer the original issue?
Posted by: Bob Abouey | Apr 18, 2008 11:30:21 AM
I have always thought their
ad click revenue generation
could be vulnerable to fraud. I
am reminded of the Equity Funding
Corp.insurance scandal (California) of
the early 1970's.
Suzann
Posted by: Suzann | Apr 18, 2008 11:39:06 AM
What have we come to when people clicking on ads is a business model? Who clicks on ads anyway? More an annoyance than anything else.
2 words - Firefox and Adblock
Posted by: lunatic fringe | Apr 18, 2008 11:42:33 AM
