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everything.
” Meanwhile, when users
realized they were getting the best answer, not the one most paid for, it was
as if—to continue the biblical analogy—they were seeing the Way, the Truth,
and the Light. A bond of trust was created that has survived now for a
generation and has made Google the most influential of the Four.
This trust didn’t just extend to Google’s users, but just as important, to its
corporate clients. With Google’s auction formula, if advertisers wanted
traffic, customers set the prices for each click. If demand drops, so do prices,
and you pay just above what someone else was willing to pay, building trust
that Google is benign. The result is that corporate customers believe Google’s
business is run by mathematics, not greed. Once again, the Truth—fair,
impartial, constantly calibrated to be equitable.
Compare this trust to the rest of media. Most media outlets, literally and
intentionally, do not tell you where the bullshit starts or stops and pretend to
have a Chinese wall between editorial and advertising. Some are cleaner than
others, but money talks. If you want regular coverage in Vogue, then you
need to advertise.
Vogue
courts advertisers—it featured Marissa Mayer in a
story, photographed by a top fashion photographer, and soon after Yahoo
sponsored
Vogue
’s Met Ball.
Yahoo shareholders paid $3 million so Ms. Mayer could appear in
Vogue
.
14
Google, in contrast, keeps that homepage inviolate: it’s reserved for
search alone, plus the public-service animation of the logo, the Google
Doodles. No amount of advertiser money can buy space on the Google
homepage. Google anticipated the need for a trust economy in the internet
age and helped create it.
In Q3 2016 results, Google had a 42 percent increase in paid clicks.
However, the revenue captured (cost per click) declined 11 percent. Analysts
mistook this as a negative. Declining prices are typically a reflection of loss
of power in the marketplace, as no firm ever willingly drops prices. However,
what we missed is that Google was able to grow revenues 23 percent that
year and—here’s the key part—lower cost to advertisers by 11 percent.
15
Whether you’re the
New York Times
or Clear Channel Outdoor, a competitor
lowered its prices 11 percent. And word is it’s great at what it does and isn’t
desperate at all. What if BMW was able to improve their cars dramatically
each year while lowering prices 11 percent annually? The rest of the auto
industry would have trouble keeping up. And, yes, the rest of the media
industry, sans Facebook, is having trouble keeping up with Google.
Google found $90 billion in the collection plate in 2016 and commanded
$36 billion in cash flow.
16
Several times Congress has debated an
incremental tax on firms in sectors that appear to vastly outperform the S& P.
Yet nobody has ever suggested extra taxes on Google. In many religious
faiths, to not avert one’s eyes from God’s face is certain death. The same fate
would probably befall the career of any congressman attempting to interfere
with Google’s progress.
Similar to other horsemen, Google tends to drive prices down, not up.
Most consumer firms push in the other direction. They spend a lot of time
trying to calculate the maximum price they can charge and capture all excess
consumer value. (Booking a same-day flight? Why, you must be a business
traveler. Please bend over.) Google works differently, which is why it has
grown dramatically year after year after year. And like the other horsemen, it
sucks the profits out of its sector. The irony is that Google’s victims invited
the company in, letting Google crawl their data. Now Google’s extraordinary
market cap is equal to the next eight biggest media companies combined.
17
Few people can explain how Google works. Or what Alphabet exactly is.
Alphabet incorporated in 2015, and Google is one of its subsidiaries in
addition to Google Ventures, Google X, and Google Capital.
18
People have
an idea about Apple: it builds beautiful objects around computer chips.
People understand Amazon: you buy a bunch of stuff at a low price, then
people (robots) in a big warehouse pick, pack, and get it to you, fast.
Facebook? A network of friends linked to ads. But few people understand
what happens inside a holding company that happens to “hold” a gigantic
search engine.
Yahoo! Finance. Accessed in February 2016.
https://finance.yahoo.com/
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