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Tuesday, February 01, 2005

Google's $4 billion afterthought

Google's quarterly reports continue to amaze. The company brought in $1.03 billion in revenues in the fourth quarter; net income was $204 million.

The pay-per-click version of Adwords will be three years old this month. In the humble beginning, the CPM-based version of AdWords received only lukewarm reception and did not earn much. Until relatively recently it was assumed that Google would maybe earn 25% of its revenues from ads; that it would seek out revenues in enterprise search, or some other clever techie stuff that folks would pay for. You got the sense in the early days (2000-2001) that Google figured they could buy time and pay for a few servers and staff with the ad revenue, and that's about it. Maybe they even dreamt of an IPO that would "get them out of that mess" eventually, if (let's say) licensing revenue dropped off. Lo and behold though, turned out those ads (served on the foundation of a favorite search destination) built a real company that didn't need Yahoo's largesse or an IPO to "bail it out"!

As every Wall Street analyst and business reporter now knows, PPC ads have proved so amazingly successful that Google continues to earn 97+% of its revenues from advertising.

Imagine what a powerhouse they'll be if they can take over two or three other lucrative lines of business. I always wondered when we'd stop hearing about Microsoft's big "war chest" and start hearing the business world taking Google seriously. Not just as a clever search engine or a neat little cash cow, but as an elephant that will rock the world, one with virtually limitless cash flow to fund its grand experiments. Is that day today? With the rising fortunes of the likes of Google, Firefox, and Apple, it's hard not to see a few serious cracks in the Microsoft armor.

Now that I'm finished patting Google on the back, though... I wonder if they'd consider some new ways to thank their advertisers. For starters, they might say "thanks, advertisers."

Posted by Andrew Goodman




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