Peak Google?

When I look back at 2015, I am reminded that we started out with the idea of “Peak Google”. It was not only Ben Thompson, but other analysts too chimed in with this theme.

However, this hasn’t happened. At least not yet.Google’s revenue and profits are as strong as ever, and the end of search volume is nowhere in sight.

Google s first quarter under Alphabet continues strong growth in revenue and profit The Verge

The Verge

So were Ben Thompson and other analysts wrong?

Well the question really isn’t who is wrong or right. The problem is that the analysts were not providing enough information to be proved wrong or right in the first place.

In the case of Ben Thompson, he provides a disclaimer;

Still, I hope the subtle point I’m trying to make is clear: I think Google is quite safe when it comes to search, and that they will be a very profitable company for the foreseeable future. I just suspect we will all think differently about that dominance when it’s a small percentage of total digital advertising, just as we thought differently about IBM’s dominance of mainframes in the age of the PC, or Microsoft’s dominance of PCs in the age of the smartphone.

He makes it clear that one will be able to neither validate nor disprove his statement based on Google’s finances, and that he is talking about the fuzzy term “dominance”. And as expected, no clear definition of how “dominance” should be measured is provided.

And that’s what most shrewd analysts would do to cover their behinds, so that’s OK.

So how should we really think about the situation?

Companies don’t live forever

IBM and Microsoft seemed utterly invincible in their heyday and yet, they have lost a lot of their power now. There is a lot of discussion about how long companies will live, and right now, the average lifespan of a company in the S&P 500 is a mere 15 years. If we looked at tech alone, the lifespan would probably be much shorter. Hence even if you were to randomly predict that a company would decline in the next 5-10 years, you would still probably be right.

It’s harder to predict how companies will survive

Given that companies will tend to die in a short span anyway, discussing how they will die isn’t very constructive. It doesn’t add much value to the prediction that companies will die pretty soon anyway. It’s much harder, and much more relevant to discuss how they could survive. That is, one should presume that a company’s present business will surely decline. On top of this, one should strive to seek out what it’s next business could be. Regarding Google, calling Peak Google based on a prediction of the demise of its search advertising business doesn’t add much. It will happen, and no matter how hard you discuss, you will not get an accurate prediction of when. Instead, one should look at what Google’s next business could be, and if they are making significant progress on that. One should look at how Google could survive when (and it will surely come) the search ad business collapses.

When is almost impossible to predict

Let’s look at some very nice charts from Pingdom.com, showing revenue/profit trends for Apple, Microsoft and Google.

NewImage

NewImage

What you can see is that Apple posted record revenues up until 1995. Although they were starting to have issues with profits since 1993, there was little to suggest that they would experience a total collapse in 1996. Just like very few economists could see the Global Financial Crisis coming, complex systems often show catastrophic behaviour. That’s why predicting the when is so hard.

Conclusion

Proof of “Peak Google” has not come this year, and in my opinion, this shows more than anything that predicting the when is hard, almost impossible. Although Ben Thompson was shrewd enough to not make any predictions, some analysts were not. My advice would be to stop trying to predict “Peak Google” or peak anything for that matter, treat the decline of any business as a given, and focus on what that company may have in store for the future.

  • Kenny

    Good analysis, I think that you should write more often because you are
    providing valuable analysis without agenda to support a particular company as
    it often the case nowadays even will well respected analysis.

    Ben Thompson is a respectful analyst, and I love reading his blog.

    The problem I had with the narrative of Peak Google is based on the fact that all
    its analyst assumes that Google would simply pivoted their desktop search platform and put it on mobile as it was on the PC when google were approaching mobile differently because it is a different platform with different opportunity, also
    a lot of the assumption are based on the fact that what happened to Microsoft
    was coming to Google as if it were a kind of inevitable pattern without taking
    into considering the ability of Google to reinvent their business which Android
    enable.

    second failure in its arguments is the fact that a lot of analysis doesn’t seems to understand why brand advertizing is expensive on TV and also why advertizer are willing to spend that much money for a 3 minutes ads compared to another form of advertising and also the way mobile platform with it’s always connected and it’s scale from multy screen will transform the brand advertising market the same way search transform online advertizing.

    search is essential whenever there is an abundance of information that require curation and discovery at scale whether we are on the web or in mobile. therefore the focus should not be on search, but rather on the work to be done which is about organizing information and making it very useful and accessible to the user no matter where they are and the best way to do that on mobile and nobody is better at doing that right now than Google,

    Google Now, Now on Tap, Voice search, AI, machine , learning, DeepLink, App streaming and Cloud integration are all about creating one big platform to provide user with useful information they need even before they think they need it thereby reducing the appeal for destination platform such as amazon and Facebook when it come to ads and transaction.

    even with 10% accuracy in this front will be huge to be disruptive when you think about the scale of mobile (ie) if Google knows that I was looking for a shoes, they did not need to show me exactly the one that i want in Google Now, they just need to show me one who will encourage me to click on the link to choose one from the search they have done for me at the best price possible therefore eliminate the need for me to go to Amazon to do the search myself.

    • Thank you.

      I appreciate your comments, and as a previous marketer myself and also an AdWords customer, I think that the people who downplay the importance of Google’s Ad business do not fully appreciate how much most companies rely on advertising.

      The struggle that I have when trying to understand Google (and many other companies) is that they have good things and bad things. Google is working on a large number of possibilities, and the importance of the Internet as an e-commerce and advertising platform is still growing in double digits. On the other hand, their traditional model *is* being challenged as mobile users clearly do less searching, and the CPCs are low. When a strong positives and strong negatives coexist, it is very difficult to predict which way the balance will go. It is especially difficult to predict *when*.

      Instead, I try to focus on the inevitable. The inevitable is based on the observation that very few companies stay at the top of their game for more than 20 years. Even IBM, Xerox, Microsoft and even Intel could not do it. Given that Google really rose to power in the mid-2000s, I would not expect it to maintain its strength up till 2025. To maintain power probably requires something extraordinary. If we look at Apple, it had its ups and downs, but it is powerful today only because it sells very different products from what it did 30 years ago.

      If you accept as almost a universal law that a single tech product can only be at the top for a maximum 20 years, then you have to wonder how will Google make money in 2025? Although you can think of a lot of ideas, including Google Now and Artificial Intelligence, it is also true that having a lot of good ideas is not enough. Even Apple had some good ideas during the 1980s, although they never earned Apple much money. Unfortunately, until these products start to earn actual money, it’s very difficult to predict the future based on them.

      Hence the only thing that I personally think is important to predict where Google will be in 2025, is whether it is starting to make substantial money from new products. If Google Now, YouTube or self-driving cars do not start earning Google substantial money in the next 5 years, then I would be worried. Otherwise, no matter how hard one may discuss, the prediction accuracy will never be very high.

      Another thing that may be interesting to watch is Google’s leadership. If Google needs to transform itself around new products, then it will need strong leadership. Does Larry Page have that leadership? Is it up to Sundar Pichai? Are there signs of leadership strengthening or weakening. These would also be important indicators, in my opinion.

      • Kenny

        Firstly I do not think that companies fail because of an inevitable pattern, company fail because they lose focus, prioritizing bad opportunity which affect their level of execution. (ie) Microsoft failed in Mobile because they prioritized the living with first Xbox platform thus reducing their investment in mobile the same can happen to Google or any other company.

        In absolute numbers, there are 2 times more search done on mobile, than on desktop because of the scale of the mobile platform and it has only just begun. Hence the reason why the Google App is the 4th most popular in the world and YouTube
        2nd only to Facebook. And the revenue for YouTube alone is closer to that of Facebook and growing. Without forgetting Maps and Gmail which has more opportunity to serve Ads on mobile than desktop.

        The reason I why i am optimistic about Google, is because just as with Facebook contrary to what most analysis been saying, mobile provide a greater opportunity to their business than PC,

        When it comes to Ads, CPC has more to do with supply and demand, on desktop the demand was higher therefore the CPC was High, but with the explosion of mobile it has become the opposite, more place to put ads hence reducing the price but in
        absolute number advertiser spend more on Google ads every year and the CPC is growing as mobile become a more mature platform.

        • I have no reason to dispute your logic, but I simply think that the micro approach to understanding the fate of companies is almost impossible for companies like Google, Apple and the tech giants that fell before them.

          We simply do not have enough information about these companies, and even if we did, they often can be understood only as a complex web of interactions and this makes the dynamics non-linear. Unless all the vectors are aligned, it’s very difficult to predict which way it’s going to fall, and when.

          That is why I essentially give up on the micro approach. I don’t pay too much attention to how each single initiative may play out because it’s too hard to reach a conclusion that is well based on history and experience.

          Instead, I look for trends that have affected almost every company, which in most cases means that I need to take a macroscopic, abstract view. In this case, the trend that is quite clear is that even the most powerful tech products and companies can only flourish for a maximum of 20 years.

          This observation suggests that companies have to “reinvent” themselves to live long, and that what is important is the ability of a company to do this. Apple has done this at least once and maybe twice, depending on how you count. Google has never done this yet (it’s still too young).

  • Kenny

    Also, I do not think Brand Ads will be as lucrative on mobile as it was on TV because, unlike TV where most of the
    money for brand advertising was spent during special events such as the SuperBall
    which created a huge potential for supply and demand that raise the price to
    reach a large number of people at scale, on mobile with all the platform such
    as YouTube, Facebook, Twitter, Pinterest, Instagram, etc. there will be no
    shortage of space to reach users at scale hence eliminated the need to spend that
    much money on one event to be effective because the advertiser money follow users
    and users can be reached on all of these platform at any time every day all
    over the world therefore reducing the problem of supply and demand that existed
    on TV hence making Brand ads less expensive compare to other form of Ads and
    eliminate the winner take all dynamics