vhehn, I'm very aware of this marketing model. Many/most e-merchants offer this. In fact one of the biggest affiliate programme is from Amazon. Google doesn't (as policy) get involved in this game AT ALL. And it makes a distinction between "organic" results and paid ads in its SERPs. But it's not applicable to our current discussion of Google. The closest link between G and this, is when affiliate marketers buy Adsense ads (paying e.g. 10cents to G) to send traffic to "their" affiliate link, hoping to make more, if conversion rate and payout allow it. This is what I meant with "low hanging fruit". This has driven the explosive expansion during the first 2yr. If anyone is really interested in the SE industry, you can learn more at WW (which is to Webmasters what ET is to traders, i.e. the premier site of the community): http://www.webmasterworld.com/ G has enjoyed a virtual monopoly (on merit ofcourse) for the past 3yr. Yahoo has just launched its own YPN Adsense-like service, still in beta. And Micro$oft is still looking to get into SE, but their SE products are really bad sofar. So, although G has created much better products than its competition (Y! and MS) and for many of them G had (and still has) no competition at all, things might change over the next 2yr.
And why do they get that cut? Because they advertise the product. They are an advertising company. In any case, your assertion is wrong. If Google ever starts filtering its core search results based on sponsorship, they will quickly fall from grace among users. So no, they will not "eventually" get a cut off every sale from every search result, only from PAID search, which is a competitive business. Martin
I don't think so. If you read the article, his estimate for Google is not predicated on what happened to Oracle, Cisco, Sun, etc. Personally though, I am more comfortable with Aswath Damodaran's valuation at $110 per share: http://www.fortune.com/fortune/investing/articles/0,15114,1095216,00.html If that's really Google's only competitive advantage, they are doomed. I've worked in Silicon Valley long enough to know that good algorithms are not a moat. It is only a matter of time until what Google has done is replicated. Remember Lycos? Remember Alta Vista? If Google has any durable competitive advantage at all, it is not the smart algorithms it has already come up with, but rather the growing monopoly on smart engineers in the Bay Area, who can come up with new smart ideas faster than anyone else. However, that's only useful if Google starts displaying some ability to funnel new smart ideas toward new monetizable products. You mean the Fed model he harshly criticizes every chance he gets? http://www.hussmanfunds.com/wmc/wmc050214.htm Martin
Martin As you said, his 'estimate' of what GOOG is worth is predicated on his analysis. If you want to split hairs, be my guest. However, his confidence in his 'estimate', is predicated on his past success with calling tech bubble. Which is a clear example of allowing representative bias to color one's thinking/conclusions. One would have to be brain dead not to draw that conclusion from the context of the sentence. Regarding your second point, it is precisely because of your experience in silicon valley, that I would not pay attention to what you say. You are displaying yet another bias, in this instance, availability heuristic. Trust me, the fact that you have worked in Silicon Valley has no relevance to the argument, other than the fact that it shapes your opinion, and we all know that opinions are like assholes, everybody's got one. Yes I mean the Fed Model which has been deemed useless by informed hedge funds for a long time now. Tell me something I don't know.
When Hussman wrote that article, Goog had about $12/share in cash. Since then, they did exactly as he suggested, increasing their value by cashing in on their inflated currency (stock). The only way Google's secondary offering makes any sense at all is if their executives also believe that Google has been overvalued by the market. Martin
how do you replicate the the fact that billions of people have it in their mind that search=google. its not the algorithm that is valuable its the brand name. the phrase "i googled it" isnt going away easily. how does a competitor unseat google? lower prices? wont work, google is free for the consumer. i am not trying to argue that google isnt overvalued at this time. just that the possibilities are there for growth.
I wonder where he got the confidence to estimate Sun, Oracle, and Cisco far below market value. Must have been some other kind of bias. This is of course due to your adaptability inversion covariance bias, so having pigeonholed it I can dismiss it. Well obviously I did, since you thought Hussman used the Fed model and I corrected you. Martin
Thanks for the laugh, your use of ridicule tells me that you lost your cool and are likely pretty insecure, after all, this is ET. Although, wow, inversion covariance bias, you gotta have some creativity to come up with that one, LOL, silicon valley you said? I was asking Hussman to tell me something that I don't know, (I was well aware of the fact that the Fed model sucks)
I remeber when search=lycos. I remember when search=altavista. If you think Google is unassailable, you weren't around when Alta Vista took over search mindshare almost overnight. With that said: Personally I think both are valuble. And along with the cash, the people, the growth potential, and the risks, I think it's all worth between $100 and $200 a share. But it's not free to the <i>customer</i>. Martin