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Is It 1999? Google CEO Claims More Competition Leads To Higher Prices

from the economics-overturned dept

Wed, May 10th 2006 2:09pm — Joseph Weisenthal

One of the telltale signs of bubblethink is when people become convinced that some basic rules of economics and business have been completely overturned. Judging from some comments at Google's analyst day, CEO Eric Schmidt seems to have taken a big sip of from a stale vat of "new economy" Kool-Aid as he claimed that competition from Microsoft and Yahoo in the advertising business could actually drive keyword prices up. The only way the price of keywords can go up is if they deliver more value per click (a greater likelihood of a click turning into a sale), or there is an increase in bidders all desperate for internet traffic. Most likely, the new entrants probably won't have much of an effect on them, since neither of the aforementioned factors are affected. That being said, Google may be forced to give publishers a greater share of Adsense revenue to prevent defections to competing products. The statement on keywords wasn't the only strange thing that Schmidt said. He claimed the company has a "limitless growth model" and that, "If this all comes together it will work as a continuous cycle". Though all this talk sounds eerily familiar, one thing has changed. The exponential hockey stick charts of yore have been rotated 90 degrees; they've been replaced with constant talk about the long tail.

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15 Comments

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Yeppers, 10 May 2006 @ 2:53pm

First Post!
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MikeT, 10 May 2006 @ 2:58pm

Give this man a job at the Post Office
They've been proving this quite well! Why look at how great stamp prices are since FedEx and UPS cannot send first class mail!
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ben, 10 May 2006 @ 3:19pm

What's google? Is it like a new myspace thing or
Never heard of it.
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WTF OMG BBQ?, 10 May 2006 @ 3:24pm

Re: What's google? Is it like a new myspace thing
are you shitting me?
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OMG WTF BBQ, 10 May 2006 @ 3:25pm

I might as well tell you what it is
www.google.com
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anonymous coward, 10 May 2006 @ 3:38pm

google's growth is unlimited because it will use the proceeds from search advertising to slowly eliminate uncompetitive companies in every single aspect of worldwide business and then, when it controls all business everywhere, it will acquire or usurp the government, state, local, federal, global. And the world will be a better place for it.
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V, 10 May 2006 @ 3:46pm

Dumba**es
You guys can't tell when you are being baited? Come on, you'd have to live in China to not know what Google is. Wait...never mind.
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dave, 10 May 2006 @ 4:04pm

DISCLAIMER: Google bias
"There is a surprising, if not bizarre (fact that) more competition in auction can actually produce more revenue, rather than less," Schmidt said in introductory comments at the company's annual press day at its Mountain View, Calif. headquarters.

Leaving out this comment might lead to your interpretation, but when you factor in the KEYWORD --->auction
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dave, 10 May 2006 @ 4:07pm

boo this comment system stripping my comments
Plain text my booty, quit stripping things.

Anyway, he's talking about auctions. If theres more parties interested in the auctions for keywords, higher prices will result. These higher prices will mean more revenue, because a keyword doesn't cost google any more than it did before.

The article should NOT have reiterated his more revenue comment without the auction bit.
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dave skipped econ, 10 May 2006 @ 4:29pm

Re: boo this comment system stripping my comments
Right, so if there are MORE people selling the SAME item at the auction then people will bid HIGHER for that item? Dave, the article is talking about increased competition, not increased interested parties. The article is talking about increased supply and your theory depends on a hypothetical increase in demand, which has nothing to do with Microsoft or Yahoo entering the market.
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Mike (profile), 10 May 2006 @ 5:13pm

Re: boo this comment system stripping my comments
Anyway, he's talking about auctions. If theres more parties interested in the auctions for keywords, higher prices will result. These higher prices will mean more revenue, because a keyword doesn't cost google any more than it did before.

That only makes sense if there's more competition WITHIN a single auction... not across multiple ad auctions. He made it clear that he was talking about the competition from Yahoo and Microsoft would drive up auction revenue for Google... which doesn't make sense.
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Dennis, 10 May 2006 @ 8:29pm

Comments on Google
I seem to have a very sharp BS detector. I wrinkled my brow when I read this. Then I found out that 'auction' was left out and it made sense.
Some people, predigilithic (I just made that up) in their conceptual framework, just don't get the internet model.
What Google is doing is beyond genius.
I've also come to think that their 'Don't Be Evil' mission statement is a litmus test for good vs bad. People who don't get, who are suspicious of it, can't understand that something like this is actualy possible for human beings to accomplish.
Those of us who get it share in the vision and have experienced the complete mutational transformation.
I say this is evolutionary enlightenment in action.
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DittoBox, 10 May 2006 @ 8:58pm

Re:
Look! More Bubblethink!
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Beck, 10 May 2006 @ 9:24pm

Google Payments to Publishers
Google may be forced to give publishers a greater share of Adsense revenue to prevent defections to competing products.

Google refuses to disclose to publishers exactly how it calculates the publisher's share of a click. Therefore if Google were to say that they have increased the publisher's cut, the publisher would have to take their word for it.

Maybe if Yahoo and Microsoft disclose their percentage then Google would be forced to follow suit.
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Kevin, 11 May 2006 @ 2:23pm

Googlenomics
Competition = more supply = higher prices?

Why not? People think that Wal-Mart opening a store and offering to hire people causes wages to fall. It's all from the same tetbook.
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