Sergey and Larry See Their Shadow: Ballmer Sees an Opening

By Kyle Austin


Sergey and Larry put on a good show but in the end they saw their shadow. 

In Google’s press release which you can see here they do an adequate job of convincing the public of another blowout win: 

Google reported revenues of $4.83 billion for the quarter ended December 31, 2007, an increase of 51% compared to the fourth quarter of 2006 and an increase of 14% compared to the third quarter of 2007. Google reports its revenues, consistent with GAAP, on a gross basis without deducting traffic acquisition costs, or TAC. In the fourth quarter of 2007, TAC totaled $1.44 billion, or 30% of advertising revenues. 

But as Yi-Wyn Yen of Fortune notes the company is finally looking mortal, once you break down the numbers.

“The Mountain-View, Calif.-based company made $4.43 a share for the fourth quarter, which was a penny short of analysts’ consensus. Google raked in a $1.2 billion profit for the quarter, up 17% from a year ago. Sales, minus the money the company shares with its ad partners, came in at $3.39 billion, up 52 percent from the previous period a year ago. The Street had anticipated $3.45 billion and Google’s shares dropped more than 7 percent in after-hours trading to $516.20.”

The most interesting part of the call, which RaceTalk sat in on, was Google’s openness in its failure to monetize its social network initiatives.  This likely centers around a $900 million deal that Google closed with MySpace last year to provide advertising for the social network. Saul Hansell of the New York Times was all over this aspect of the story on the Bits Blog.

As Hansell notes Sergey Brin went as far to say “We have a huge amount of social networking inventory, including the MySpace relationship.  I don’t think we have the killer best way to monetize social networks yet. We are running a lot of experiments and we have had some significant improvements. But some of the things we were counting on in Q4 didn’t pan out. There were some disappointments there.”

Now Hansell notes that sources close to Google note that they never planned to earn the $900 million back from the deal with Rupert Murdoch and MySpace but these statements make it sound that Google is loosing a lot more then they thought. Their trouble monetizing MySpace have others like Tom Foremski of the Silicon Valley Watcher wondering how long it will take Mark Zuckerberg to loose his job at Facebook.

He notes that: “This (Google’s problems with monetizing a social network) increases the challenge for Facebook as it searches for a way to monetize its service without alienating its users. Microsoft’s recent investment in Facebook values it at $15bn, raised the pressure on management to justify that valuation. This is a challenging situation for any CEO of a large media business, especially a 23 year old with no prior experience. Figuring out a sustainable business model that meets Facebook’s $15bn-plus valuation is a top priority for Facebook’s investors. They will likely seek to bring in a new CEO with more experience in the same way Eric Schmidt was brought in to Google.”

Google’s results along with Yahoo!’s shaky results left the technology sector on edge for a few hours and left the door open for Mr. Ballmer to cast Microsoft in the spotlight with a colossal move.

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