The fact that 42% of G's revenues are generated by 3rd party sites isn't being evaluated (publicly) enough IMO. Given Google's healthy revenue share percentage, this piece of the business shouldn't / doesn't bring much to the bottom line. If on 42% of your revenue, you pay out say 80% or so of revenues to your partners, it only contributes (42% * 20%) 8.4% of your margin dollars. So growing the 3rd party business does (very) little to impact the bottom line, it would appear. This is offset a bit by the fact that G normally charges advertisers less for 3rd party delivered advertising (so in some way it subsidizes the core business slightly) and the fact that simply by increasing the amount an advertiser can spend profitably with G (in total) they again aid their core non-3rd-party revenue line, as small/local advertisers who wouldn’t otherwise bother advertising with Google find it worth it given the volume boost as a result of 3rd party distribution.
Long term, I expect Google's 3rd-party business' growth rate will stall. The huge number of advertisers they bring to the table gives them less of an advantage with content advertising (as opposed to search advertising). The long, long tail of search terms is not mirrored by the topics of content sites. There is a much higher concentration of head topics on content sites, as such the vast array of advertisers they have relationships with gives them less benefit on content sites. Furthermore Google's public image and reputation will inhibit them from explicitly allowing advertisers to take advantage certain behavioral targeting options which lesser known (more traditional ad network) competitors will be able to leverage.
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Sidenote, it's wild that analysts can't model Google's (future) tax rate. Not that I think this is a phenomenon specific to Google, but it's amazing apparently no one can forecast this. Seems like there's some data that the public should be provided with that isn't published.
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Looking forward, I think G will fare OK with their Q1 numbers. There is some seasonality effects reflected in the estimates that don't really apply to much of Google's business...so I think analysts have/will continue to model in a lower growth rate quarter over quarter because q1 is normally a weaker quarter, despite the fact that this impacts G's business far less then it does a Yahoo and others.
Past Q1, I think G needs to show some mighty impressive growth in Non-US markets in order to keep up their torrid pace. The opportunity to grow the core US business further just isn't that large, the 3rd party network doesn't bring much to the bottom line, and I have no confidence new products / services will help much....they certainly haven't to date.
