Tis the Season for Google?

    August 3, 2004

Bambi Fransico is the lead reporter for CBS Marketwatch on the internet and new technologies. In a session at the Search Engine Strategies conference in San Jose focusing on the current climate for SEM company valuations, she offered some valuable insights.

Though many investors may not fully comprehend some of the intricacies of SEM and new media, they all understand growth. To give you an idea, Bambi alluded to the recent sale of Lycos for 95 million. 95 million is a lot of money to be sure, but it’s a far cry from Lycos’ 12.5 billion price tag only from about 3 years ago. Bambi called it a “testament on how much of a premium is placed on growth”.

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Following a disappointing round of Q2 numbers from large web presences like Yahoo, AskJeeves, Amazon and Netflix there are a lot of questions swirling around about investing in this industry – especially as Google’s offering looms.

Seasonality, Bambi explains could largely be to blame for the Q2 shortfall for many companies, which isn’t necessarily a great thing but it’s better than some of the other explanations like a general trend of decelerating growth. Last year, Google’s gross sales grew 25% between Q1 and Q2 compared to 7.5% this year. Can the decline be chalked up to seasonality or are there larger issues at work?

Where is the growth for Google? If their decline in sales for Q2 is simply a side effect of seasonality, and Q2 has been underestimated the question then becomes one of, has Q3 been similarly underestimated? If so, there will be an awful lot riding on the Q4 results of a newly public Google.

If seasonality isn’t the culprit and we’re looking at a situation where growth is being limited by an upper limit of available inventory where does new growth come from? Bambi poses the legitimate question of “where do you go beyond keywords?” Can contextual searches, blogs, and more complex keywords structures/phrasessearch be depended on to fill an increase in demand? At what point she wonders, does “search engine marketing ceases to be search engine marketing and becomes just marketing?”

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Mike is a manager at iEntry. He has been with iEntry since 2000.