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You are assuming that running and advertising business is profitable. If this is the case then yes, running an advertising business plus X always gives you an a

You are assuming that running and advertising business is profitable. If this is the case then yes, running an advertising business plus X always gives you an advantage over just doing X. This is true no matter what X is, even if X is unrelated to advertising, or even just doing nothing. I’m not sure in what sense this means that the game is rigged (unless of course the bidding process is unfair).

admax88q 9y ago
I think you missed the point, it's not that doing two profitable things is better than one, which you're right is always the case. It's the more specific case of running businesses X and Y where X is dependent upon buying services that Y provides. If you have a monopoly on Y (advertising), then it's easier to complete in X, because everyone else in X has to buy their Y services from you. So you end up paying your competitor in order to compete with them.
- benchaney 9y ago
  I'm not sure that I did. If you are trying to compete in business X, you have a side income Z, and everyone competing in X has to buy service Y, what tangible benefit do you get from Y and Z being the same thing? Unless you can rig the bidding process I don't see any advantage.
  - admax88q 9y ago
    It means that any expense you spend on Y isn't really an expense, since the money goes right back into your pocket. So not only do you get the extra income from other people buying Y, buy you can operate at higher margins than everyone else in X because Y is available to you at cost. EDIT: On further thought it seems no different than being vertically integrated.
    - benchaney 9y ago
      > It means that any expense you spend on Y isn't really an expense, since the money goes right back into your pocket. If you do the accounting in this way, then you make that much less profit on your service, so it winds up being the same as if you are making a greater profit, but count the cost of Y at market value. > So not only do you get the extra income from other people buying Y, buy you can operate at higher margins than everyone else in X because Y is available to you at cost. This isn't any different than if Y and Z are different, but you use the excess profits from Z to subsidize your business in X.
      - xstartup 9y ago
        That's not how auctions work. Let's say A owns advertising business X and shopping business Y. Now, if B who only owns shopping business Z will be paying their competitors. If A bids higher, money still flows black to them regardless of the profit/loss. But Z is forced to bid much higher to get any traffic! This can be used to inflate the price to any level. Sure, others can also inflate the prices but if you try that then the money goes to A and you lose that money but it's not true for A. In this Google operates like A. Edit: Google has lot more data about a visitor and which enables them to predict more. So, they can sell their competitors (in shopping business) the impressions which never convert while selling the impressions which are highly likely to convert to their own shopping business.
        smallnamespace 9y ago
        > So, they can sell their competitors (in shopping business) the impressions which never convert while selling the impressions which are highly likely to convert to their own shopping business. If they do that, then their competitors should notice and then pay them less for giving them bad impressions, so they're just taking money out of one pocket and putting it in another. This scenario only works out if their competitors are less competent -- but in that case, seems like Google would do well?
natch 9y ago
Does it need to be profitable? It seems to me that if it siphons money off from competitors, that's already enough to hurt the competitors relative to itself. In fact not only does the advertising not need to be profitable, even the sales of X do not need to be profitable, for the competitors to be harmed... dumping would be the extreme example of that. You are talking about a different aspect of the scenario, where the company is reaping profits from advertising. Sure, that's kind of beside the point though. Which is why it's important to recognize that the harm happens even without the advertising being profitable.
- benchaney 9y ago
  If the service isn't profitable, then you are subsidizing the cost of a service that your competitors need. You aren't benefiting from the fact that your competitors are spending money. They would have had to spent money anyway.
  - natch 9y ago
    Interesting... I started out pretty sure you were wrong about this but you and others are bringing me around. Good discussion.
- deecewan 9y ago
  Its not really siphoning money off, tho. It is an exchange of money for services rendered. From what I saw in comments and the (paywalled) article, the problem is that Google isn't siphoning money. They're keeping the ad-space for themselves.

admax88q 9y ago

I think you missed the point, it's not that doing two profitable things is better than one, which you're right is always the case. It's the more specific case of running businesses X and Y where X is dependent upon buying services that Y provides. If you have a monopoly on Y (advertising), then it's easier to complete in X, because everyone else in X has to buy their Y services from you. So you end up paying your competitor in order to compete with them.

benchaney 9y ago
I'm not sure that I did. If you are trying to compete in business X, you have a side income Z, and everyone competing in X has to buy service Y, what tangible benefit do you get from Y and Z being the same thing? Unless you can rig the bidding process I don't see any advantage.
- admax88q 9y ago
  It means that any expense you spend on Y isn't really an expense, since the money goes right back into your pocket. So not only do you get the extra income from other people buying Y, buy you can operate at higher margins than everyone else in X because Y is available to you at cost. EDIT: On further thought it seems no different than being vertically integrated.
  - benchaney 9y ago
    > It means that any expense you spend on Y isn't really an expense, since the money goes right back into your pocket. If you do the accounting in this way, then you make that much less profit on your service, so it winds up being the same as if you are making a greater profit, but count the cost of Y at market value. > So not only do you get the extra income from other people buying Y, buy you can operate at higher margins than everyone else in X because Y is available to you at cost. This isn't any different than if Y and Z are different, but you use the excess profits from Z to subsidize your business in X.
    - xstartup 9y ago
      That's not how auctions work. Let's say A owns advertising business X and shopping business Y. Now, if B who only owns shopping business Z will be paying their competitors. If A bids higher, money still flows black to them regardless of the profit/loss. But Z is forced to bid much higher to get any traffic! This can be used to inflate the price to any level. Sure, others can also inflate the prices but if you try that then the money goes to A and you lose that money but it's not true for A. In this Google operates like A. Edit: Google has lot more data about a visitor and which enables them to predict more. So, they can sell their competitors (in shopping business) the impressions which never convert while selling the impressions which are highly likely to convert to their own shopping business.
      - smallnamespace 9y ago
        > So, they can sell their competitors (in shopping business) the impressions which never convert while selling the impressions which are highly likely to convert to their own shopping business. If they do that, then their competitors should notice and then pay them less for giving them bad impressions, so they're just taking money out of one pocket and putting it in another. This scenario only works out if their competitors are less competent -- but in that case, seems like Google would do well?

natch 9y ago

Does it need to be profitable? It seems to me that if it siphons money off from competitors, that's already enough to hurt the competitors relative to itself. In fact not only does the advertising not need to be profitable, even the sales of X do not need to be profitable, for the competitors to be harmed... dumping would be the extreme example of that. You are talking about a different aspect of the scenario, where the company is reaping profits from advertising. Sure, that's kind of beside the point though. Which is why it's important to recognize that the harm happens even without the advertising being profitable.

benchaney 9y ago
If the service isn't profitable, then you are subsidizing the cost of a service that your competitors need. You aren't benefiting from the fact that your competitors are spending money. They would have had to spent money anyway.
- natch 9y ago
  Interesting... I started out pretty sure you were wrong about this but you and others are bringing me around. Good discussion.
deecewan 9y ago
Its not really siphoning money off, tho. It is an exchange of money for services rendered. From what I saw in comments and the (paywalled) article, the problem is that Google isn't siphoning money. They're keeping the ad-space for themselves.