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The dirty secret of tech is that markets matter more than effort or smarts. If you have product/market fit and a decent technological lead in a market that is

The dirty secret of tech is that markets matter more than effort or smarts. If you have product/market fit and a decent technological lead in a market that is large and growing, you will do better than a company that does not have PMF or a good market, regardless of how hard you work. (This explains so much about Oracle.) Social media mentions are probably a better sign of how well you'll do than full parking lots. I'd bet that Google & Facebook's current run-up is largely driven by inflation and higher ad prices. FB even said as much in a recent earnings call. Jerome Powell did more for their business than any employee up through the CEO did.

gitfan86 5y ago
markets and moats matter. Anyone can get revenue selling tomatoes, the problem with tomato farming is that there is no moat, you will not be able to sell at a price much higher than the next farmer down the street. If there were 100 good search engines the price for advertising would be 90% lower
- bduerst 5y ago
  >If there were 100 good search engines the price for advertising would be 90% lower Would it really be that much though? I thought search ads were auctions - i.e. competition for impressions/clicks directly correlates to the price of advertising. If you have search users distributed across 100 platforms, the competition for impressions/clicks is going to be super low on all platforms, but you'd have to advertise on 100 platforms to get the same level of engagement, adding it all back up but with 100 middle men this time.
- jsnell 5y ago
  > If there were 100 good search engines the price for advertising would be 90% lower Why do you think that? The revenue is determined by the number of searches showing ads, the click-through rate, and the cost per click. The total across all companies would clearly not change for the first two metrics. Would the cost per click change? Given it's determined by an auction, I don't see how it could change. If you have an incentive to bid $1 on an ad on a single site with 100x traffic, you'd be equally willing to bid $1 on each of 100 separate sites with 1x traffic.
  - gitfan86 5y ago
    If competition existed company A would offer a better product than just cost-per-click. Then company B would offer another product better than company A, and so on. Google is like a person that owns the only road between two towns. You have to pay them until other people can build ferries or airports or trains. At which point you can exit the mentality of "we have to take this road and pay per drive"
    - jsnell 5y ago
      Sorry, that still makes no sense to me. Why would company B have to make a better product in reaction? They're not being impacted at all. Company A having more and cheaper ads certainly won't make any users switch from B to A. It also won't make any existing advertisers stop spending on ads on B and run more ads on A, since the ads on B must have been profitable at the current price, and those ads are reaching a different set of users than the ads on A. Is it possible that those cheaper ads could create more demand for ads somehow? It seems hard to believe it could. Either it's a search term that people were already willing to buy more expensive ads for, and are now just happy to pay less, or it's a search term that nobody was willing to bid even minimum price for. What's actually going to happen in your scenario is that company A loses 90% of their revenue, goes bankrupt, and their domain is sold for a fair price to Company B or one of the other 98 remaining competitors.
- candiodari 5y ago
  > If there were 100 good search engines the price for advertising would be 90% lower And the number of ads and hidden ads would be like Cable.
- dragonwriter 5y ago
  > If there were 100 good search engines the price for advertising would be 90% lower If there were 100 good search engines for end users, but opinions of different users on quality were highly correlated, the traffic would be very disproportionately on the one that was perceived as even very slightly better. And they’d make the bulk of the advertising dollars. And they’d have the bulk of the money to throw at improvements. And the next year, unless some competitor got more access to outside investment to make up for that, the gap would be bigger, they’d have even more of the search audience, and even more of the advertising money, etc.
  - gitfan86 5y ago
    You are describing 99 shitty search engines and 1 good one.
    - dragonwriter 5y ago
      Sure, if “slighty worse that good” is “shitty”. When you can’t sell your slightly-less-good product for a lower price to make it value-competitive to slightly-more-good one, there’s very little reason for all the users not to go to the slightly-more-good one. With free services given away to get an advertising audience, that makes slight advantages very prone to positive feedback loops.
whimsicalism 5y ago
> I'd bet that Google & Facebook's current run-up is largely driven by inflation and higher ad prices. What does this mean? The dollar didn't inflate 68%. If you mean that companies are investing more capital into advertising because capital markets are looser, sure, but why is that a bad thing again?
- nostrademons 5y ago
  Inflation is uneven, and it tends to pool in markets that are: a.) close to the point where the money is injected b.) have quick-adapting prices, ideally ones where competitors bid against each other c.) are dominated by 1-2 firms with little competition, so they have pricing power. Google and Facebook tick all the boxes. In COVID money was injected directly to the consumers (thanks to stimulus payments) and to small or mid-size business (PPP loans). Google and Facebook run up-to-the-minute ad auctions, so prices adapt immediately to additional money becoming available. And they have little real competition, so it's not like they can be undercut by competitors. By contrast, wages (for example) a.) require that your employer have more money, which generally requires that it have trickled down through the whole value chain b.) get updated usually once per year and c.) generally require that your competition also decide they're going to ask for more money too, less your employer just decide to employ someone else. That's why wages are often the last and stickiest place that inflation shows up. The general phenomena of certain businesses being able to raise prices earlier, faster, and more than others in response to rising money supply is called the Cantillon Effect, and is a pretty fertile ground for making lots of money in an inflationary environment.
  - whimsicalism 5y ago
    2 -> This is the only part of the comment I agree with, inflation is slower to show up in sticky prices. The rest is wrong - you can look to an economist https://www.themoneyillusion.com/it-really-really-really-doesnt-matter-who-gets-the-money-first-part-2/ https://www.themoneyillusion.com/it-really-really-really-doe... if you want an explanation. I'll not there is a tension between 2 and 3 as highly competitive markets tend to not have sticky prices. tl;dr You advance a claim of strong monetary non-neutrality. I think that outside of sticky prices, your claim is overstated.
dekhn 5y ago
Google's revenue growth came at least in part by creating two new markets that it has control over: youtube ads and mobile ads. In both areas, Google was able to couple a rapidly growing product with new ad space that it auctioned. I doubt most people appreciate quite how effective Youtube and Google Play are at delivering ads to users and money to Google. It's not just inflation and higher prices- it's a massive growth of the market.

gitfan86 5y ago

markets and moats matter. Anyone can get revenue selling tomatoes, the problem with tomato farming is that there is no moat, you will not be able to sell at a price much higher than the next farmer down the street. If there were 100 good search engines the price for advertising would be 90% lower

bduerst 5y ago
>If there were 100 good search engines the price for advertising would be 90% lower Would it really be that much though? I thought search ads were auctions - i.e. competition for impressions/clicks directly correlates to the price of advertising. If you have search users distributed across 100 platforms, the competition for impressions/clicks is going to be super low on all platforms, but you'd have to advertise on 100 platforms to get the same level of engagement, adding it all back up but with 100 middle men this time.
jsnell 5y ago
> If there were 100 good search engines the price for advertising would be 90% lower Why do you think that? The revenue is determined by the number of searches showing ads, the click-through rate, and the cost per click. The total across all companies would clearly not change for the first two metrics. Would the cost per click change? Given it's determined by an auction, I don't see how it could change. If you have an incentive to bid $1 on an ad on a single site with 100x traffic, you'd be equally willing to bid $1 on each of 100 separate sites with 1x traffic.
- gitfan86 5y ago
  If competition existed company A would offer a better product than just cost-per-click. Then company B would offer another product better than company A, and so on. Google is like a person that owns the only road between two towns. You have to pay them until other people can build ferries or airports or trains. At which point you can exit the mentality of "we have to take this road and pay per drive"
  - jsnell 5y ago
    Sorry, that still makes no sense to me. Why would company B have to make a better product in reaction? They're not being impacted at all. Company A having more and cheaper ads certainly won't make any users switch from B to A. It also won't make any existing advertisers stop spending on ads on B and run more ads on A, since the ads on B must have been profitable at the current price, and those ads are reaching a different set of users than the ads on A. Is it possible that those cheaper ads could create more demand for ads somehow? It seems hard to believe it could. Either it's a search term that people were already willing to buy more expensive ads for, and are now just happy to pay less, or it's a search term that nobody was willing to bid even minimum price for. What's actually going to happen in your scenario is that company A loses 90% of their revenue, goes bankrupt, and their domain is sold for a fair price to Company B or one of the other 98 remaining competitors.
candiodari 5y ago
> If there were 100 good search engines the price for advertising would be 90% lower And the number of ads and hidden ads would be like Cable.
dragonwriter 5y ago
> If there were 100 good search engines the price for advertising would be 90% lower If there were 100 good search engines for end users, but opinions of different users on quality were highly correlated, the traffic would be very disproportionately on the one that was perceived as even very slightly better. And they’d make the bulk of the advertising dollars. And they’d have the bulk of the money to throw at improvements. And the next year, unless some competitor got more access to outside investment to make up for that, the gap would be bigger, they’d have even more of the search audience, and even more of the advertising money, etc.
- gitfan86 5y ago
  You are describing 99 shitty search engines and 1 good one.
  - dragonwriter 5y ago
    Sure, if “slighty worse that good” is “shitty”. When you can’t sell your slightly-less-good product for a lower price to make it value-competitive to slightly-more-good one, there’s very little reason for all the users not to go to the slightly-more-good one. With free services given away to get an advertising audience, that makes slight advantages very prone to positive feedback loops.

whimsicalism 5y ago

> I'd bet that Google & Facebook's current run-up is largely driven by inflation and higher ad prices. What does this mean? The dollar didn't inflate 68%. If you mean that companies are investing more capital into advertising because capital markets are looser, sure, but why is that a bad thing again?

nostrademons 5y ago
Inflation is uneven, and it tends to pool in markets that are: a.) close to the point where the money is injected b.) have quick-adapting prices, ideally ones where competitors bid against each other c.) are dominated by 1-2 firms with little competition, so they have pricing power. Google and Facebook tick all the boxes. In COVID money was injected directly to the consumers (thanks to stimulus payments) and to small or mid-size business (PPP loans). Google and Facebook run up-to-the-minute ad auctions, so prices adapt immediately to additional money becoming available. And they have little real competition, so it's not like they can be undercut by competitors. By contrast, wages (for example) a.) require that your employer have more money, which generally requires that it have trickled down through the whole value chain b.) get updated usually once per year and c.) generally require that your competition also decide they're going to ask for more money too, less your employer just decide to employ someone else. That's why wages are often the last and stickiest place that inflation shows up. The general phenomena of certain businesses being able to raise prices earlier, faster, and more than others in response to rising money supply is called the Cantillon Effect, and is a pretty fertile ground for making lots of money in an inflationary environment.
- whimsicalism 5y ago
  2 -> This is the only part of the comment I agree with, inflation is slower to show up in sticky prices. The rest is wrong - you can look to an economist https://www.themoneyillusion.com/it-really-really-really-doesnt-matter-who-gets-the-money-first-part-2/ https://www.themoneyillusion.com/it-really-really-really-doe... if you want an explanation. I'll not there is a tension between 2 and 3 as highly competitive markets tend to not have sticky prices. tl;dr You advance a claim of strong monetary non-neutrality. I think that outside of sticky prices, your claim is overstated.

dekhn 5y ago

Google's revenue growth came at least in part by creating two new markets that it has control over: youtube ads and mobile ads. In both areas, Google was able to couple a rapidly growing product with new ad space that it auctioned. I doubt most people appreciate quite how effective Youtube and Google Play are at delivering ads to users and money to Google. It's not just inflation and higher prices- it's a massive growth of the market.