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Does Google Lack Vision? Big Tech’s Earnings Q3-2023 (Thinks Out Loud Episode 401)

November 01, 2023
Screenshot of Google financials on Google to illustrate the question: Does Google lack vision?

We’re taking a look at Big Tech’s earnings for Q3, 2023, as we do every quarter. But, after listening to the calls and reading the transcripts, one question keeps coming to the surface: Does Google lack vision? Does its leadership know where they want the company to go? Or are they trapped by their past successes, unable to move forward?


If you listen to Microsoft’s Satya Nadella, Meta/Facebook’s Mark Zuckerberg, or Amazon’s Andy Jassy, you get a clear sense of where these Big Tech leaders want their companies to be down the road. You may not agree with them. You may not like it. But their visions for their companies’ future are clear and compelling. Google? Not so much.


The worst part of this, of course, is that Google likely delivers a fair bit of revenue and traffic to your business. Their stumbles might not just hurt them; they might hurt you.


So, does Google lack vision? Will that lack of vision affect your business? And, most important, what can you do about it? That’s the subject of this episode of the Thinks Out Loud podcast.


Want to learn more? Here are the show notes for you.


Do You Still Need a Website? (Thinks Out Loud Episode 400) Headlines and Show Notes
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You might also enjoy this webinar I recently participated in with Miles Partnership that looked at "The Power of Generative AI and ChatGPT: What It Means for Tourism & Hospitality" here:



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Running time: 32m 17s


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Transcript: Does Google Lack Vision? Big Tech’s Earnings Q3-2023

Well hello again everyone and welcome back to Thinks Out Loud, your source for all the digital expertise your business needs. My name is Tim Peter, this is episode 401 of The Big Show, and I am so thrilled you’re here.


Thank you so much for listening. I think we’ve got a really cool show for you today. What we’re going to do is what we do just about every quarter, where we take a look at big tech’s earnings and what they might mean to your business. I want to start, though, specifically by calling out one member of Big Tech, one member of the AGFAM — Apple, Google, Facebook, Amazon, Microsoft — and that company is Google, because I was shocked during their earnings call by the utter lack of vision that I heard articulated by Sundar Pichai and by Philip Schindler, the company’s chief business officer, and by Ruth Porat, the company’s chief financial officer. I want to be really fair. They’re making enormous amounts of money. Google had an amazing quarter, $76.69 billion in revenue.


Just a huge, huge sum of money. At the same time, Wall Street wasn’t that thrilled by what they heard because they’re not making a lot of money from any place other than ads, especially in places like cloud, they really seem to be struggling. Ads in total were 59. 65 billion dollars in revenue, or roughly 78%.


44 billion dollars of that number, it comes from search, which is almost 60%, it’s 57 percent of their total revenue. Google Cloud was only about 8. 4 billion dollars, or 14 percent of their total. And Google’s other, which is everything that isn’t that, was about 8. 3 billion dollars. When you look at their profits, it’s even more striking.


Google Cloud. Google’s services, which includes all of its ad products, was 23. 94 billion in profit. Google Cloud was about 266 million. And everything else either cost them or lost them more than 2. 8 billion. Their total profit for the quarter was 21. 343 billion. Now remember that 23. 94 billion that it’s ad products made in profit?


Notice how that’s bigger than 21. 34 billion? I mean, I say this all the time, but ads accounts for more than 100 percent of the company’s profits. I don’t want to turn my nose up at the 266 million in profits the cloud made. But it’s not a huge number, particularly when compared with Microsoft, which had almost three times as much revenue from its cloud business.


And I’ll talk more about Microsoft in a moment. The thing that struck me, though, was that Google talked about a wide range of products. They talked about Pixel phones and watches, and their Vertex AI platform, and Duet AI, and Google Workspace, and Google’s Tensor chip, and Chromebooks, and Chromebook Plus computers, and DreamScreen, and YouTube Create, and Waymo self driving cars, and their new Gemini AI model.


And none of those make any sense. Any money. None. Alright, if I’m being fair, the YouTube stuff, you know, DreamScreen and YouTube Create make some money in the aggregate. And Cloud is nice, though a small piece of their business. And Gemini, the Gemini model hasn’t launched yet. So any of those could make a boatload of money.


Someday. It also seems that Google is just stuck in the mud trying to drive revenue from other sources. And the reason I’m hammering on this today, and I will say more about this before we’re done, but it was so apparent in all of the comments from their leadership. They said multiple times about our business results demonstrate strong growth in search and YouTube and momentum in the cloud.


Which is great and all, but basically they’re making all their money on ads. All of it. I’m going to read a lengthy excerpt from Sundar Pichai, the company’s CEO, who said, this is all a quote, with generative AI applied to search, we can serve a wider range of information needs and answer new types of questions, including those that benefit from multiple perspectives.


We are surfacing more links with SGE, that’s Search Generative Experience, and linking to a wider range of sources on the results page, creating new opportunities for content to be discovered. Of course, ads will continue to play an important role in this new search experience. People are finding ads helpful there, as they provide useful options to take action and connect with businesses.


Will experiment with new formats native to SGE that use generative AI to create relevant high quality ads customized to every step of the search journey. He went on to say they’re also focused on boosting creativity and productivity. BARD is particularly helpful here. It is a direct interface to a conversational LLM, you know, large language model, and we think of it as an early experiment and complementary experience to Google Search.


Philip Schindler followed that up by saying, I’ll start with our performance for the quarter and then give color into the three key priority areas for ads that we’ve identified on past calls as opportunities for long term growth in advertising. Notice anything in there? They said ads and search, ads and search, ads and search.


They used the terms ads or advertising in their presentation 46 times. Microsoft said advertising 7 times. Amazon said it 23 times. You know, Facebook said it a lot, but it literally was one of the most One of the words that they said most often throughout the entire presentation. They have become a one trick pony.


They are a one product company. I’ve said before that I think of Google as a one product company. What I didn’t realize is that Google seems to think of itself as a one product company. And the part that’s so disappointing here, to me, is that Google knows more than any other company about what customers want.


Again, Philip Schindler noted, this is a quote, consumer expectations are shifting, especially around price and convenience. We’ve seen four times the deals queries during the holidays versus other periods. 75 percent of users say they’ll shop with those offering free shipping. End of quote. That’s an amazing insight.


So why aren’t they able to turn those insights into better products? And I’d argue that it’s because they’re so heavily focused on advertising. Sundar Pichai was asked in the Q& A section about search generative experience and his response. And again, this is again a little long. We’re still in the very early days in terms of how much we have rolled it out, but we have definitely gotten it out to enough people, both geographically across user segments, and enough to know that the product is working very well.


It improves the experience. I feel very comfortable that as we go through it, the strengths of our teams, both on the organic side as well as the ad side, to drive the right experience for users, including ads, will pay dividends. Are you kidding me? Now, obviously, he’s talking to Wall Street analysts. And obviously, they’re going to be concerned with how Google is going to make money.


But notice, Pichai didn’t really talk about why improving the experience is better for users. In a later question, he did touch on user experience a bit. It just felt a little, too little, too late to my ear. And when you tie that to the ongoing antitrust trial they’re dealing with, that’s a huge deal. I used to think that Google had to win that trial.


Losing is an existential threat to them. The government would like to break them up. Now, I’m not so sure it might not be the best thing that could happen to them. It came out during the trial that they’re paying 26 billion a year to various companies to be the default search engine for devices like the iPhone.


Maybe they’re struggling because they can’t see past advertising in search and YouTube. They’re missing out on creating the kinds of great experiences that customers are looking for. And I want to compare this with some of the other folks just to get a sense of what we’re talking about here. Microsoft, for instance, had an amazing quarter as well.


By the way, they all made money. I’m not, I don’t mean to hang up on the money too much. I wanted to talk about Google’s earnings in particular because maybe I’m wrong. Maybe they’re doing everything correctly. I just don’t get the sense that that’s true. As I said, compare what you heard from Sundar Pichai and from Philip Schindler, and you can read in their actual earnings calls, which I will link to in the show notes.


But Satya Nadella of Microsoft said things like, we’re making the age of AI real for people and businesses everywhere. He said, we’re using this AI inflection point to redefine our role in business applications. Separately, he said CoPilot is your everyday AI assistant, helping you be more creative in Word, more analytical in Excel, more expressive in PowerPoint, more productive in Outlook, and more collaborative in Teams.


He noted that with skills in Viva, we are bringing together information from Microsoft 365 and LinkedIn to help employers understand workforce gaps and suggest personalized learning content to address it all in the flow of work. He said that we introduce new AI driven features, this is on LinkedIn, across all of our businesses, including a learning coach that gives members personalized content guidelines and tools to help employers find qualified candidates.


Remember my point a few weeks ago about how much consumer behavior shift we’re about to see? That’s what Satya Nadella is talking about. He’s talking about how Microsoft is going to enable that for customers all over the place in all of the various tools that they use every single day. Just as a for instance, he said, hitting the co pilot button across every surface, like the Teams meeting, which is an intelligent recap.


It’s not just a dumb transcript. He said, we are seeing broad usage across, and the interesting thing is, by different functions, whether it’s in finance or in sales, by role, we’ve seen productivity gains like we saw with developers in GitHub Copilot. They’ve made this available today. Some of this is still rolling out, but it’s at least in beta.


And Amy Hood, the Chief Financial Officer, late in the call, talked about when you think about our investment in AI, we are committed to leading this wave. I’ve talked about this many times on the show. They clearly will need to execute, they’ll clearly need to deliver, if this is going to turn into real business results for them.


But you can’t say that they lack vision. They know where they’re trying to go with this. By the way, as a complete aside, they had one other point about LinkedIn I want to share that I’m going to come back to later. But they talked about there were more than 450 million newsletter subscriptions globally on LinkedIn, up three times year over year.


And premium subscription signups were up 55 percent year over year. By the way, as a complete aside, they had one other point about LinkedIn I want to share that I’m going to come back to later, but they talked about there were more than 450 million newsletter subscriptions globally on LinkedIn, up three times year over year.


And premium subscription sign ups were up 55 percent year over year. And they’re making the money in a variety of ways. Cloud is 43 percent of their revenue. Office products and LinkedIn are about a third of their revenues. Windows, gaming, search, and news are about 24 percent of revenues. Notice that’s a really interesting business mix.


And it’s working for them because they can monetize these tools across a variety of different platforms. Compare that, or, or, to add on this, look at what Facebook said. So this was Mark Zuckerberg. Again, these are just some big quotes. He said, We started rolling out Meta AI, our new assistant that you can access across all our messaging experiences and smart glasses to answer questions.


Get access to real time information and generate photorealistic images. We started launching our AI Studio platform that enables people to create and interact with lots of different AIs for help getting things done and just having fun. We rolled out Emu, our image creation model that produces high quality images and stickers fast.


We launched an early alpha of business AIs so that eventually every business can have an AI to interface with customers to do sales and support. We laid out the plan to launch creator AIs next year so every creator can have an AI their fans can engage with to help them build out their community. That is five separate AI assistants touching five different customer groups.


Zuckerberg said in terms of investment priorities, AI will be our biggest investment area in 2024, both in engineering and compute resources. He said that AI driven feed recommendations continue to grow their impact on incremental engagement. This year alone, we’ve seen a 7 percent increase in time spent on Facebook and a 6 percent increase on Instagram as the result of recommendation improvements.


They also talked about plans they have for business messaging, and that they’ve got now 100 million monthly active users on Threads, which is their Twitter killer, and that 3. 96 billion people used at least one of Meta’s family of apps on a monthly basis. Note the difference here between Facebook and Google.


Facebook makes most of their money on ads, too. And yet, what are they talking about? They’re talking about AI, they’re talking about the metaverse, they’re talking about improving the customer experience. I’ve never been the biggest fan of Facebook. They’re also articulating a clear revision that I’m hearing from Google at the moment.


And just to round out the fourth of the big tech cohort who has produced an earnings report so far, we haven’t heard from Apple yet. But Andy Jassy at Amazon talked about the fact that they are they have a code whisperer, AI system that is part of how they’re helping people using AWS create code more more quickly and more readily.


They also talked about things like prime video shows and movies that will have fewer ads than linear TV and other streaming TV providers. Brian Olszewski, the company’s CFO, said from a customer behavior standpoint, we still see customers remaining cautious about price, trading down where they can and seeking out deals, coupled with lower spending on discretionary items, and some of the steps they’re taking to address that.


They’re listening to the customer, and they’re making some changes in how they do what they do. And they also make money on ads. They’re approaching, according to one of the analysts, a 50 billion run rate on ads. That’s a bit less than half the size of Facebook’s entire business. And of course, it’s also what Google makes in a quarter in terms of revenue.


But it’s also just a small part of Amazon’s business. AWS alone is a $23 billion business and about $7 billion in operating income. That $7 billion is almost as much as Google’s cloud revenue for the quarter. That’s, you know, a lot. They, and Microsoft, and Facebook, are formidable competitors to Google across a wide array of areas, and they all seem to have a pretty good plan for what they intend to do to improve in those areas.


You know, Amazon, I still think, is going to launch a generalized search engine, or maybe buy one in the foreseeable future. But it’s clear what they’re all talking about. You know if you just look at a tag cloud of the words that were most common, Microsoft talked about AI, Growth, Revenue, Copilot, Cloud, and Customers.


Facebook talked about AI, Ads, Advertisers, Costs and Expenses, People, and Engagement. Amazon talked about Customers, AI, AWS, and Generative AI. And Google, they talked about, let’s see, AI, Good, Invest, Growth, Advertisers, Search, and YouTube. It’s a little bit of a one trick pony, and notice the word Customers never appeared there.


That’s not great. I want to be fair, maybe Google absolutely has a brilliant plan that they’re not ready to talk about yet. They absolutely could deliver Gemini, which is their new AI model, and blow GPT 4, and Microsoft, and Amazon, and Facebook, and everyone else out of the water, and catapult themselves far into the lead.


That is possible. What’s also true is that at the moment, they’ve never looked more vulnerable. I have long talked about Google’s strength being brittle. It’s super strong, but it’s easily cracked. They’re facing a huge antitrust lawsuit. And they have no lock in for their most profitable product. We could all wake up tomorrow, you, me, everybody else, and switch to Bing or Alexa.


Somebody like Microsoft or Amazon or, I don’t know, DuckDuckGo could turn around and pay Google billions of dollars and get them to switch to become the default search engine on iOS. We know that AI assistants are coming. That’s all anybody talked about on their earnings calls. Microsoft Co Pilot, Facebook’s Meta AI, Amazon’s Alexa or Code Whisperer, or I don’t know, I’m making this up, Life Whisperer, Apple’s Siri.


What if search just becomes the AI you carry in your pocket? If we all stopped using Google tomorrow and they make all their money from search and YouTube ads, Google would be hosed. They would be in seriously deep trouble. And my concern here isn’t what that would do to Google. My concern is what it would do to your business.


How much of your traffic comes from Google every month? How much of your revenue What would happen if Google vanished or got cut in half? I’m not convinced that will happen. I’m also not convinced that it couldn’t happen. Plenty of huge companies have stumbled or failed in the past. Why not Google? More importantly, what would you do about it?


Happily, Big Tech has given us some of the answers that we should be looking at in their earnings calls. And the first of these is Customer Focus. Notice that the companies who I seem to think have their act together have incredible focus on their customers. Microsoft on the enterprise and developers and the users of their software tools.


Facebook on the users of its social platforms. Amazon on its merchants and the shoppers using it. Microsoft Google? Maybe, but they’re sure not talking about it. I also think it’s an important point. I don’t want to ignore the comments that several of the big tech folks talked about customers being more price conscious.


Now’s the time to pay attention to that. It doesn’t mean you should cut your prices. You do, however, have to demonstrate great value to your customers. Think about the lost art of value ads that I’ve talked about in a past show, and will link to in the show notes, in terms of how you make it clearer to customers that are getting good value for their money.


The other reason you want to focus on customers is note all of Big Tech’s attention to ads in these calls. Yeah, they’re all talking to Wall Street analysts, and of course they have to talk about how they get paid. They’re also acknowledging that they’re raising the tolls that you will pay to reach your customers.


You’re going to pay increasingly frequently and increasingly expensive tolls. And they’re kind of telling you, you need to build direct relationships with your customers. You have to have a plan for how to do that now. That’s one of the biggest reasons it’s important to focus on great content and a great customer experience.


You’ve undoubtedly heard me say many times that content is king and customer experience is queen. It’s also true that your content, even more than your website or your app or your emails, represent your 24x7x365 salesperson and your 24x7x365 customer service rep. That content powers your website. It powers your email.


It powers your app, and it powers your social media presence. I talked a lot about this last week, about discussing whether you still need a website. I’ll link to that in the show notes so you can check it out as well. When you think about content, notice all the talk from Google about YouTube, and from Amazon with its Prime shows, and Facebook with Reels, and Microsoft with gaming.


The internet has long been a visual medium. Increasingly, it’s a video driven medium. I don’t want this to sound like a pivot to video moment, but it’s about thinking about what your plans are for video as part of your content strategy. Are you using Reels? Are you using YouTube? Are you using video on your own website or apps?


I bet right about now you’re planning your 2024 budget. You need to think about how you’re going to incorporate video as one of your tools to deliver content. And speaking of delivering content, I said I would come back to this later, but remember LinkedIn’s 450 million newsletter subscriptions? Maybe customers like getting information via email?


Maybe you should be building your email list a bit more? I don’t know. I have long talked about email as the hidden social network. Newsletters and email are an important point of that because it allows you to talk directly to your customers. What you also want to think about is that if your list is not growing, it’s shrinking.


There’s this thing called churn rate you’ve probably heard about before. But churn rate is roughly a 30 percent decline per year of people who opt out of your emails or they move jobs and that email address goes away. So if you’ve got a 10, 000 person subscriber list this year, next year it’s going to be 7, 000.


In 2025 it’s going to be a 4, 900 person list and the year after that it would be around 3, 400 people. That’s a big deal and something you want to have a good plan for. How do you keep growing? And one of the ways you do that is with great content that people want to subscribe to. That people want to engage with.


It’s about building a great relationship with your customers that they care to engage with. And then finally, as we look at the things you have to be working on right now, we’ve got to talk about AI, just like they all were. If you’re not already testing AI, it is past time to start. Think about adding AI to your capabilities as a team member.


You’re not buying an AI, you’re not signing up for an AI, you’re hiring assistants who can help you create your plans and help you create great content. If you’re not already talking to customers about how they’re using AI, it’s also time to start. Because they’re going to hire those assistants too to help them with their lives.


It’s not about AI taking your job away, it’s about AI making you more effective and efficient at the work you need to get done. I’ve long been a fan of this idea of who, not how, when faced with a problem. I don’t have to know how to do it, I have to know who I can ask to help me get it done. Well, artificial intelligence is becoming one of the who’s in my content contacts.


It’s who I turn to for help. And I expect to do a lot more of that in the days, weeks, and months to come. And I expect your customers to do a lot more of that in the days, weeks, and months to come. Microsoft and Facebook and Amazon and Google are making that a default action. Maybe we ought to listen to them.


So to recap, Big Tech had a great quarter. And they showed us four big areas we need to think about. Customer first, to create a great experience and build a direct relationship with our customers. Content, to create great content and start putting video to work. Email, to create a list that’s worth belonging to and nurture and grow it over time.


And AI, to create a team of AI assistants that make you more effective and efficient and start putting those AI assistants to work. Because at the end of the day, it doesn’t matter that much to you whether Google has a clear vision from where they’re headed, but it matters a ton whether or not you do. I can’t wait to see what yours is and what you do with it.


Show Wrap-Up and Credits

Now, looking at the clock on the wall, we are out of time for this week. I want to remind you that you can find the show notes for today’s episode, as well as an archive of all past episodes, by going to timpeter.com/podcasts. Again, that’s timpeter.com/podcasts. Just look for episode 401.


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Show Outro

Finally, and I know I say this all the time, but 401 episodes in I’m just so thrilled that you listen.


It means the world to me. You are the folks we do this for. You’re the reason we make this happen every single week. So please, keep your tweets coming, keep your messages coming on LinkedIn, keep your emails coming. I love getting the chance to talk with you, to hear what’s going on in your world. And learn how we can do a better job building the types of content and insights and information that works for you and benefits you.


So with all of that said, I hope you have a fantastic rest of the week. I hope you have a wonderful weekend. And I will look forward to speaking with you here on Thinks Out Loud next time. Until then, please be well. Be safe, and as always, take care, everybody.


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