Word For Word: Google Analyst Day

1:32 Google Video and Gmail have high infrastructure needs. "Investments made to support core search and advertising business typically yield immediate results. Investments in new services are trickier. They invest conservatively and actively monitor the cost-benefit, and payback goes through period of vetting."

1:28 Reyes: The company has weekly meetings to monitor financial performance, weekly revenue forecast meetings, executive management meetings and others. Spending on capital expenditures has been rising. (A chart shows that the amount spent last year doubled.) Spending in 2006 is expected to be significantly higher than it was in 2005. Most of the capital spending is on machine components, networking equipment and data centres, followed by real estate.

1:25 Reyes shows a chart that outlines how Google measures performance. The metric is based on search quality, customer satisfaction, traffic growth, revenue per thousand searches and the number of advertisers and publishers. Financial metrics are revenue growth, operating margin and productivity per employee. He cannot release details for competitive reasons.

1:22 Reyes: Even with investments in business, Google generates lots of cash flow: $1.6bn in cash flow last year, almost three times as much as the year before. In the beginning of 2006, the tax benefits associated with stock-award activity, which was $434m in 2005, will be reported as cash flow from financing activities, not operating activities. The company ended the year with more than $8bn in cash. The company has consistently delivered very strong revenue growth.

1:20 Conference resumes. Reyes shows a slide of Google's past eight quarters of revenue growth. It shows an 86 per cent growth rate for 2005, to more than $1.9bn in fourth-quarter revenue. Expect healthy growth in traffic level and advertising, he said. He shows a chart of revenue from ads on Google sites versus partner sites. In the fourth quarter, Google sites grew at 24 per cent, and partner networks grew at 18 per cent.

12:30 Lunch break.

12:26 Question: Enterprise product sales? Have you sized the market opportunity there? Kordestani: Enterprise business includes corporations, government and educational institutions, looking at how indexing can be deployed within the enterprise, how businesses can use products best.

12:23 Question: Elaborate on Dell deal? How will Google Video be syndicated? Braddi: We can't discuss specifics about the Dell deal. Past distribution deals like that have been successful in increasing traffic to Google. Kordestani: Google is trying to get its Google Video service right. It's important to be able to syndicate that content out. There are lots of rights issues. CBS has been an excellent partner.

12:21 Question about the German market. Arora: Challenge there is that large businesses still aren't embracing the internet as a distribution channel. Google needs to evangelise in the market.

12:18 Question: Local has been a "huge opportunity" for years but from a sales perspective it's hard to reach a small pizza parlour or a laundrette. Is Google closer to cracking the code? Singh Cassidy: AdWords simplification is important, as is forging relationships with BellSouth and other channels to reach the businesses. Google is very encouraged by the number of its own online advertisers that choose local targeting to make campaigns available in certain geographies.

12:16 Question about importance of third parties to Google. Kordestani: Google wants to work with customers in any way they want to, resellers or ad agencies.

12:14 Singh Cassidy: In China, we see net new overall growth. The online markets are compelling enough that advertisers need to have online in the mix.

12:12 Q&A session. Question: How fast will the total ad market in China grow, and what will be the offline and online split there? Kordestani: Local targeting and print ads - some are ready to be launched in mature markets like the US but they need the right relationships in other markets. Our overall philosophy is that Google needs to be everywhere with a direct sales force in priority markets.

12:11 Eun: Lots of people are uploading content to the Google Video site. The sheer volume of Google traffic, and the site's global audience, interests content partners. Google is committed to testing, learning and being flexible. The video market is nascent.

12:08 Eun: Content is important for providing the best quality search experience. That includes expanding to reach a lot of content that's not online today and content that's not yet digitised. Google teams with content partners to provide them with tools like digitisation, hosting and promotion. The company is enabling partners to promote, find an audience and monetise that audience.

12:06 Braddi: Google is in a trial programme with Dell, which involves Dell homepage, Google Toolbar and Google Desktop Search. It will help Google distribute current and future products and services. Large network partners in AdSense are showing steady growth.

12:03 Fischer: Google offers tools to help small and large advertisers.

12:01 Singh Cassidy: In China, Google launched a reseller channel this summer. The company is going out and evangelising AdWords and creating a high level of service and support. That's created a standard in the marketplace. The company compensates resellers based on performance and customer service standards. It's an interesting way to reach the small- to medium-size business market.

12:00 Singh Cassidy: In 2005, most of the time was spent building new operations in Asia-Pacific and Latin America. Search market share in Latin America is greater than 90 per cent despite not having had a physical presence there.

11:59 Arora: The ad industry in Europe is agency driven. Google stopped giving discounts and started best practice rewards for agencies. Google thinks there's tremendous growth in Europe.

11:58 New panel discussion kicks off. Panel includes: Kordestani, Arora, Singh Cassidy, Fischer, Braddi and Eun.

11:55 Kordestani: We're really scaling this business on a global basis... Forty-two language interfaces and 48 currencies. He introduces some of the global management team from Latin America and Asia-Pacific.

11:53 Kordestani: Google has 3.9 million daily page views on hip-hop related sites. Google is also selling hardware - enterprise search appliances and desktop search software for corporations. It has more than 3,000 active customers and grew 100 per cent in sales from 2004 to 2005.

11:52 Kordestani: AdSense partners include PBS, Big Globe, CNET [publisher of silicon.com and sister site, CNET News.com] and smaller companies like CheapFlights. The company reaches 69 per cent of the global Internet audience, according to ComScore.

11:50 Kordestani: The goal is to give advertisers more control and visibility into their online ad campaigns. New opportunities are radio, print, mobile and video.

11:49 He shows slides illustrating Site Targeting and AdWords Editor products.

11:46 Kordestani shows video from Pontiac that is not visible on the Webcast. It's the TV ad that tells viewers to "Google Pontiac".

11:43 Kordestani: An "Ad Age" survey found that nearly half of chief marketing officers at Fortune 500 companies said they plan to increase their online ad budgets by 30 per cent this year. Google's sales force is organised by industry.

11:40 Kordestani: AdWords customers include Sony, Fiat, Target and Tesco, as well as smaller companies like Forex.com and Caesars Pocono Resorts. Between 2003 and 2005, average online ad spending has tripled to $28.4m.

11:38 Kordestani says ad revenue grew 113 per cent on Google sites and 73 per cent on partner sites in 2005 from 2004. A chart details this.

11:37 CFO Reyes comes back onstage, introduces Kordestani, vice president of sales.

11:33 An analyst mentions the notion of Google as an agent (for ad sales on other sites) versus principle (ads on Google sites). Huber: There is a Google network business, and then there's a business in which we work with partners. Both are important. Yes, Google-controlled networks will have better margins but a combination of the two is important.

11:30 Question: Orkut has traction in Brazil. What's the hiccup in other parts of the world? Eustace: We hired the creator of Python but also use other programming languages. Mayer: Brazilians are just very community oriented. We're looking at other geographies.

11:27 Question about growth in different product areas. Rosenberg: There's an enormous opportunity in click-through rate improvements. Traffic is basically traffic. As long as Google gains market share, traffic will improve. The most important thing is that Google's user experience continues to improve, and the company is targeting geographies with high growth rates. If the search experience is good, queries per user will increase, which will drive advertisers.

11:25 Analyst question: How does research feed into product development? Eustace: I spent 15 years at DEC, Compaq Computer and finally Hewlett-Packard. Google hires the smartest people into the entire organisation, not just in research. Also, there is a research group looking at longer term things like machine translation.

11:23 Q&A Analysts in audience: How much can Google increase click-through rate? Huber: Google's click-through rates are higher than the competition's. A potential growth area is with local search.

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