Thursday, July 21, 2005

Now we're all spymasters

I like to think of myself as an Early Adopter. In reality, I'm probably a "Fast Follower", at best.

Take Google Maps. I finally installed it a couple of days ago.

Wow..... I'm in love!

I've downloaded a few overlays and other pieces from and will have a play when I get more time.

One recurring theme I've heard when I've shown Google Earth to friends and colleagues has been an incredulity at how they manage to do it.... how do they keep on producing so much cool stuff when everybody else seems so slow and lumbering?

There are obvious answers, of course: it's easier to build something brand new from the ground up than it is to incrementally improve and maintain existing software, for example.

However, it also helps if the stuff you do is closely tied to your business model. I had a look at Google's annual report ( The first thing that struck me was how readable it is. I wouldn't call it a page-turner but it was very clear and well-written.

The key thing is the section on their business model: 97% of their revenues are due to advertisements. That makes investment decisions pretty simple, one would imagine. It also explains how they can justify not only producing Google Earth, but giving it away for free. I mean: imagine if everybody had a copy installed and they continued upgrading the images so that they were all of the quality of San Francisco's imagery at present. It would be a no-brainer to consult Google Maps before embarking on any journey of any sort. And, of course, Google would conveniently provide targetted, location based advertisements in a subtle and convenient manner.

Two other things interested me in their report. The first was their honesty in admitting that advertising was not their original business model (those of us who remember a few years back will remember that it was selling search services to other companies and web sites).

The second thing - and this is a calculation I like to do a lot when evaluating companies - is their revenue (and income) per employee.

Take IBM. We have approximately 330,000 employees, revenue of about $96bn and income of about $8.5bn. (2004,

That's revenue of $290k per employee and income of $26k per employee.

Now look at Google. They have revenue of about $3.2bn, income of about $400m (2004 figures) and how many employees? 3021. That's revenue of about $1 million per employee and income of $132k per employee.

So, even if Google Earth wasn't a promising new route to revenue, their profitability is more than sufficient to allow them to build as many toys as they like :-)

Note: Just as I am not a spokesman for IBM, I am not somebody you should take financial or other investment advice from. Don't blame me if I've got these numbers wrong.

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