Sunday, August 12, 2007

Google subsidises MySpace

As part of being a company that's listed on the stock exchange, Google has to report to its investors on the potential risks to the company. In their most recent filing, they provide the usual detail on the financial risks involved in running their search engines.
Obviously there are potential problems around killer competitors emerging or people turning completely away from Google branding. The most interesting paragraph, surprisingly, is the following:
Payments to certain of our Google Network members have exceeded the related fees we receive from our advertisers.

We are obligated under certain agreements to make non-cancelable guaranteed minimum revenue share payments to Google Network members based on their achieving defined performance terms, such as number of search queries or advertisements displayed. In these agreements, we promise to make these minimum payments to the Google Network member for a pre-negotiated period of time. At June 30, 2007, our aggregate outstanding non-cancelable guaranteed minimum revenue share commitments totaled $1.66 billion through 2011 compared to $1.17 billion at December 31, 2006. It is difficult to forecast with certainty the fees that we will earn under agreements with guarantees, and sometimes the fees we earn fall short of the guaranteed minimum payment amounts.
In August last year, Google were celebrating a deal with MySpace that provided $900m worth of advertising to them. They've also signed major deals with eBay, AOL and some other large sites globally.

In their enthusiasm for getting these exclusive deals, it does look like they've overpaid. It definitely implies that they were working to some assumptions that must have been extremely wrong. Signing deals for over $1 billion that don't make you money looks a little silly.

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