Hi again, Jim.

Note: I'm not trying to convince anybody, but I like the topic, and good debate with you. 8-)

>>Just for the record, in my head, Google produces the more wide and relevant search over the Internet pages, images, Books (this one is for me an incrdible value), Academic papers, maps, and many more things. It also produces value with Gmail, Calendars, Docs & Spreadsheets and other applications by providing tools for people to do its work faster and more colaboratively.
>
>I don't see anything of what they 'produce' as being "theirs". Every bit of stuff they list (99.9%) is someone else's.

They don't claim to produce the content, the same way that a library doesn't claim to own rights over the volumes they hold. They are just providing a (valuable) service by relating the content you're interested in (with a very good delivery device) with the more relevant ads.

>How much revenue does Google make from Gmail etc?
Millions of dollars every hour, as GMail also presents ads on the right side, related to the message you are reading.

>A fast wide search does indeed have value to users, but that's just their "hook" to place advertisements. Their real "value" apparently comes from the capabilities they have for ad choice/placement.

The value comes from the couple: easier access to the content you look for, then the related ad placement, yes.

>>Following your criteria I should say that Microsoft produces nothing (does boxed software count differently than online software?). And what can we say of the Universal Thread?
>
>UT does not sell at $500. per share.

Level Extreme is a privately owned company, so there is no public valuation to discuss, and it is also operating in a very specialized market. But my point is that the company produces something similar: just a service based on content aggregation and community. Quite the same, and the customer value exists, as you know.

>Of course MS produces something - they SELL their software, whether in boxes or as downloads.

If Microsoft is worried about Google is because they produce the same thing: software. The only difference is that Google doesn't charge the final user for it, but its advertisers. But the product is almost identical, while the way they produce and capitalize from it is different.

Indeed, there is something VERY important Google is producing, in my opinion, and it is innovation. The best known examples are the search engine (with its PageRank algorithm, for example) or GMail, which somehow popularized the AJAX approach and changed the perception about web-based applications. But they have lots of interesting stuff going on that is not so well known until you look a bit beyond hype.

Two examples:

Their datacenters: they have the more efficient datacenters on the world, based on capacity vs. price. Instead of investing tons of money in sophisticated hardware they use extremely cheap CPUs, but they have a distributed file system and database with enough redundancy and parallel processing so any hardware failure means just a replacement without any loss of service. They really pushed the envelope about infrastructure and distributed architecture.

Image Labeler: http://images.google.com/imagelabeler/ is a simple game where you play with other anonymous player on the web to try to match some descriptions to a given image (I won't explain it completely, as it is easier to play a couple rounds; it takes a couple minutes). The interesting thing behind this is that the real purpose is to tag every single image on Google Image Search with a high degree of accuracy, by using human ability to "understand" images, something computers are still quite bad at. The game may look silly for some people, but other find it highly addictive, and they already indexed more than half of their whole index. If you want to get all the details, you can watch this very interesting video: http://video.google.com/videoplay?docid=-8246463980976635143&q=human+computation

>>Advertising itself -something that I'm not very fond of, either- is an activity that produces economic development, by letting people searching for a product get to know some sellers. Now, in that sense, what we tipically hate about advertising is that it constantly bombard you with information you have no use for.
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>>Then comes Google and finds a way to present you with ads that are 1) very relevant to the subject of your interest (whether you are searching or looking a web page with adSense) and 2) have the least possible disruptive presentation: plain text in a narrow column.
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>Right. And those 2 things make it worth $500. per share!

It made it worth 141.72 billion dollars, to be more accurate, but take a look at their numbers:

Total revenue (in millions of USD):
2004: 3,189.22
2005: 6,138.56
2006: 2,689.67 (first quarter only)

Gross profit (in millions of USD)
2004: 1,731.57
2005: 3,567.05
2006: 1,643.09 (first quarter only)

As you see, they are duplicating revenues every year, while maximizing gross profits that are around 60%. Beside that, they have over 10 billions in cash. Want a healthy company?

>If you took advertising out of the U.S. economy there would be millions unemployed. Are all other advertising-related agencies not worth somewhere near $500 per share too. Does Google have more than 1,000 staff total?... Are most of them in their accounting department?

Once again, Jim, stop debating the $500 price. A company can have a $1000 stock price but just 1000 shares and it will be worth just a million. What matter is the total valuation, but you have to weight it against its fundamentals (revenue, profits, and historical and potential growth). Google has less than 7000 employees as far as I know, which for a company of that size, is extremely fit.

>>The result so far was that the success rate of Google ads is highly effective, so advertisers have a best return in its investment, and consumers are less annoyed with the ads, as proven by the huge proliferation of adSense all over the Web.
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>>This is just the most basic part of the Google "model", and it really makes sense for me, and for the most part of this (granted) hysterical beast called "the market".
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>It still looks to me that investors are hanging far far too much weight on those few (2?) factors, making it look like another case of market hope driving market SENSE.

Well, on the contrary, I like them having a simple foundation. I believe self-organizing systems are ore succesful when based on simple rules than complex ones. In this case, I see a huge upside, and I believe the price will keep growing, as well as the overall business.

Regards,