Social Capital CEO's comments come amid Google’s parent Alphabet getting ready for a slowdown in its core digital advertising business even as it saw slowing ad revenue in Q1 2019 and a fall in profit from the previous year in Q3.
Cautioning companies that have become reliant on Google search to earn revenue, prominent Silicon Valley venture capitalist Chamath Palihapitiya said that the longer Google takes to find its next big business amid a possible slowdown in its core ad business, the bigger is the problem for the businesses. Palihapitiya speaking at the Phocuswright Conference recently said that “If you are in the business of being a parasite on top of Google, your medium-term and long-term prospects are terrible; you’re an impaired company, you don’t know it.”. The only way to win, he said as reported by CNBC, is to offer unique value; many companies have done the opposite, becoming more like their competitors and relying on Google to drive volume. That’s a recipe for disaster.
“This is accurate,” said another venture capital investor Bill Gurley of Benchmark Capital in a tweet on Friday. Social Capital CEO Palihapitiya’s comments come amid Google’s parent Alphabet getting ready for a slowdown in its core digital advertising business even as it saw slowing ad revenue in Q1 2019 and a fall in profit from the previous year in Q3.
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“What will happen is Google’s gross margins will continue to be stable, their EBIT margins will continue to be stable. And ratably, tick for tick, every single person that feeds off of them, will see their gross margin erode, will see their profitability erode, because they will make sure that they boil the frog slowly enough so that they keep a lid on an investor revolt against themselves, but at the expense of their own ecosystem (of partners),” advisory firm BlueGrass Capital Advisors tweeted part of Palihapitiya’s comments on Google encroaching upon its customers.
Palihapitiya called travel sector as one of the few ‘canaries in the coal mine’ about what Google’s real long term goals, strategy, and real issues are while citing Expedia and TripAdvisor. “At the core of it is the decision that they (Google) will capture the overwhelming majority of profit in the travel sector.” Expedia and TripAdvisor had earlier blamed Google for changes in its algorithm that led to their listings less visible.