How much is AdSense?s share in Google?s business? To find an answer we scanned Google?s balance sheet and cash-flow statement for the past year including those of the last quarter (Q2-06/2007). Predictably, there is no indication of AdSense?s figures.

Analysts however maintain that the figure hovers between 37%-44%. A somewhat clearer picture emerges in the April 21st-27th issue of The Economist where it is revealed that AdSense adds about 10-20% to Google?s profit margin, while the share of AdWords is a phenomenal 60%. (Note the Economist figures are of profit margins, not revenues.)

However, going by analysts? estimates of revenue share, the perplexing question is, how can Google possibly earn from AdSense as much as about 40% of its revenues since after all it has to share the AdSense spoils with millions of web publishers?

No one knows how the revenue is split between Google and Publishers, and Google has so far kept absolutely quiet on the topic, much to the annoyance of numerous customers. Yesterday, Google lost a major customer, Digg, with over 17 Million unique visitors a month. I believe, they will lose many, many more in the next 18 months, as competitors like Microsoft, Yahoo, Ask, Time Warner, NBC, etc. get their acts together around their Ad Network strategies. Clearly, AdSense is Google’s weakest link, and if indeed it is ~40% of revenues, this should hurt at least a bit, even though AdWords will continue its triumphant run.

Google, btw, does not send AdSense payables to publishers unless it crosses a threshold amount of $100. While for popular websites this is not a problem since they earn several times that amount every month, this is not the case with millions of small websites who have to toil hard (in some cases for years) to actually lay hands on their AdSense earnings.

According to an estimate, this withheld AdSense payment was about USD 370 million at the close of fiscal year 2006. Now that is a decent sum of cash ? about 3.5% of its 2006 total revenue ? which in all likelihood must have grown more by now. Of course, it still isn’t revenue, since it will eventually have to be paid out. Nonetheless, it is a lot of cash cushion that can come quite handy.

So far, Google?s AdSense program has had virtually no competition. Further, such is its reach and inventory, that despite the fears that there is a glut in online publishing and an apparent text-ad blindness is making people overlook text ads, the fact remains that web publishers are still putting faith on it to earn cash by displaying AdSense ads on their websites. They have little choice.

How much does it cost Google to display AdSense ads? Apparently not much since AdSense is nothing but an additional option exercised by AdWords advertisers. This means, that as long as AdWords ads are flowing in, there perhaps is no significant cost involved to sell AdSense Ads.

Recently Google has effected 2 changes in AdSense. First, it has started what it calls AdSense Referral Beta in which after clicking on an AdSense ad only when a visitor takes a definite action as desired by AdWords advertiser will Google share revenue with the website owner.

The second is that Google has agreed to provide its advertisers a list of content sites where their ads are displayed and also the corresponding CTR figures. Both are aimed at ensuring that its advertisers do not shy away from AdSense as feared likely by Google watchers.

However, the fallacy in Google’s thought process is that in skewing their offering too much in favor of advertisers, they will lose the Publishers, especially the big ones who generate most of their revenues.

According to a PwC analysis, world over, Internet will remain the fastest-growing advertising medium, with a projected 18.3% CAGR, reaching $73 billion in 2011. By that time online advertising will comprise 14% of the global advertising market. An estimate has it that online brand advertising growth, at a 20% CAGR from 2006-2010, will exceed online search advertising growth over the same period.

Publishers will realize that they have a much more lucrative opportunity in monetizing their content via non-AdSense channels that do an effective job of procuring high-CPM advertisers in search of strong brand advertising venues.

M&A and VC activity

NBC Universal acquired iVillage, the most popular women?s site along with its other Internet properties for $600 million in 2006.

Glam Media, the number one women?s property on the Net as per the latest comScore ranking raised $18.5 million in Series C funding from Duff Ackerman & Goodrich Ventures (DAG), Accel Partners, Draper Fisher Jurvetson, WaldenVC, and Information Capital (Chairman & CEO Samir Arora’s fund). Glam Media had also raised $10 million in Series B led by Accel Partners with Draper Fisher Jurvetson and WaldenVC in 2004. Glam has raised a total of $30 million till date.

Blog network Sugar Publishing, owner of PopSugar raised $5 million in VC funding from Sequoia Capital (Michael Moritz)in late 2006.

With various Internet, Magazines, Newspapers and Old Media companies planning to expand their online presence in the verticals, there will be a large appetite for acquisitions in the online women’s portal space. VCs should look for context-specific, women-oriented Web 3.0 ventures to invest and nurture. And oh, I would like one of these to be my Personal Shopper idea

Conclusion

Today women are spending a larger share of their available time on the Internet and this has resulted in women?s magazines shifting their focus from traditional media to online portals. We have already seen a good number of women?s magazines going online or buying online women?s portals. Meredith Interactive, for example manages a couple of sister sites like LHJ.com, Baby, FamilyCircle.com, etc. Hearst Corporation owned Seventeen Magazine shut down their teen-girls focused magazine, in favor of an online effort.

Today women are an important category and over 30% of the working women are out-earning their husbands. This has resulted in greater economic power for women and online media has been quick to identify and take advantage of this opportunity. There is, however, a great deal more to do, and my assessment of the opportunities in the Women’s Vertical lie squarely in the various Contextual nuances, and applying Web 3.0 on each.

[Part 1] [Part 2] [Part 3] [Part 4]

I’ll give you one more vertical, and then stop. You can figure out the rest yourselves.

Travel is a great vertical for Facebook, and in fact, creating contextual services like Group Travel could be very cool.

According to the latest data published by eMarketer, online travel sales zoomed to over $78.8 billion in 2006 in the US and it is expected to continue to grow at a CAGR of 16.6% to $145.8 billion in 2010. The top 3 in the segment (with corresponding Web 3.0 analysis) are Expedia, Travelocity and Orbitz.

Expedia is the largest online travel company, headquartered in Bellevue, WA. It gets over 19 million unique monthly visitors. Expedia earns most of its revenue from commissions from travel services. Moreover, with an Alexa ranking of 426, and a click through rate of 4.9% for sponsored Ads, the advertising rate for Expedia ranges between $15 - $65 CPM.

Travelocity, launched in 1996 is owned by Sabre Holdings, which was recently acquired by Private equity firms TPG and SilverLake. Travelocity is ranked number two among the most-visited travel sites in the world with over 13 million visitors per month. Travelocity makes most of its revenues on commissions. Also, with an Alexa traffic rank of 604, and a 6.5% click-through rate, the advertising rates for Travelocity vary between $25 - $55 CPM. Travelocity earned revenues of $1.1 billion in 2006 an increase of 31% over 2005.

Orbitz, founded in 2001 is ranked third among the online travel sites with 15.2 million visitors every month. About 70% of its revenues are from Airline ticket sales. Moreover, with an Alexa ranking of 620, the advertising rate for Orbitz ranges between $20 - $65 CPM. In 2006 Orbitz earned revenues of $800 million with an EBITDA of $141 million, and has just gone public (Nasdaq: OWW).

Plus, there are Travel Search engines, Kayak, Sidestep, etc. which are all private companies.

So, wherever it is that Facebook wants to begin its verticalization strategy - in Matchmaking, Travel, Jobs, or Photos - it ought to make some good use of its currency, and consolidate a defensible position. And in that effort, we will also find out how strong their currency really is. Normally, roll-ups of private companies are very difficult. But in this case, as we have seen in Sequoia’s willingness to sell its way into the Facebook action, other VCs will also play ball.

[Part 1] [Part 2]

SM: Let’s discuss your financial history, in the final segment of the conversation. Who financed the company at the very beginning? I assume it was some of Neal’s Capital IQ proceeds that went into Inform.

JS: It was friends and family, yes.

SM: Did you raise Venture money? How much? From whom?

JS: Inform is capitalized with approximately $15 million. Stephens Group, which makes principal investments on behalf of the Stephens family ranging from minority positions in public and private companies to outright acquisitions, and The Oklahoma Publishing Company, controlled by the Gaylord family, which makes investments in a broad range of industries, including real estate, hospitality, media, entertainment, and communications. OPUBCO invests in media and technology and owns The Oklahoman.

SM: What stage are you at now?

JS: Our most recent stage of funding was Series B, announced in early 2006.

SM: It’s interesting, I don’t see any of the well-known venture investors in your roster.

JS: We have not had the occasion to offer participation to traditional VCs yet.

SM: Well, I think one of the questions traditional VCs would have on this kind of a project is around Total Available Market. How big can this be? In my opinion, if you can figure out a way to include the smaller publishers in your target market, then you would have a much larger market.

JS: We are working on it. But we also have a lot of applications in the information services segments, on the enterprise side. Anybody who needs to do research could use a product like this, and we can cater to this audience through the major information services providers in various verticals.

SM: Jim, good luck. I like this!

[Part 1] [Part 2] [Part 3] [Part 4]

Are things getting crazy in the online ad space or what? AOL buys Tacoda a few days ago, and now Microsoft has purchased ad exchange AdECN for an undisclosed amount. I didn’t think I’d have to update my chart from my Battle of the Online Advertising Superpowers post, but perhaps I might.

Who’s next?

One of the most important features of the iPhone is its touch screen that is highly flexible and allows rotating, zooming, panning, scrolling and flipping using multi-finger gestures on the screen. The German company Balda is the supplier of this glass-surfaced touch screen that has sharper resolution, better resistance to scratches or smudges, and better sensitivity than the plastic displays. Estimated to cost around $27, the touch screen accounts for 10.8 % of the 8 GB iPhone model?s cost.

Balda AG (DE: BDGA) was earlier known to develop and manufacture plastic components for mobile telephones, mobile fixed line telephones, and base stations. In 2006, it acquired 50% of the shares in the TPK holding (TPK) in Xiamen in China for ?59.5 million. TPK is a manufacturer of innovative touch screen solutions. In our components series, we look at Balda next.

This joint venture reversed the fortunes of the company. Balda was going through a tough time in 2006 with the insolvency of its major customer Ben-Q, a setback in its core business due to price declines, and the relocation of production for mobile telephones to Asia. For fiscal 2006, revenues for the Balda Group were ?370.9 million, a 6.6 % decline from the previous year’s figures of ?397.2 million. The company reacted to the situation by selling five of its six German factories: Albea, Balda Surface, Balda-Heinze, HeRo, and SMK, as well as by reducing workforce. It also reorganized itself from a regional supplier of plastics to a global technology venture. Apart from the TPK venture, these include acquisition of a further 50% in Balda-Thong Fook in Malaysia, launch of a joint venture with Motherson in India and the buyback of a 25% holding of Everskill.

In the first quarter of 2007, Balda AG reported revenues of ?63.083 million and pre-tax loss (EBT) of ?4.9 million. This is a year-over-year decline of 38.1 % compared to revenues of ?81.271 million in the first quarter of 2006. For fiscal 2007, the company expects consolidated revenues of ?600 to ?650 million, a pre-tax profit (EBT) of ?50 to ?55 million, and earnings per share of more than ?0.9.

Though the stock picked up well on the launch of the iPhone (it shot to 11.85 euros on July 3rd), it has slumped again and is currently trading at ?8.01.

From Business Week: “And Apple isn’t the only reputable company betting on Balda, which is hardly a household name even in Germany. Nokia (NOK), Sony Ericsson, and Motorola (MOT) are Balda customers, and lots of smart investors are grabbing shares of the company based in the northwest German spa town of Bad Oeynhausen. Fund manager FMR Corp., better known as Fidelity, and New York-based Wyser-Pratte Management Co., have both bought big stakes in recent months.”

However, the question remains, what is really proprietary Intellectual Property in the touchscreen and who owns the patents?

From EE Times: “The real breakthrough here, displaywise, is Apple’s use of multitouch technology using a projective capacitive design,” said Paul Semenza, VP for displays at iSuppli Corp. “What we suspect they did was to use an algorithm within NXP’s ARM-based controller chip to measure the finger touches over the display and adjust the screen content accordingly.” Apple was assigned patent application number 20060097991 for the multitouch screen technology?one of some 200 iPhone-related patents for which Apple applied.”

Presumably, Balda’s competitors will catch up, since I don’t see what is defensible in their story. However, as I said before, the biggest question mark in the iPhone’s adoption is its UI, and the display and multitouch screen have certainly won high marks so far. Looks like, the winner on that front is Apple itself, since it has managed to protect the IP. [For the records, I don’t like the iPhone’s keyboard, but people who don’t have to write as much as I do may not mind it.]