Google’s Strategy: My Simplistic View

  • Posted: 31 May 2010 01:21 PM #46

    jeffi - 31 May 2010 04:05 PM
    deasys - 30 May 2010 07:05 AM
    jeffi - 26 May 2010 02:53 AM

    Please explain how Google is “vulnerable in cloud computing, search, and advertising”.

    Allow me to pick just one: Google makes all its money from search. Users of touch platform devices don’t search, they use apps.

    Search is dead.

    The future I see is one in which tablets dominate as a tool for web consumption. In this new world people will spend more of their time surfing the internet and and using text search. In other words, Google generates more advertising revenues and profits. I do not see a future in which applications replace web surfing. I see them as complimentary in that they will drive usage and popularity of the platform.

    I just had a long debate with a colleague about this.

    WRT to tablets, I think the future truly is apps. At present, HTML5/JS cannot produce quite the same gratifying user experience vs a native app. Most of the big web properties will, if they value UX for their end-users, produce apps for the mobile devices.

    For e.g., the IMDB app is magnitudes easier and more pleasant to use on the iPad vs imdb.com. Some others: USA Today, Amazon, Weather, Bloomberg, eBay, NPR, etc.

    Safari, hence search, is one of the least used apps on my iPad and iPhone.

    For mobile computing, I can see most people going to apps first, and if there isn’t an app available, will default to a browser as a failover. This is why GOOG looks to be pushing hard on capturing platform market share and focusing on display ads (in-app, in-video, in-publishing).

         
  • Posted: 31 May 2010 01:22 PM #47

    Frank Lind - 30 May 2010 11:14 AM

    Good post on Google Jeffi,

    I agree with your analysis in large part. [and also hold Google stock at present]

    The part I am undecided on the impact Facebook’s monetization strategies will have on Google.

    Any thoughts or good links on this?

    Facebook is a great social platform. They will eventually figure a way to monetize their platform as long as they continue to execute. Their platform can be effective for display advertising. Facebook does not do search. Therefore, they are not a competitor of search. Facebook will more likely be a Google partner when search is performed from their site because it is in their financial best interest to do so.  Advertisers pay more for the search results that Google’s technology generates removing all incentives for Facebook to create their own search or use a competitors. In other words, 100% of a smaller pie will be less than 50% of a much bigger one.

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    Posted: 31 May 2010 01:53 PM #48

    jeffi - 31 May 2010 04:05 PM
    deasys - 30 May 2010 07:05 AM
    jeffi - 26 May 2010 02:53 AM

    Please explain how Google is “vulnerable in cloud computing, search, and advertising”.

    Allow me to pick just one: Google makes all its money from search. Users of touch platform devices don’t search, they use apps.

    Search is dead.

    The future I see is one in which tablets dominate as a tool for web consumption. In this new world people will spend more of their time surfing the internet and and using text search. In other words, Google generates more advertising revenues and profits. I do not see a future in which applications replace web surfing. I see them as complimentary in that they will drive usage and popularity of the platform.

    In my own experience of this “new world” on my iPad consumption is about watching downloaded movies and tellie (eg, bbc/iPlayer or youtube), reading blogs and newspapers, reading rss feeds in a newsreader client, following my twitter feed using a twitter client, checking email, socialising on Facebook, or reading magazines on Zinio. Little of this involves Google adWords. Of course a certain amount of searches will happen on google or bing on tablets but I don’t see this as driving Google’s revenue growth forward as you seem to.

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    Posted: 31 May 2010 01:59 PM #49

    jeffi - 31 May 2010 04:22 PM

    Facebook does not do search. Therefore, they are not a competitor of search. Facebook will more likely be a Google partner when search is performed from their site because it is in their financial best interest to do so.  Advertisers pay more for the search results that Google’s technology generates removing all incentives for Facebook to create their own search or use a competitors. In other words, 100% of a smaller pie will be less than 50% of a much bigger one.

    Facebook doesn’t need to do search, search is irrelevant. Facebook is a site where people spend a lot of time socialising and advertising on facebook is a natural. That makes Facebook a competitor to Google, no need to parttner. I think you’re wildly wrong to think Facebook is going to share advertising revenue with Google when they can have it all to themselves.

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  • Posted: 31 May 2010 02:15 PM #50

    relentlessFocus - 31 May 2010 04:59 PM
    jeffi - 31 May 2010 04:22 PM

    Facebook does not do search. Therefore, they are not a competitor of search. Facebook will more likely be a Google partner when search is performed from their site because it is in their financial best interest to do so.  Advertisers pay more for the search results that Google’s technology generates removing all incentives for Facebook to create their own search or use a competitors. In other words, 100% of a smaller pie will be less than 50% of a much bigger one.

    Facebook doesn’t need to do search, search is irrelevant. Facebook is a site where people spend a lot of time socialising and advertising on facebook is a natural. That makes Facebook a competitor to Google, no need to parttner. I think you’re wildly wrong to think Facebook is going to share advertising revenue with Google when they can have it all to themselves.

    I agree that Facebook does not need Google for display advertising. Search is a different story. People may not search inside Facebook. But, that does not mean that people will no longer use search. The more time people spend on the Internet the more that search will be used. A world that continues to shift to the Internet is a world in which Google continues to grow.

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  • Posted: 31 May 2010 03:02 PM #51

    relentlessFocus - 31 May 2010 04:53 PM
    jeffi - 31 May 2010 04:05 PM
    deasys - 30 May 2010 07:05 AM
    jeffi - 26 May 2010 02:53 AM

    Please explain how Google is “vulnerable in cloud computing, search, and advertising”.

    Allow me to pick just one: Google makes all its money from search. Users of touch platform devices don’t search, they use apps.

    Search is dead.

    The future I see is one in which tablets dominate as a tool for web consumption. In this new world people will spend more of their time surfing the internet and and using text search. In other words, Google generates more advertising revenues and profits. I do not see a future in which applications replace web surfing. I see them as complimentary in that they will drive usage and popularity of the platform.

    In my own experience of this “new world” on my iPad consumption is about watching downloaded movies and tellie (eg, bbc/iPlayer or youtube), reading blogs and newspapers, reading rss feeds in a newsreader client, following my twitter feed using a twitter client, checking email, socialising on Facebook, or reading magazines on Zinio. Little of this involves Google adWords. Of course a certain amount of searches will happen on google or bing on tablets but I don’t see this as driving Google’s revenue growth forward as you seem to.

    I see many years of 20+% growth ahead for Google’s core search business as I’ve previously reiterated. Lost in the shuffle of all of Google’s initiatives is the importance of the success of the Android platform. Google’s aim is to have the most prolific OS platforms. Their traction in smart phones will likely continue in tablets and ultimately lead into desktop computing as well. Eventually, Google will be in a position to monetize these platforms in many different ways. You believe that applications will continue to gain in their importance as compared to search. Google may ultimately be in the position to serve an order of magnitude more applications (with advertising) than Apple if their strategy succeeds. Microsoft’s empire was built on desktop computing. Google’s position will eventually be more commanding as no company is willing or capable of competing with their model. It took Google four years to turn a profit in search. Google does not need to and should not try to monetize their OS platforms until after they’ve reached critical mass and market dominance. I can wait, as it is clear to me that Google’s stock price is under priced based on their curent core business. Everything else is upside. Massive upside.

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    Posted: 31 May 2010 03:14 PM #52

    jeffi - 31 May 2010 06:02 PM
    relentlessFocus - 31 May 2010 04:53 PM
    jeffi - 31 May 2010 04:05 PM
    deasys - 30 May 2010 07:05 AM
    jeffi - 26 May 2010 02:53 AM

    Please explain how Google is “vulnerable in cloud computing, search, and advertising”.

    Allow me to pick just one: Google makes all its money from search. Users of touch platform devices don’t search, they use apps.

    Search is dead.

    The future I see is one in which tablets dominate as a tool for web consumption. In this new world people will spend more of their time surfing the internet and and using text search. In other words, Google generates more advertising revenues and profits. I do not see a future in which applications replace web surfing. I see them as complimentary in that they will drive usage and popularity of the platform.

    In my own experience of this “new world” on my iPad consumption is about watching downloaded movies and tellie (eg, bbc/iPlayer or youtube), reading blogs and newspapers, reading rss feeds in a newsreader client, following my twitter feed using a twitter client, checking email, socialising on Facebook, or reading magazines on Zinio. Little of this involves Google adWords. Of course a certain amount of searches will happen on google or bing on tablets but I don’t see this as driving Google’s revenue growth forward as you seem to.

    I see many years of 20+% growth ahead for Google’s core search business as I’ve previously reiterated. Lost in the shuffle of all of Google’s initiatives is the importance of the success of the Android platform. Google’s aim is to have the most prolific OS platforms. Their traction in smart phones will likely continue in tablets and ultimately lead into desktop computing as well. Eventually, Google will be in a position to monetize these platforms in many different ways. You believe that applications will continue to gain in their importance as compared to search. Google may ultimately be in the position to serve an order of magnitude more applications (with advertising) than Apple if their strategy succeeds. Microsoft’s empire was built on desktop computing. Google’s position will eventually be more commanding as no company is willing or capable of competing with their model. It took Google four years to turn a profit in search. Google does not need to and should not try to monetize their OS platforms until after they’ve reached critical mass and market dominance. I can wait, as it is clear to me that Google’s stock price is under priced based on their curent core business. Everything else is upside. Massive upside.

    Good luck mate…

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  • Posted: 31 May 2010 09:27 PM #53

    jeffi - 31 May 2010 06:02 PM
    relentlessFocus - 31 May 2010 04:53 PM
    jeffi - 31 May 2010 04:05 PM
    deasys - 30 May 2010 07:05 AM
    jeffi - 26 May 2010 02:53 AM

    Please explain how Google is “vulnerable in cloud computing, search, and advertising”.

    Allow me to pick just one: Google makes all its money from search. Users of touch platform devices don’t search, they use apps.

    Search is dead.

    The future I see is one in which tablets dominate as a tool for web consumption. In this new world people will spend more of their time surfing the internet and and using text search. In other words, Google generates more advertising revenues and profits. I do not see a future in which applications replace web surfing. I see them as complimentary in that they will drive usage and popularity of the platform.

    In my own experience of this “new world” on my iPad consumption is about watching downloaded movies and tellie (eg, bbc/iPlayer or youtube), reading blogs and newspapers, reading rss feeds in a newsreader client, following my twitter feed using a twitter client, checking email, socialising on Facebook, or reading magazines on Zinio. Little of this involves Google adWords. Of course a certain amount of searches will happen on google or bing on tablets but I don’t see this as driving Google’s revenue growth forward as you seem to.

    I see many years of 20+% growth ahead for Google’s core search business as I’ve previously reiterated. Lost in the shuffle of all of Google’s initiatives is the importance of the success of the Android platform. Google’s aim is to have the most prolific OS platforms. Their traction in smart phones will likely continue in tablets and ultimately lead into desktop computing as well. Eventually, Google will be in a position to monetize these platforms in many different ways. You believe that applications will continue to gain in their importance as compared to search. Google may ultimately be in the position to serve an order of magnitude more applications (with advertising) than Apple if their strategy succeeds. Microsoft’s empire was built on desktop computing. Google’s position will eventually be more commanding as no company is willing or capable of competing with their model. It took Google four years to turn a profit in search. Google does not need to and should not try to monetize their OS platforms until after they’ve reached critical mass and market dominance. I can wait, as it is clear to me that Google’s stock price is under priced based on their curent core business. Everything else is upside. Massive upside.

    This feller says it better than I could:

    http://seekingalpha.com/article/207725-google-s-big-mistake

    It’s over, jeffi. You’re lucky though—you have sufficiently advanced warning to implement an optimum de-investment strategy.

         
  • Posted: 31 May 2010 10:01 PM #54

    deasys - 01 June 2010 12:27 AM
    jeffi - 31 May 2010 06:02 PM
    relentlessFocus - 31 May 2010 04:53 PM
    jeffi - 31 May 2010 04:05 PM
    deasys - 30 May 2010 07:05 AM
    jeffi - 26 May 2010 02:53 AM

    Please explain how Google is “vulnerable in cloud computing, search, and advertising”.

    Allow me to pick just one: Google makes all its money from search. Users of touch platform devices don’t search, they use apps.

    Search is dead.

    The future I see is one in which tablets dominate as a tool for web consumption. In this new world people will spend more of their time surfing the internet and and using text search. In other words, Google generates more advertising revenues and profits. I do not see a future in which applications replace web surfing. I see them as complimentary in that they will drive usage and popularity of the platform.

    In my own experience of this “new world” on my iPad consumption is about watching downloaded movies and tellie (eg, bbc/iPlayer or youtube), reading blogs and newspapers, reading rss feeds in a newsreader client, following my twitter feed using a twitter client, checking email, socialising on Facebook, or reading magazines on Zinio. Little of this involves Google adWords. Of course a certain amount of searches will happen on google or bing on tablets but I don’t see this as driving Google’s revenue growth forward as you seem to.

    I see many years of 20+% growth ahead for Google’s core search business as I’ve previously reiterated. Lost in the shuffle of all of Google’s initiatives is the importance of the success of the Android platform. Google’s aim is to have the most prolific OS platforms. Their traction in smart phones will likely continue in tablets and ultimately lead into desktop computing as well. Eventually, Google will be in a position to monetize these platforms in many different ways. You believe that applications will continue to gain in their importance as compared to search. Google may ultimately be in the position to serve an order of magnitude more applications (with advertising) than Apple if their strategy succeeds. Microsoft’s empire was built on desktop computing. Google’s position will eventually be more commanding as no company is willing or capable of competing with their model. It took Google four years to turn a profit in search. Google does not need to and should not try to monetize their OS platforms until after they’ve reached critical mass and market dominance. I can wait, as it is clear to me that Google’s stock price is under priced based on their curent core business. Everything else is upside. Massive upside.

    This feller says it better than I could:

    http://seekingalpha.com/article/207725-google-s-big-mistake

    It’s over, jeffi. You’re lucky though—you have sufficiently advanced warning to implement an optimum de-investment strategy.

    It’s over? Ha! It reminds me when I kept buying more AAPL in 2008 all the way down to $80 (I missed the bottom at $78). People on this board were saying how the waves were taking it down to $60! Heck, people now think Apple’s run is over because it passed MSFT in market cap. It’s just noise. I see this differently. Go ahead, make my day…  Short it!

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    Posted: 31 May 2010 10:07 PM #55

    jeffi - 31 May 2010 06:02 PM

    ... I see many years of 20+% growth ahead for Google’s core search business as I’ve previously reiterated ... Google does not need to and should not try to monetize their OS platforms until after they’ve reached critical mass and market dominance. I can wait, as it is clear to me that Google’s stock price is under priced based on their curent core business. Everything else is upside. Massive upside.

    In terms of P/E, GOOG is fairly valued.  If I’m to invest in GOOG, I would look for evidence that it can monetize their OS platforms before sinking $ into GOOG.

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  • Posted: 31 May 2010 10:59 PM #56

    Mace - 01 June 2010 01:07 AM
    jeffi - 31 May 2010 06:02 PM

    ... I see many years of 20+% growth ahead for Google’s core search business as I’ve previously reiterated ... Google does not need to and should not try to monetize their OS platforms until after they’ve reached critical mass and market dominance. I can wait, as it is clear to me that Google’s stock price is under priced based on their curent core business. Everything else is upside. Massive upside.

    In terms of P/E, GOOG is fairly valued.  If I’m to invest in GOOG, I would look for evidence that it can monetize their OS platforms before sinking $ into GOOG.

    The problem with that strategy is that by the time you see the evidence that they can monetize their new initiatives the PE will no longer be “fair value”. In other words the “doubt” has lowered the risk profile. I’ve found that I do best at investing when I anticipate the future instead of waiting for it to arrive. As an example, many people won’t buy stocks now because the unemployment rate is high (before the Euro Sovergn Debt Issue). The problem is that by the time the unemployment recedes the market will be much higher. Then their excuse will be that prices are too high. The result is they never get in. Google is only fairly valued because of the many people that question their strategy. I am aware that nothing is sure and I may be wrong but I like my chances. Time will tell.

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    Posted: 31 May 2010 11:47 PM #57

    Good discussion.

    Jeffi - thanks for opening it up and sticking to your guns in the face of mounting criticism. Both sides have great discussion points, and somewhere in the middle lies the truth. My main issue with Google is just how hard it is to analyze the company given their broad and seemingly haphazard strategy. For Apple, it’s much easier to grasp, but for Google your structure earlier in the thread seems only a conjecture at best, albeit a reasonable one. Proving it, however, is a daunting task as it rests on a lot of assumptions.

    Take, for example, your point about search as continuing cash cow and main growth engine:

    jeffi - 31 May 2010 05:15 PM

    I agree that Facebook does not need Google for display advertising. Search is a different story. People may not search inside Facebook. But, that does not mean that people will no longer use search. The more time people spend on the Internet the more that search will be used. A world that continues to shift to the Internet is a world in which Google continues to grow.

    I would argue this is like saying the iPad doesn’t compete with netbooks (or, closer to the issue at hand, how YouTube doesn’t compete with Cable TV - it does). Social networking and search are different markets, but ultimately they both drive the same higher-order function: information retrieval and consumption. There used to be a time where I used Google to look for 99% of all information on the Web. Then Wikipedia came along. Take 50% off. Then, Facebook: I now prefer to have a digest of my friends’ provided links to blind search in Google. What’s next? Inline dictionary on iPads and iPhones. Each new such informational conduit takes away from search.

    Now, I agree search has room to grow - and GOOG is right now undervalued (I am a shareholder). However, I actually think they have better prospects short-term than long-term, unless they have a new monetization strategy beyond search, and I just don’t see that strategy. I believe their wild forays into all sorts of businesses are collectively a sign of them looking for the next big thing. This is consistent with views of a Googler friend who thinks the founders realize they got lucky with search (in the right place, at the right time) and understand they can’t sustain growth unless they find something else. It’s 2010, and they’re still looking. This worries me as a long-term shareholder. I suppose I’ll give Android the benefit of the doubt, but it’s too early to tell.

         
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    Posted: 01 June 2010 12:24 AM #58

    Continuing from my previous post, here are some extra musings.

    I won’t touch the benefits that Google has since you’ve already done so. Suffice it to say, they continue to pose threat to Microsoft with search, office, and Chrome OS; threat to Rimm/WebOS/Symbian with Android (and to the iPhone to a lesser extent), and threat to almost everyone as the content aggregator/conduit.

    But as I try to compare what I remember of Google as a company 3-5 years ago, to what it is now, I find a few troubling trends:

    1) Attention Deficit Disorder.
    They used to be focused, and had those quaint projects from the “20% time” that yielded positive developments like Google maps, Earth, gmail, etc. All the while shareholders were also waiting for monetization of one or more of these ideas. Now the ideas are in the hundreds, literally! And to augment that, the company is on a mad buying spree for the past 3 years. Compare that to Apple’s pride in NOT being in some businesses and rejecting projects. Apple now has a 4-legged stool (Mac, iPod, iPhone, iPad) with a hobby (Apple TV). Google has 1 leg (Search) trying to support dozens if not hundreds of hobbies.

    2) Be Evil
    Remember those days of “Don’t be Evil”? As recently as October of last year, I was still trusting of Google. We did a strategy case on them at business school. Roughly half the class thought of them as no evil (hardly encouraging), with more people opting for “Evil” view by the end of the discussion. When Google launched Buzz, that tipped me over. I now am certain they left the principle of Do No Evil (together with serving customers first) in search of market grabs. These days it’s more and more common to hear Google’s privacy violations compared to Facebook, the ultimate Evil corporation wanna-be. (Have you read some of Zuckerberg’s musings? Microsoft has nothing on them)

    3) The Management
    Brin and Page were still in charge 5 years ago. They also had folks like Marisa Mayer to help. So far so good. Then the company grew. Fast. They got a group of smart people to help them out with the much bigger company, many poached from Microsoft (I used to think it’s a good thing - remember Ballmer chair-throwing?) I think Eric Schmidt was (and is) a big mistake. He’s no Steve Jobs. And now folks like Vic Gundotra make it worse still.

    ...which brings me to (4) The king is dead, long live the king
    The rise in comparisons of Google to Microsoft in the past year has been staggering, especially on AFB. 2-3 years ago Google was Apple’s best friend, now they’re their worst enemy (and still best friend in some sense, but put that aside for now). They ARE Microsoft. Now, you could say - that’s the surest way to get profits!! But I don’t think history will repeat itself. Bill Gates was more shrewd in war and in friendships than Eric Schmidt. Meanwhile, Apple has 35 years of experience, and SJ knows past mistakes. Google picked the wrong enemy. The industry also won’t let Google monopolize information like it let Microsoft monopolize the PC. In the long run, it’s clear such a monopoly is costly to society. There will not be a Big Brother this time. A few more public fiascos with Privacy, and there are tons of players ready to take on Google. Apple, for one, can flip a switch and make Bing the default on iPhones. Or even make its own search engine (which, in the world of “good enough”, would not need to match Google’s algorithms).

    ***

    jeffi, I’d welcome your rebuttals on these issues. Now, I’ll continue to hold GOOG over the coming months. Search still has room to grow. But, unless the company addresses some of the issues above (and proves it can make money elsewhere rather than using to subsidize Fragmandroid) I’ll need to start looking for a de-investment strategy as relentlessFocus suggested.

         
  • Posted: 01 June 2010 12:54 AM #59

    Roman - 01 June 2010 03:24 AM

    I won’t touch the benefits that Google has since you’ve already done so. Suffice it to say, they continue to pose threat to Microsoft with search, office, and Chrome OS; threat to Rimm/WebOS/Symbian with Android (and to the iPhone to a lesser extent), and threat to almost everyone as the content aggregator/conduit.

    The Apple spat is a red herring. Google is two years behind Apple in mobile monetization and development of a multi-product eco-system. The recent salvos lobbed at Apple will have little to no long-term impact.

    Microsoft and Google are now locked in this era’s version of economic trench warfare and Microsoft should not be underestimated or dismissed as a combatant. Google, for its part, needs to stay on task at least in terms of public perception. Both companies have billions to invest and taking turf by either side won’t come cheap.

    If Google allows Apple to become a non-productive diversion, it puts the company at a disadvantage in applying its resources in what is a much bigger fight.

    In my view Google’s salvos were ill-timed and off focus. We’ll see how Apple responds next week.

         
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    Posted: 01 June 2010 01:21 AM #60

    jeffi - 01 June 2010 01:59 AM
    Mace - 01 June 2010 01:07 AM
    jeffi - 31 May 2010 06:02 PM

    ... I see many years of 20+% growth ahead for Google’s core search business as I’ve previously reiterated ... Google does not need to and should not try to monetize their OS platforms until after they’ve reached critical mass and market dominance. I can wait, as it is clear to me that Google’s stock price is under priced based on their curent core business. Everything else is upside. Massive upside.

    In terms of P/E, GOOG is fairly valued.  If I’m to invest in GOOG, I would look for evidence that it can monetize their OS platforms before sinking $ into GOOG.

    The problem with that strategy is that by the time you see the evidence that they can monetize their new initiatives the PE will no longer be “fair value”. In other words the “doubt” has lowered the risk profile ... Google is only fairly valued because of the many people that question their strategy ...

    There would still be plenty of upside left to capture when the evidence is out.  You’re only missing the first 10%-20% of the upside.  However, catching the falling knife is bad as you don’t know how low it can go.  The price where you catch the knife is likely to be higher than the 20% up after the bottom.  Let’s use AAPL to verify above assertion.  You would have known AAPL is in an up trend by Apr using the “Higher high and higher low” criteria (other criteria like MACD would be in Jan 09, 13-week EMA above 52-week EMA would be in Jun 09).  Is your average purchasing price catching the knife lower than the all-in price of $110 in Apr?

    MACD above signal is usually an early signal while 13-week EMA above 52-week EMA is always a lag indicator, so starting scaling in when MACD above signal and stops scaling when 13-week EMA above 52-week EMA is a good scaling approach.  This approach is good only for AAPL as we know AAPL is depressed because of market conditions and not because of its business fundamentals.  This approach won’t work for stock where its decline is due to deterioration of business fundamentals.  I would be careful when applying this approach to GOOG as its growth rate have been declining since IPO, see this revenue growth chart for GOOG.

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