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Accounting Allah shmoop margins All right people margins drive everything

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ever read Animal farm Yeah if you look in the

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very fine print you'll see that it really says high

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margins Good higher margins better But margins are akin Textual

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thing They're evaluated on a relative basis Basically the more

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of a commodity Something is well generally speaking the more

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rivalrous thie industry there in because there are tons of

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competitors in who all produced the same product with almost

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no differentiation into it And they basically nickel and dime

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each other to death competing rivalrous Lee to sell that

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commodity Quick commodity refresher Yeah note here A commodity is

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something that could be sold Bata traded produced in high

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volume and it's important usually in trade and economies around

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the world And it's basically the same product no matter

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who makes it Okay that's a commodity More less okay

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is Think about the very mature in declining paper and

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pulp industry long history unions tons of competitors selling old

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repurposed dead trees Polluters mostly overseas have a structural advantage

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over non polluters and the industry is in decline like

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we use less paper today than we did ten years

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ago and the trend looks to be continuing in the

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US where Houser is the paper and pulp gorilla and

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in a great year it has in ten percent ish

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profit margins Compare those margins with those of Internet search

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giant otherwise known as direct marketing company Google That's how

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Google makes its money its immediate company who sells marketing

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distribution to sellers who essentially least virtual real estate from

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it by buying ads on their pages that are relevant

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to fit a key word search that users do Google

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hopes that relevant term searched then yield a lot of

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commerce or buyers on the other end to whom they

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can charge a bunch of money for that single click

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Google basically owns the world in that business with over

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eighty percent of all sir It is done essentially no

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competitors who were meaningful today anyway in a typical click

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on a highly bid keyword like Taxes Help or Meso

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Feely Yoma ambulance chasing lawyers Yeah it's something like fifty

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cents or more for one click Well Google's profit margins

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on that one click their marginal cost on it and

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not a lot It's the electricity to serve that Paige

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and maybe a few other nits and nats But that's

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it Call it a penny Yes it's been a lot

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initially an intellectual capital and a relatively modest amount of

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financial capital But today the search algorithm is well built

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so Google search business alone is like a ninety percent

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plus gross margin business pretax They have almost no marginal

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cost of goods in their search business The basic idea

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is that you have to understand margin in the context

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of an industry and of an economic climate like a

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good bad and or ugly The ultimate question then revolves

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around what quote good margins unquote are Well if you're

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a paper and pulp business and good margins are eight

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percent and heroic margins are twelve percent If you're a

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Google size search monopoly well then you should expect ninety

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percent margins as just being Well so so So context

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is everything in margins need to be viewed through whatever

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colored Linds they're presented to you as the yeoman accountant

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And by the way good margins in an accounting firm

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Yeah something like fifty percent So when you're in accounting

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partner making bank and shopping for your second home well

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remember us Well yeah Enjoy that second home He should

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have a little door in its name Shmoop Thank you

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