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Getting a Grip on Google: Hype vs. Reality

You can hardly land on a news page these days without seeing a headline about Google:

What's Next for Google?
Google CEO Schmidt resigns from Apple's board
Google Chrome is Coming to Android
Apple vs. Google: Tech's Newest Rivalry?
Is all the hype justified? You tell me: $150 billion market cap - $20 billion in annual sales - net income over 20 percent of revenues - earnings per share of $14 -- not bad for an 11 year old company. When I was 11 I couldn't even buy a cheeseburger.

Still, the media has a long history of overhyping exciting tech companies, so I thought I'd take a stab at separating reality from the hype. After all, I do analyze companies and strategy for a living, and I did spend almost 30 years in tech. So, let's take a look, shall we?

Core Business
Google is essentially a single product company and its core technology and business - search and search advertising - is very much in its infancy. Its business is based primarily, if not solely, on search market share. And in terms of search, there's way more innovation to come than we've seen to date.

Now, there have been some pretty remarkable and lasting one-hit-wonders in tech; Intel comes to mind. But Intel was able to maintain its lead by constant innovation, brilliant strategy, and extraordinary execution. Make no mistake, as 800 pound gorilla's go, Google's core business is quite vulnerable to search innovation and market share gains by competitors.

Competitive Outlook

  • Microsoft (or Microhoo, if you will). With Bing, Microsoft has shown that it can innovate in search, and the Yahoo partnership adds a new marketing and sales channel. Plus Microsoft has higher gross margins, hordes of cash and resources, and a broad business model that includes the enterprise - not just small business and consumer.
  • Competitive media / advertising platforms. Google's business is 1) 100% Web, and 2) requires people to be online. That's why investing in online business tools and services, Gmail, Chrome, and Android - including enabling the mobile Web and enhancing the user experience - are all key growth strategies. As for advertising on the Web versus other platforms, Google is in the right place at the right time.
  • Another search technology startup. It's a big unknown. Enough said.
  • Apple. As a competitor, I don't see it. In terms of operating systems and Web browsers, sure, but they're not threats to Google's core business. Apple users are just as likely to use and advertise on Google search. Google's CEO Eric Schmidt stepped down from Apple's board because there were conflicts and he should have. Period. There's nothing to see here ...
Growth Strategies
  • Search and SEO innovation. In addition to innovating internally, staying in the innovation loop externally - universities, startups, hiring, investing and acquiring - is critical.
  • Enabling the mobile Web. Enhancing the user experience and keeping users online versus offline using Microsoft's and, to a lesser extent, Apple's applications.
  • Diversification. I guarantee that Google's executives and directors are spending quality time on this. Two huge categories that come to mind are the enterprise and geographic diversification, i.e. China and India.