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Google Earnings Up, Revenues Stuck in Advertising

Google (GOOG) announced its fourth quarter and year end results today, including an 8.5 percent year over year growth in revenue. That likely brought much mirth to its investors and hope to the tech sector. What I noticed, however, was that, in a fundamental way, its business hasn't changed much. For all its attempts to replace Microsoft (MSFT) Office with Google Apps, develop yet more applications, and otherwise to diversify its business, everything still runs on ads.

In 2008, 96.9 percent of its revenue came from advertising. In 2009, it was 96.8 percent. I'm sure executives there will say that's it's all part of a master plan, but given that advertising was essentially an afterthought of the company, and a line and technology it acquired years ago, this seems like a case of being in the right time at the right place. To put it differently, Google is a company that is successful, but luck plays a huge factor.

I'm not knocking luck -- I'd love to have it in even fractional percentages of what it provides the company. And I'm not saying that it hasn't been smart in bringing in people and building a strong brand. None of that is luck. However, being able to parlay activity into revenue has sat on a huge element of chance, and making money from advertising is one of the chanciest games there is. Look at mainstream media. You can be doing fine one day and then suddenly see advertising revenue drop away when companies decide it no longer does what they need. Such shifts can happen quickly. As people steeped in advertising might attest, it's unpredictable and fickle.

If you think about it, Microsoft has been criticized for years because so much of its revenue -- about 80 percent -- essentially owed to Windows and Office. But, as I've noted before, Google's dependency on advertising makes the folks in Redmond look as diversified as a Berkshire Hathaway. But the volume of money thrown off by the advertising masks the fact that Google has failed financially at virtually every effort of diversification it has tried. All of the other activities are almost rounding errors.

Success offers its own excuse, but I continue to wonder how much of the company's activities are nothing more than distractions to management and net losses of profit that detract from shareholder equity.

Image via stock.xchng user nkzs, site standard license.

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