World's Scariest Stock: Google
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Incorrect. This is where many analysts have been wrong, and hence have been underestimating goog's longevity. Google has one of the largest barriers to entry of any tech company. Personally, I think larger than Microsoft's. Here is why: they solve ridiculously hard problems and make it seem simple and easy, and monetize it well! Yahoo, Microsoft, and all the 2nd tier search companies cannot hold a candle to Google's ability to search and index. Why? Google has the smartest people in the world working hard and enjoying themselves while working there.
2. Competition from the other big dogs
Incorrect. The other big dogs are falling rapidly behind. Microsoft is not doing well on the web, momentum is basically carrying them. Yahoo is not doing well, again they are doing a decent job at making money being second horse, but they do not do anything innovative on search or advertising, they eat up the scraps. AOL clearly is dying. Google's margins are much higher than any competitors, and this is massively important.
The other arguments could hold, but I don't agree with them entirely. Generally, I feel the advertising based model allows them to monetize any product they create, from web mail to any of their newer products, including potentially free wifi.
Just my two cents.
It's very hard for a startup to beat Google at general search, but by choosing a subset (cheap prices, reviews of consumer electronics, vacations, flights, symptoms of illnesses, mailinglists and forums, blogs, movies, music lyrics, torrents, shareware, etc etc etc) startups will slowly encroach on Google's territory.
Finally, it may be very difficult to build a better Google, but I find it extremely easy to imagine one.
But how to find Octopart? How to even know it exists? I envision a search engine that gets to know you, asks for clarifications, and delegates to a suitable specialized search engine.
I bet a startup is working on something like this right now.
1) With the stock options vesting, some of the smart people at Google are leaving. Most are being poached by Facebook or they've gone on to start their own companies. In the Valley, it's true that Google has cause a huge brain drain, but that doesn't mean Redmond doesn't have equally smart people. You've been had by Google PR.
As for their solving ridiculously hard problems, that's not the point. It's all about distribution. Google has effectively been able to outgame Microsoft in terms of distribution, for now. Open up Firefox and it's the default search engine. It's now ubiquitous enough to be used as a verb. But that doesn't mean Microsoft is out in the cold, they still rule the desktop and enterprise. In fact, Google search for enterprise isn't on par to other offerings. The Fortune 500 company I work for has recently switched away from Google and many other IT managers I've spoken with have been jumping ship to either Microsoft or InQuira.
2) You point to other companies but offer little. Microsoft may not be doing well with Vista but they're making money hand over fist. Yahoo Search Marketing also has a somewhat different CPC bidding process than AdSense that many are liking more. And as for AOL, they're now transitioning into a full on advertising company and with a lot of cash and Time Warner backing, they're a formidable competitor.
Microsoft is making money on momentum, not on innovation. They also are not making a lot from online products. Yahoo is doing alright, but again is doing nothing great and is in the dust behind Google. AOL is horrid, their page views are dropping fast, and they are dumping employees faster. They are transitioning to owning a few portals and blogs, and hell they use google ads on their site and google search. They are not a formidable competitor in the least, they are dropping in market share rapidly. They just fired 20% of their workforce for the second year in a row.
"Google's core competency - search -- has barriers to entry the size of LEGO walls. If two guys starting from their dorm room were able to topple one-time reigning search king Yahoo! (Nasdaq: YHOO), what makes you think that Google itself is any more secure?"
What, indeed? Well, for starters, Larry and Sergei are probably aware that, if it's 1998 all over again, the next Larry and Sergei are going to eat their lunch. This is sort of how France was aware in 1939 that, if it was 1914 again, the Germans would go straight for Paris.
"Look no further than the whopping price Google was forced to offer up for DoubleClick as proof of what can happen when you pit a couple of ludicrously cash-rich companies against each other."
I would suggest looking a lot further, actually. Most of Google's acquisitions go unreported (at least that's the impression I get from people in a position to know). Obviously, the most overpriced deal will get the most attention -- but that's practically a tautology. Google is probably able to buy smaller startups for less because they pay half the cost in dollars, and half the cost in I'm-working-for-Google cred.
"That said, binding the company's fortunes so tightly to an approach that has left heaps of corpses in the corporate graveyard is more than a touch frightening."
Which corpses does he have in mind? If he's thinking of dot.coms from the late 90's, he's thinking of the early version of a business Google got right, which seems as relevant as noting that Henry Ford was doomed because look at what happened to to that horse-drawn carriage company down the street. I don't know what else he could have in mind -- television, radio, product placement, and outdoor advertising aren't doing noticeably poorly (and if their returns do start to drop, the first thing to check is whether or not it's Google's fault).
"Google forecast: Underperformance, with a slight chance of greatness Again, I love Google, and I have huge respect for the company's accomplishments. The company could innovate itself to outstanding returns for many more years to come. But given the... fat valuation on the shares, I certainly wouldn't bet on it."
That's it. That's the case against Google. Good, but not 52X earnings on $4 billion in annualized earnings great.
"The market can stay irrational longer than you can stay solvent"
Google lacks one thing that will prevent its true value from growing into its current market capitalization: trust. We already trust so much of our lives to Google. They know what we search for and do on the web, what we do with our time (Calendar), who we speak to and what we say (Gmail), and so much more.
People (and the regulatory authorities) were skeptical (and afraid) of Google's acquisition of Double-Click because of the "scariness factor." Soon, Google will hit a point where people will no longer trust it with certain kinds of information. People's lack of trust, or perhaps anti-trust legislation, will provide some setbacks for the company in due time.
Of course, this will leave "gaps" for more trustworthy young entrepreneurs to take the stage in certain areas; areas that people no longer trust Google to dominate. In reality, Google has nearly unlimited potential, but all-in-one integration in our lives can only reach a certain point before we become uncomfortable.
There will be a time in the not too distant future when this barrier will be crossed. Giving any large, corporate entity too much information is often perceived as dangerous, because they have a greater ability to utilize/mine/profit from that information than a new startup. I guess we'll just have to wait and see...