Thursday, April 03, 2008
As Goes BusinessWeek...
When BusinessWeek starts to agree with me, I start to doubt myself.
While I do think that Google faces some very steep challenges over the next 24 months, I'm starting to feel that the stock price reflects the negatives more than sufficiently. Last I checked they are at a forward P/E of ~19, which is by no means exceptional for a company still very much in growth mode.
The most interesting comment I heard about search in a long time was something Bill Gates said at a conference a year or so ago. When asked how he felt about Microsoft having 'lost the search war to Google,' Gates responded that MS had 'only lost the first battle, not the war,' and that "we are still in the command-line era of search." Those of us who use search a lot know its shortcomings very well, and they are even more acute (though in some ways different) for those who do not use it a hundred times daily. The implication is clear: Google's core business remains vulnerable to being innovated around and over.
I no longer believe this to be the case.
The most fundamental feature of a search engine is the volume of content it gives you access to. An engine that gives the ideal result on page 5 is better than the one that gives you nothing because it never spidered that item in the first place. The volume of information on the Web is growing at such a rate (something like ten hours of video are uploaded to YouTube every minute) that simply keeping up with it, even in relatively specialized niches, is a capital-intensive operational challenge.
On the flip side, getting people to pay attention to your wonderful specialized search engine is in many ways an even costlier nut to crack. Going direct to consumers means spending bazillions on branding. Other companies have tried to create "professional" versions with much more specialized tools and deeper data mining, and sell them on a subscription basis, which requires spending a lot of cash on sales and marketing, though break-even will arrive sooner than in the previous option.
Some have done well for a while--ZoomInfo comes to mind--but they feel brittle to me, like Indiana Jones scampering through a tunnel ahead of a boulder. Only in this case the tunnel probably ends only if the boulder wants it to, i.e., buys them out. Google is reaching a point where, like Microsoft in 1995, mediocrity is enough. Indy has to be an Olympic sprinter and gymnast to stay ahead--the boulder just needs to keep rolling downhill.
And therein lies the question--is Google today the Microsoft of 1985, 1995, or 2000--while mediocrity at the top may make for an interesting career choice, it's not a rewarding place to invest. My bet is on 1995. ¶ 2:19 PM
When BusinessWeek starts to agree with me, I start to doubt myself.
While I do think that Google faces some very steep challenges over the next 24 months, I'm starting to feel that the stock price reflects the negatives more than sufficiently. Last I checked they are at a forward P/E of ~19, which is by no means exceptional for a company still very much in growth mode.
The most interesting comment I heard about search in a long time was something Bill Gates said at a conference a year or so ago. When asked how he felt about Microsoft having 'lost the search war to Google,' Gates responded that MS had 'only lost the first battle, not the war,' and that "we are still in the command-line era of search." Those of us who use search a lot know its shortcomings very well, and they are even more acute (though in some ways different) for those who do not use it a hundred times daily. The implication is clear: Google's core business remains vulnerable to being innovated around and over.
I no longer believe this to be the case.
The most fundamental feature of a search engine is the volume of content it gives you access to. An engine that gives the ideal result on page 5 is better than the one that gives you nothing because it never spidered that item in the first place. The volume of information on the Web is growing at such a rate (something like ten hours of video are uploaded to YouTube every minute) that simply keeping up with it, even in relatively specialized niches, is a capital-intensive operational challenge.
On the flip side, getting people to pay attention to your wonderful specialized search engine is in many ways an even costlier nut to crack. Going direct to consumers means spending bazillions on branding. Other companies have tried to create "professional" versions with much more specialized tools and deeper data mining, and sell them on a subscription basis, which requires spending a lot of cash on sales and marketing, though break-even will arrive sooner than in the previous option.
Some have done well for a while--ZoomInfo comes to mind--but they feel brittle to me, like Indiana Jones scampering through a tunnel ahead of a boulder. Only in this case the tunnel probably ends only if the boulder wants it to, i.e., buys them out. Google is reaching a point where, like Microsoft in 1995, mediocrity is enough. Indy has to be an Olympic sprinter and gymnast to stay ahead--the boulder just needs to keep rolling downhill.
And therein lies the question--is Google today the Microsoft of 1985, 1995, or 2000--while mediocrity at the top may make for an interesting career choice, it's not a rewarding place to invest. My bet is on 1995. ¶ 2:19 PM
