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Thursday 4 December 2008

Why Google has already passed its peak

The company senses that it leans too heavily on one source of revenue. In response it has launched a bewildering array of new products: it’s not just a search engine but 46 different businesses. It’s just that you have never heard of the other 45. It sells mapping, word processing and dictionaries. Google Earth may be fun, but what is the point of Google Mars? None of the new products make money, and even the email service, launched with much hullabaloo, is still a long way behind Yahoo! and Microsoft’s Hotmail. ‘Because the revenue stream is so vast, it will be many years before Google can grow other products to the point where they provide real revenue diversification,’ cautions Blodget.

Perhaps most importantly, Google’s sheer power breeds mistrust. Last year the tech news site CNET ran a story on Google’s chief executive Eric Schmidt, detailing his salary, hobbies and political donations as a way of highlighting how much information was available on the web. Google’s response? They decided to stop talking to the website for a year. It was hardly the most mature reaction to what was a perfectly legitimate piece of reporting.

Google has turned into a corporate monster in the blink of an eye. The pace of its evolution has been bewildering, both for the company and for its investors. Many people still think of it as a cool start-up, when in fact it is already a Shell or a Volkswagen — a lumbering corporate beast, with little sign of intelligence left, but with enough muscle to ensure its own survival.

In the past few months, Google’s own share price suggests the market has grown uneasy about it. The shares peaked at $471 in January, and have fallen back to $400 since then. Have the Google founders or directors been into the market to snap them up at those bargain prices? Funnily enough, they haven’t. Since restrictions on stock sales were lifted in February, Google’s directors have sold $7.4 billion of stock.

Google isn’t about to disappear. It remains a formidable search and advertising machine. And who knows, one of its dozens of new products might turn out to be a hit. But world domination? Forget it. In truth, the company has already peaked.

More articles from: Matthew Lynn | this section

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