A phrase often repeated to me by a friend and mentor, “Don’t believe your own bullshit” is a piece of sage advice often forgotten by CEOs. The lesson is simple: you may have a million reasons to claim something is not as it seems, but never forget that no matter how rosy a picture you paint to your stakeholders, you must always call it as it is when it comes to business decisions. With that in mind, I ask you to consider two separate pieces of information, presented here, together:
1) Trefis outlook regarding Google’s stock price.
This little tidbit of information shows that, when looking at stock price in Trefis’s eyes, over 67% of value is derived from search advertising, 5% from search content deals, .5% from search appliances and 18% of value is derived from cash. Adding up those search-related items, 91% of Google’s stock price is related to revenue, or past profits, from search.
Google is engaged in an all-out war on 6, count ‘em, 6 fronts: Browser (Chrome), Mobile (Android), Search, Local, Social, Enterprise. While there is some overlap between players, Google appears to be fighting against everyone in the tech industry.
Google is operating their business like GE, but this is not reflected in either their future or present revenue stream. They are directing 90% of their focus on 5 superfluous business areas that are producing a mere 9% of value. This peculiar situation is supposedly explained by their assertion that “It’s all to protect our interest in search.” This is a guiding light of bullshit that, in a fit of build-it-and-they-will-come philosophy, I fear they fully believe. Just because they say it will work that way doesn’t mean it will.
Their claim, first and foremost, is eminently plausible. Search is one of the scariest businesses to be in, as it is an environment where you can have a mass exodus of users almost overnight. Controlling more and more of the pathways into your search engine surely will result in you having more control over users searching on your site.
Such a plausible claim would seem to justify the business positions they’ve taken. Yet they have failed to reiterate and follow this master plan as they move forward. We have heard nothing about search. We have heard nothing about search advertising, or any of the businesses that make up 91% of their stock valuation. They are not innovating in this space.
As they have pursued these various businesses with vigor, the relation back to their revenue stream has grown thinner and thinner. Indeed, you might even call it bullshit… the stuff they tell their shareholders so that they can pursue revenue streams that might not immediately materialize. A business that presents rosy reasoning to the shareholders while they develop additional sources of revenue is smart. Yet it is all too easy to believe that the rosy reasoning will, in itself, deliver revenue from these new initiatives. It will not, and pursuing business areas without a clear revenue objective is not only wasteful, but hazardous to your health.
Many of the recent moves Apple has made against Google would never have happened had Google left Android where it stood. iAd would not exist, or would have been a joint venture with Google. Apple is clearly not an advertising company, but could not let a competitor gain hold on their devices. Google has gained a major competitor because a “search-protective” move into an unrelated market position infuriated one of their strongest allies. Google traded 65% control of search traffic across 100% of smart phones for 100% control of search traffic on 35% of smart phones. They did this because they lost sight of their revenue stream, their purpose and their mission.
They made decisions like these across many business segments. Now, they are mired in battle rather than comforted in partnership. They are one company fighting five battles against enemies who all see Google as an existential threat. Moreover, their competitors are run by some of the savviest executives in business and have serious experience cultivating loyal customers.
They will lose this war in a moment of weakness. Not when they face roadblocks in the 5 initiatives they are pursuing, but when they face roadblocks and failure in the 6th, search. Only when they see a downturn in search traffic will the truth of their rosy pictures become evident: That they have no insurance policy against such a drop in revenue. They have not used their piles of cash to commit to build well-positioned, innovative businesses. It has been many years since they have truly built a better mousetrap.
At that point, they will be RIM circa 2010. On the precipice. In the business that is supposedly their core, they have stagnated. Google search results have gotten more and more gamed and frustrating. We seem to still be eons away from a truly intelligent, semantic search engine and when it comes, the likelihood it will come from Google is growing slimmer by the day.
This is not about anticipating some future competitive threat, it is about recognizing how strong your revenue engine is now, even when limited to publicly available information. Google is not focused on search and not focused on anything else that makes real money in and of itself. They are lost and fighting wars devoid of true capitalistic purpose. The claim that Android, Chrome and Google Apps truly protect their search business is a rosy picture that they’re believing.
These gentlemen do not know something we don’t know, they just so happen to be sitting on a profit stream that flows without intervention. We should not let this trick us into believing that the executives at Google really know what they’re doing. Their lack of focus shows that they do not.