August 18, 2010 | In: Uncategorized

Google: Unable to Maintain the Exponential Growth

In this post, I would like to examine what Google is doing in order to foresee what will happen with their stock.

Let’s face it, everything that Google is doing lately is becoming a flop. Here is a list of some failed products:

- Buzz: A twitter alternative that had a lot of buzz in the first few days, but then died completely with a week.
- Wave: A product that nobody really knows what it does, because only a blessed few were able to use it. Everyone reviewed it and nobody understood what this product really is. Wave is no longer supported as of the beginning of the month. In fact, I just visited the Wave website (seems that they finally made the product public when everyone lost interest already), and I didn’t understand what it is.
- Voice: A service that apparently simulates a phone, and gives the owner a phone number. It offers the service for free for US residents. The service is probably still provided but I have yet to hear from someone actually using it.
- The list goes on…

It seems that Google can’t get their act straight anymore, either there is so much bureaucracy in this company that it’s nearly impossible to get something decent and competitive outside the door. They look at Twitter, Facebook, and others, and they try to replicate the service. Google even didn’t buy any stake in Facebook, while Microsoft did, 3 years ago, when FB was valued at $15 billion. Google is now more reactive than proactive. Why did they not buy Twitter (which is extremely delicious for their ads), why didn’t they buy a stake in Facebook when they had the chance. Facebook’s search is powered by “Bing” (probably the most disgusting search engine in the world), and of course Microsoft serves ads on their pages.

Google has just a few products that are successful: Google search, Google ads (which represents 99% of the revenue), and Google maps (which is a free service under scrutiny in many countries due to privacy reasons), and Youtube (which is most likely still losing money).

Let’s take a look at the Google traffic for the past 12 months, which is the basis of all the Google revenue:

The traffic has increased 1.5% year to year. Now let’s examine Facebook traffic (I don’t want to compare Google to Yahoo or Bing, because I think the 2 latter search engines are complete flops):

Traffic has increased over 30% year to year, with traffic gains nearly month. If the trend continues, then Facebook may very well surpass Google as the number 1 visited website in the world, by mid of next year. This is a HUGE milestone, as Google as been #1 for as long as I can remember. This will also shake the investor’s confidence in Google. I do believe that Facebook are waiting for this moment to announce their IPO, which is the best moment, and it will give them the best price for the stock.

Google, of course, doesn’t only rely on its traffic, but on the hundreds of thousands (or maybe millions) of websites serving their ads, which is a big advantage of Facebook. Additionally, Google has the best expertise in serving targeted ads to the end user. Facebook know everything about me, my age, my hobbies, etc… Yet they still serve me the “Farmville”, “Mafia Wars”, and other irrelevant ads (even though I can’t remember how many times I clicked on the button stating that I’m not interested in these ads).

Now let’s talk about the most important thing here: GOOG. GOOG has reached a peak of over $714 back in 2007 ($734 adjusted for inflation in 2009 dollars). So far this year the stock is struggling to keep its head about the $500 level. They even disappointed the analysts a few weeks ago because of all the acquisitions that they made.

GOOG is a great stock, and is a must buy below $470, but as a company, I feel that the world is changing, yet Google is not. The Internet is becoming more human, more “facebooky”, Google is trying to adapt to this change by releasing products that only geeks will like. I think the best thing to do is to stop the unnecessary acquisitions and the development of products/services that are free and/or will not appeal to the broader audience, and focus on enhancing the cash cows, and increasing the network of websites serving their ads.

Networking websites will keep sucking traffic from search engines, this is a fact and nothing can be done to prevent it. Google must take that into consideration and take some strategic decisions to keep the company at the top of the helm.

2 Responses to Google: Unable to Maintain the Exponential Growth

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YHOO: Past, Present, and No Future « Fadi El-Eter

August 18th, 2010 at 11:10 pm

[...] Although Google’s failure ratio with new products is high, they still try to do things and improve. Yahoo, on the other hand, they do these subtle changes to [...]

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Is It Wise to Buy MSFT? « Fadi El-Eter

September 6th, 2010 at 11:22 pm

[...] with these 2 products, and the growth in this area is now flat. See I think that Microsoft shares the same problem with Google: Both have produced their biggest cash cow a long time ago, and the only thing that they seem to do [...]

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