This week, Google announced a new broadband initiative. A few days earlier, they announced a rumored Twitter killer. Months ago, it was Google Wave. Is all this entrepreneurial zest a sign Google is a leader? Or, is the search/ad giant losing focus?
Google is smart to attempt to enhance email with Wave or mass text messaging with Buzz. They are smart to expand web services and software which compliment search and advertising. They are also smart to stake their claim in the white hot mobile world.
Broadband is a completely different story. As Warren Buffett notes, these types of businesses are extremely cyclical and have low returns on equity. The hardware game is a perpetual horse race requiring tons of capital to simply stay in the race against competitors. For example, Google currently sports a 20.3% return on equity and 27.57% profit margins, while top telecom company Verizon returns 8.77% on equity and has 3.39% profit margins.
I understand Google is tired of waiting for telecoms to deliver better web speed. The way telecom giants boasted in 1999, I thought we'd have ESP by 2010. But managing manual labor crews digging up streets, repair technicians riding around in trucks, and an endless staff of customer service reps dealing with pissed customers is an entirely different ballgame than keeping quantitative geniuses motivated at computer screens and letting software addicts help each other in help forums.
Wave and Buzz have flopped so far. Rather than spend time and money on entering the capital intensive and risky broadband sector, maybe Google should spend more time perfecting some of the high potential "Lab" products they have introduced. Maybe they should have considered buying Twitter rather than spending countless hours in strategy sessions about lobbying the FCC.
Unless the government is heavily subsidizing Google's broadband "experiment," I would be weary of investing in Google until seeing how all this shakes out at the financial bottom line. Awkward moves outside core competencies tend to haunt companies more than they end up helping. Either way, in a few years we can Google the answer.
Disclosure: No position in GOOG.
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Google is competing in too many markets. If there is a software market, they're on the offensive. Problem is - they're going to alienate their partners and aren't doing enough to provide a first class solution in anything. They're always mediocre, their support is totally non-existant, and their vision is nil. Try and get support from Google. Unless you're dealing with AdWords, this company operates as a garage operation on a shoe-string budget.
Google is trying to muscle their way into too many markets rather than earn their way into a few. I am going to guess that in the next few years they will become as much a pariah to the tech community as Microsoft became in the late '90s. Their time has come to fall.
As I said, I am a software developer and I remember being amazed at how ignorant the general populace was investing in the .com era. I never placed a single bet on a .com and I was right. Likewise, I wouldn't waste my money on Google. Their stock has nowhere to go but down given the execution we have seen so
Aside from search they have no significant revenue generating products.
I understand that most of these new services (gmail, maps, buzz, news, YouTube, etc.) are designed to enhance or otherwise build their core search business, but they never seem to live up to their potential. All of these technologies have promise, but it's almost as if no one there knows what to do with them. All these years later YouTube is essentially unchanged and is costing them a lot of money to operate. Do something with it already!
My biggest fear is they'll end up like Microsoft. Thousands of interesting lab experiments, but no vision for bringing polished and innovative products to market. Willing to lose money on every product except their core monopolies. I suppose it's a way to make a living.