Google's Achilles' Heel

Wall Street loves it. Consumers are begging for more of it. Other companies want to be it. But Google has its vulnerabilities--excessive reliance on search advertising, lawsuits, eroding public trust, lack of focus and the competitive threat from Microsoft. How long can Google's run last?
This was the goal of Netscape's Marc Andreessen, back in the 1995 when Andreessen famously boasted that the Web would reduce computer operating systems to nothing more than a "poorly debugged set of device drivers."

That statement turned out to be the red flag for Microsoft, which reared up and crushed Netscape. Although the struggle between the two companies was dubbed a "browser" war, it was really a struggle for control of the operating-system platform. When applications are written in the Web browser, they work equally well on any operating system. Although individual computers still need operating systems, it doesn't matter which one, from the point of view of the application. Thus the operating system may eventually become the commodity that Andreesen predicted it would be--and that hits Microsoft where it hurts, according to Amit.

Search Engine Watch's Sherman doesn't believe Google will take on Microsoft directly so much as encroach on its territory as digital convergence becomes more of a reality. "Is it possible that Google will offer an Office clone? Perhaps, but I don't see Google as having that as a primary mission," said Sherman. "Rather, the whole notion of what we think of as computing is changing and evolving. Google is very focused on making it easier to use and consume information, no matter what kind of media, or what kind of device you happen to be using. More and more, it looks like it will collide with Microsoft in that arena."

Stymied By Its Own Success?

Although most people think of Google as a search company, they are really a future-looking media company--and this is something they have yet to master.

"Whether they like it or not, they are a media company," said Allen Weiner, an analyst at Gartner. "What they provide is very valuable aspects of media, all wrapped up in search. But they're missing the internal talent and internal capability to think like a media company. Everything is from a technology perspective, and that is a real shortcoming."

And the sheer velocity of growth could seriously impact the company. "It's very difficult to manage this kind of growth--they hired 800 people last quarter, and when you grow that fast, how do you know that all the people you've hired will be employed as efficiently?" said Citigroup's Mahaney. "Problems inevitably occur when you're ramping up at this rate."

William Morrison, an influential analyst with JMP Securities, who is extremely bullish on Google, agreed.

"Its revenues are growing so fast that the kinds of internal struggles that any growing company faces are rendered invisible. Managing this kind of growth is extraordinarily difficult." The "unusual" management structure Google has, where everything is managed from the top by founders Larry Page and Sergey Brin and CEO Eric Schmidt also is a risk, said Morrison. "As I understand it, Larry and Sergey and Eric still approve everything. At some point they will have to give up some of that control and move to a more organized, hierarchical management structure," said Morrison, who is still forecasting 80% revenue growth for Google in 2006, and who is pleased that Google is moving out into new areas.

"They've got a lot of money. I like seeing them investing in high-risk, high-reward activities, the way they're doing. It's an exciting company to watch," Morrison said.