There's a truism in Silicon Valley that Peter Thiel describes in my book: No publicly-traded Internet company stays on top for more than four years. We saw it with Netscape, Yahoo (NASDAQ:YHOO), eBay (NASDAQ:EBAY) and I think we started seeing the beginnings of it with Google (NASDAQ:GOOG) at the end of 2008. The company reports earnings later today, and as Paul Kedrosky and I discussed on TechTicker, analysts have been slashing growth estimates, although it's still in double digits, and clearly outperforming other Web names.
But, truth be told, in this Darwinian Web cycle, the financial results are a lagging indicator when the king-du-jour of the Internet gets dethroned. If you look closely, we're already seeing loads of signals that Google is losing its grip on Web supremacy.
- The Inauguration: I flicked to this in my daily Yahoo "ValleyBuzz" post yesterday, but it bears noting again. Look closely at the Web stats on Inauguration day. While Obama was taking the oath of office and delivering his speech, Google's stats shows a decline in search activity. Meanwhile, Twitter and Facebook usage soared. This speaks volumes for two reasons. One: It proves why Twitter and Facebook are ultimately more powerful sites, and paradoxically it's the same reason they are so tricky to monetize. They aren't about "transaction" they're about "connection." People went to Google to find specific information about the President-Elect and the ceremony. People go to Twitter and Facebook to share the experience with one another. That means, Twitter and Facebook are delighting users more than Google, because they are keyed into natural human needs and emotions that trigger far greater and more addictive endorphin rushes than just finding a piece of information. But far more telling and troubling was the explanation on Google's blog about why their numbers went down: Because people were obviously glued to the TV. Maybe. But they were also on other sites. Google no longer gets where the Web and its audience is going.
- Hulu/YouTube: Ok, we all thought Hulu was an utter joke when the networks first talked about it. But it's amazing, and its traffic hasn't dipped after the election as many thought it would. Sure YouTube is bigger in volume. But so many of the videos are user generated content in which I don't have any interest. They're like the thousands of listings for "Buy It Now!" socks on eBay. But Hulu isn't just better because it can have professional content: It's the technology. The last three times I've looked for a video clip, I've spent half an hour scouring Google and YouTube only to get a flood of inaccurate results. Each time, I've tried Hulu as a last resort, and found the clips within minutes. Hulu has better fields, parameters and user interface for searching videos than Google, which still appears to search for video the way it would for text. Hulu won its own game (content) and shockingly in video beat Google at its own game (search).
Peter says in the book that there are two reasons for this four-year curse. The first is that the farther a company gets from its big IPO moment, the more rapidly it loses its smartest employees, which is basically the only asset that matters for a Web company. See this TechCrunch post on why people leave Google, but really it's the same story with any company that's on top for this long. Its heyday has passed in terms of the well-understood stock option game of Silicon Valley.
The thread on that post, leads me to point two: Hubris. In the case of AOL, Yahoo, eBay and Google, each company became deluded they could do no wrong, they would always grow, and were smart enough to continue to lead the market. But not a single one has successfully anticipated the next big thing online. Amazon is the only Web company to come close, even if it's still mainly known as a bookseller. The examples above-- and many more out there-- point to the same hubris now strangling talent and innovation at Google. The assumption that if people weren't searching, they were watching TV on Inauguration day. The assumption its video search and technology would naturally be better than that of a media joint venture. And the haughty hiring process.
This is not to say Google won't continue to dominate what it does well, the way Yahoo does as a mass content-aggregation portal. This is not to say Google doesn't still have an amazing business model, just like eBay still has an amazing business model. But its golden child, do-no-wrong reign is ending. Reporters have been saying for four years that with more than 90% of its revenues coming from search, Google is a one-trick-pony; it's just been one phenomenal trick. And despite the billions spent on acquisitions and hundreds of beta projects thrown at the wall, the reality is Google hasn't been able to find a solid second trick.
Now that it's 2009, Google may be a bit past the four-year mark of Thiel's curse, but not for long.
Disclosure: No positions