The Strategic Threats Facing Google

Why Could Google Die…

Want to know everything that could possibly go wrong with Google (GOOG)? Well, you can read the risk section of its latest SEC filing, but that’s a snore. Or you can flip through the slides above, which were put together by French consulting firm FaberNovel. They were the ones who gave us the hugely popular slideshow, “Everything you always wanted to know about Google . . . but were afraid to ask”.

This one is titled more morosely, “Why could Google die . . . maybe not now, but tomorrow.” I wouldn’t be picking out caskets just yet, but the slideshow does provide a convenient cheat sheet for most of the major threats that Google faces. It quickly goes through them, including the threat of antitrust and copyright infringement litigation, a massive privacy disaster, hiring and retention issues, disruption from new startups. There is even a nice slide listing Google’s 12 main weaknesses, along with a visual assessment of the probability, timing, and impact of each scenario. Of course, chances are that it doesn’t include the one threat that will get Google in the end. (I don’t know what it is either, but I am a big believer in black swans).

Below are some of the key slides.

Original post

Comments

[coyotebait:]

Interesting speculations on the darkside of Google, but the sky isn't falling ...yet.

Soooooo, are they a fat sitting duck - or are a nimble-footed moving target, capable of monetizing their considerable assets to an even higher level?

Agreed, they act like the duck, but have the critical mass to continue to lead.

CHOMPS,

^__^

..

Mar 26 05:41 PM

[Tom B:]

The legal threats are overstated. Google is a well-liked company and the companies suing Google (MSFT, Viacom) are deeply despised. Theoretically, the law's the law-- but not really. Their two biggest risks: 1) lack of discipline. Android's going nowhere; why spend resources on it? 2) Wolfram. Wolfram has a new approach to search. Maybe it's nothing, but those guys are scary smart. Maybe it's a threat to Google-- unlike efforts from third rate companies (Yahoo search; Windows Live; Cuil).

Mar 26 10:19 PM

[ksmithdc:]

Interesting read. Thanks.

Mar 27 08:39 AM

[Gale:]

It seems to me that all the other tech companies facing more or less the same problems that Google faces, why do you single GOOGLE out ?

Mar 27 11:13 AM

[Just an inv...:]

It has some good points.. but not in the near future...
But....
Does Google has any competitor at this moment in the market that would take a share of its market? The only threat is Facebook. But they are still finding a formula to generate some cash.... Google still has some miles to go

Mar 27 12:20 PM

[Chris B:]

This same analysis could have applied to Yahoo in 2000. In the technology industry, it is rarely established, leading companies that make disruptive breakthroughs. That's because disruptive innovators always have more incentive to take the easily available venture capital and launch their own startup, rather than giving away their genius for a 9-5 job's salary. All the meal tickets, ping-pong tables, stock options, and child care benefits in the world can't overcome this basic dynamic. As the Yahoo example demonstrates, all the infrastructure in the world can't compete with a better idea, suddenly distributed worldwide online.

There's no reason to think that Google is different. Somewhere, a genius or team of geniuses is working on an artificial intelligence search engine that will answer your questions in actual language, rather than spitting out matches. As an internet company, the suddeness of Google's rise could match the suddenness of its fall.

Tech investors must keep this dynamic in mind and also consider that most publicly traded tech companies are at the mature end of the spectrum (5+ years old). The business case for such tech companies can become obsolete in a day as they rest on the laurels of past acheivements. This risk is real, yet the sky-high PE's of mature tech companies suggest it is being ignored by investors who are looking for past earnings growth rather than the products and services of the future.

Mar 27 12:46 PM

[CTMike:]

You missed the single biggest threat - GREED. In their lust for advertising revenues they have strayed away from becoming a search engine have become an advertising engine. Don't get me wrong, there is nothing wrong with making a dollar. BUT, their business model is based on lots of traffic which only some (few?) is interested in advertisements. Back a few years ago, I almost always could get "information" I was searching for. Now, the search results are so proliferated with advertisements that its becoming incredibly time consuming to find independent information. I only use Google when I'm desperate. Won't be long until the general public finds a better way to search. Some day Google will be forgotten just like the previous popular search engines.

Mar 27 12:53 PM

[Isam Laroui:]

On a lighter note, you know what they say (I'm paraphrasing): a bullish stock climbs a wall of worries. With worries like that, GOOG has quite a long way to climb.

Mar 27 12:59 PM

[Ergo:]

Chris B: "Somewhere, a genius or team of geniuses is working on an artificial intelligence search engine that will answer your questions in actual language"

Oh how right you are. Here's one possibility in the works: www.wolframalpha.com/
It's a "computational knowledge engine" that will compute answers to factual questions, such as “How many protons are in a hydrogen atom?” The objective is apparently taking a step beyond simply returning documents that may have info (Google) or a giant database (wikipedia).

I'm sure it will need some work to be practical (such as providing a credible reference to cite for the answer). But it does show that innovation is marching right along, and I'm sure this and other ideas aren't going unnoticed. Of course, the super-big companies always have the option of buying innovation, since a dump truck full of money can often win the hearts and minds of poor programmers very quickly (and maybe even their VC's too).

Mar 27 02:51 PM

[bricki:]

Google has a vast infrastructure and is entrenched in the marketplace, to the point where most people could not even name another search engine. It also has enough money to survive almost any legal threat.

The biggest threat to Google is clearly technological. But it would have to a very strong technological breakthrough because of the size of Google's distributed architecture and capital investment. Such threats might occasionally arise, but a very likely scenario would be that Google would just answer the treat with their own technology. Their engineering talent pool is both large and deep.

And anyway, what VC is going to fund a competitor to Google? I mean I can just hear the laughter right now. There has to be an easier way to make a living than competing with Google.

One thing that you need to consider when reading this article is the source - the French have been rankling under the dominance of American Internet companies and the mostly English language Internet for a while now. It seems to me that this document reflects a great deal of wishing and hoping.

Mar 27 06:16 PM

[Ergo:]

I do a lot of tech work, so I hope to add some helpful comments on threads like this; especially since I can't contribute quite as much about stock prices:

IMO, all the tech companies have always been threatened by new tech. That's why the good ones do so much R&D, and build huge patent portfolios. MSFT is a good example. They're always reinventing Windows and always searching for new products and business strategies. And they have really great tallent in-house. But they're well aware that persons who are aggressive, individualistic and brilliant may not be at a big corporation. In fact, that's how MSFT started.

So, if MSFT sees a small start-up that's developed good software and a working business model, MSFT can afford to buy them. Imagine you and your VCs have put in 5 years and $10 million, and you're finally getting results. Now, MSFT shows up and offers to pay all your debts and throw in another $100 million. If you say "no," MSFT will just develop their own software and crush you. But MSFT offers a premium b/c they can throw their weight behind the business fast, and maybe take over a new market.

So the goldstrike for the VCs is in the sale. Maybe, the VCs could get lucky and find the next youtube or yahoo. I'm sure they hope so. But to turn down the MSFT offer, they'd have to be crazy confident in the business, and they'd need a lot of discretion over the money they've invested.

Mar 27 07:28 PM

[Ergo:]

Good comments Bricki. I agree especially with what you said here:
"But it would have to a very strong technological breakthrough because of the size of Google's distributed architecture and capital investment."

Mar 27 07:32 PM

[bcncv:]

This reminds me of all of the entrepreneurs that were going to create the "Microsoft-killer" companies. More wishful thinking than reality.

A few of these might be PR headaches, but can anyone really see an anti-trust lawsuit "killing" google? What're they going to do, force Google to spin off Youtube, or another one of it's non-revenue generating properties?

I'm still not planning on buying stock, but for different reasons.

Mar 27 07:57 PM

[bcncv:]

The point that new tech companies will kill old tech companies is true to a point. Keep in mind that Intel, Microsoft, IBM, HP, Cisco and Amazon have built empires that show no sign of unraveling.

I agree that having cool technology is not a barrier to entry these days. Some yahoo (not the company!) can get himself $10mm in funding and develop something cooler. However, barriers to entry based upon a business model can create something lasting.

People use Microsoft software because it's compatible. They buy from Amazon because they trust Amazon and it's scale. People join Facebook or Match, because other people are on those site.

Advertisers go to Google because people go to Google. Until a competitor can draw a HUGE number of people away from Google, the advertisers will stick with Google. If that ever starts happening, Google will take notice and to purchase or internally develop something better. Hence, strange acquisitions like Youtube.

Mar 27 08:18 PM

[Alan Young:]

I like Google's corporate culture, which I hope becomes a template for how corporations should treat their employees and communities in the future. And I--and everyone I know--uses it umpteen times a day, every day. There are not many companies you can say either one of those things about. This is a keeper.

Mar 27 08:30 PM

[utilitus:]

On Mar 27 02:51 PM Ergo wrote:

> Chris B: "Somewhere, a genius or team of geniuses is working on an
> artificial intelligence search engine that will answer your questions
> in actual language"
>
> Oh how right you are. Here's one possibility in the works: www.wolframalpha.com/
>
> It's a "computational knowledge engine" that will compute answers
> to factual questions, such as “How many protons are in a hydrogen
> atom?” The objective is apparently taking a step beyond simply returning
> documents that may have info (Google) or a giant database (wikipedia).

Maybe 6 or 7 years ago now, Peter Norvig, key senior scientist at Google and co-author of the worlds' leading textbook on AI, in addition to having been the top computer scientist at NASA who oversaw the design of Mars rovers, etc., showed a video at a seminar at Berkeley (where he, Eric Schmidt and I were graduate students in the early '80s) which emphasized the AI, natural-language interaction with users that Google has seen coming, going back, say, to Norvigs' dissertation on natural language processing w/ Bob Wilensky. (Schmidts' PhD was in the management of large scale software projects.) AFAIK, the last bus Wolfram chased was fractals.

Everybody and their dog is trying to somehow do search (academically, 'information retrieval'), which is fine so long as they're ready to index the whole net (the hard part) - Google could change their search theory anytime, easily. Voice recognition is a priority at MS and others and everybody knows it - another hard part that will again demonstrate that it's the commoditization of evolving standardized hardware platforms modeling the whole environment that is driving this bus 'further', towards a point where thanks to the withering away of information asymmetries society will be recognized to be not a business (Mr. Beale), but a utility.

Mar 28 08:58 AM

[HaavBline:]

I found all of the threats listed here applied to other dominant tech companies such as Microsoft, Qaulcomm, Cisco etc. I can't point any threat that is specific to Google.

Mar 29 01:17 AM