This weekend, Chris O’Brien (San Jose Mercury News) referred to an "identity crisis" at Google (GOOG), which immediately reminded us of a litany of technology companies which have ended up dabbling in too many markets for their own good. Breadth ultimately undermined synergy. It isn’t hard to see where Chris is coming from when it comes to the multitude of Google's grand visions and their implications.
Google is a great company. One of the greatest. It is unlikely to fall victim to the myopic adventures that have eroded market caps at other companies, yet one has to wonder just how far Google can stretch its domination of online advertising into online applications, telephony and even cloud computing. How much distance is there between its grand visions and what it can deliver competitively, free of massive (ad revenue) subsidies?
That is why the discussions about the technology requirements of cloud computing (networks, security, systems, manual labor for starters) are relevant to Google, despite its dependence upon mystery bordering on secrecy.
Cloud Isn’t Easy… Yet
We’ve talked for months about the major barriers to cloud computing and the confusion about cloud driven by the endless marketing repositioning exercises that have played themselves out since Carr’s "The Big Switch" lit a fire under the information technology industry. In the "dizzying economics of cloud" we’ve pointed out cloud will have ROI challenges until networks evolve (infrastructure 2.0) to support new loads, new movement and more dynamic environments.
Today, most followers (except the likes of competitors like Microsoft (MSFT) and some within the enterprise IT community) like Google because of its aggressive pricing strategy for its new products. Yet at the end of the day when its new initiatives become material to its revenue performance, the company may be subject to new constraints. The economics of cloud will likely matter when revenues are material.
Massive advertising revenues may have woven a beautiful and distracting curtain for the Google cloud computing wizards to stand behind. At some point those curtains will be parted and the sustainability of the vision will be proven or disproven. Those considering making a strategic change to cloud may want to know just how viable their service provider’s unit is… versus the success of its other ventures (ala search).
Dignan’s recent article on Google's Revolutionary Chrome OS again raises eyebrows for yet another Google feat of vision, with more “shrapnel” for a growing list of potential technology competitors.
With the Chrome OS announcement Google is entering the software stack game and it’ll have implications for Linux, the enterprise, the cloud and Microsoft (albeit much less than you’d think). Coupled with Google’s long overdue move to remove the “beta” tag from Google Apps the move into the operating system business all begins to add up.
- Larry Dignan, ZDNet, July 8, 2009
Notably Google doesn’t have the legacy code burdens faced by the enterprise IT players who architect for layers of capabilities and past decisions in complex enterprise environments; they have a different configuration of burdens. It also doesn’t have the legacy experience and customer base, especially when compared to Microsoft or even Amazon (AMZN).
Google is perhaps best-suited for consumer technology markets, where the company can compete for less demanding, less complex and yet underserved segments. With Cisco (CSCO) talking about web-based applications and Microsoft Office Web Apps on the horizon it seems natural that Google could be in the best position to monetize the consumer segments where others stumble or simply flip pared down solutions.
A recent editorial by InformationWeek’s Art Wittmann really hits the spot:
So while the Chrome OS isn't likely to have a short-term profound impact on business users, consumers are finally getting the attention and the products they deserve. Microsoft understands the stakes--and in an ironic turn of the tables, while Google touts a vaporous OS, Microsoft is delivering Windows seven months early. Let the games begin.
- Art Wittmann, InformationWeek, July 20, 2009
Internet advertising powerhouse Google has managed to put much of the IT world on notice. The real question is just how much of this coming transformation will it be able to monetize versus subsidize? While those of us in enterprise IT may appear confused by where Google is going, it may simply be re-architecting IT for consumers.
At some point then it would make sense for Google to position itself ever more broadly as a consumer technology company. Yet as Chris points out, that doesn’t fit cleanly with search advertising.
This inherent contrast between search giant and consumer IT incubator is both a risk and opportunity at a time when users are facing ever more choices for operating systems, computers, servers, applications, you name it. Given the heightened level of competition in IT (versus search), Google may need more resources and time than originally estimated; it may also face unanticipated competitors, from the likes of Apple (AAPL) to a host of service providers leveraging new breakthroughs in IT innovation to deliver new consumer technologies and applications.
For the foreseeable future Google’s fortunes will likely continue to be tied to advertising revenues, which isn’t all that bad. Microsoft’s Bing may have more impact on Yahoo (YHOO) than Google, at least in the short term. Yet it appears that Google is evolving from a strong position in a large market to weaker positions in consumer IT markets experiencing growth, disruption and heightened competition. Where it goes tomorrow may have more to do with execution than the power of its legacy assets.
Disclosure: Long AMZN.