There are many ways you can view Google (GOOG). First, there is this large group of people sitting on a campus, each with a brain the size of a planet coming up with amazing ideas that advance humanity and all of these people are as wealthy as Croesus because of their stock options.
A second view is of a company with enough money in the bank to buy a couple of countries but which only has one revenue source, and that is under threat from several directions.
The third view is from that of being a consumer. Google has some pretty neat free products, without which the internet would be less rich. And they have pushed the technology to make all their competitors perform better.
Just as there are more than three views of Google, so there are at least four major problems they have to address. The first is that their sole big contributor to wealth is search advertising. They also have YouTube, which they bought and which is big, but not profitable. Gmail is also a success, but again not a massive earner. Then they have the failures; Lively was a 3D virtual world which is now canned, Knol is an online knowledge competitor to Wikipedia that hardly anyone uses, Wave is a new way of communicating which is not taking off and Reader is another failed idea. There are loads more: Orkut, Video File, Catalog, Answers, Web Accelerator, X site, Checkout, Viewer, Voice Search, Coupons, etc.
The thing is that most of these would have worked if Google had understood marketing. They seem to think that just because their original search succeeded as a result of product excellence, it means that everything else will do the same. And they are very wrong. They need to communicate with the outside world a lot more effectively. Which brings us to their latest failure, Buzz. This social networking product was tested rigorously by the thousands of genii in the Googleplex till it was perfect. But when released to the real world it suffered an immediate disaster because of its disregard for privacy.
Their second problem, and the one most relevant to gaming, is that computing and the internet are moving away from being desktop PC dominated to being mobile phone dominated. Over the next few years the production of smartphones will ramp up to a billion units a year. So processing power and an internet connection in people’s pockets will become ubiquitous throughout the developed world. In much of the undeveloped world there will be a jump from nothing straight into smartphone based computing. Google’s revenue depends on the desktop PCs that will soon be very much second best. They are yet to demonstrate a convincing business model to monetize this move to smartphones.
The third problem is that their flagship product, Google search, is becoming less relevant as people’s internet usage changes. Social networking is now more important. Facebook has now beaten Google for weekly page views in America. And Facebook can often provide a richer and more rewarding browsing experience than search can.
Number four is that their competition is wise to them now. Google search won purely because it was vastly better than the alternatives. For years nobody tried to take them on seriously with a better product. But now with Bing we have something that is actually considered better in several key areas. So people are moving to it in ever increasing numbers. And when it comes to mobile operating systems, Google made their Android open source. Nokia (NOK) retaliated by making their Symbian operating system (which has about 40% of the smartphone market) also open source, in one of the biggest commercial giveaways of all time. So for the first time Google is having to take on equal competition, which is not good for Google because they lack the marketing clout of these competitors.
It is this lack of marketing understanding that is Google’s biggest weakness. Their world view is technology driven whilst the real world is marketing driven. Steve Jobs at Apple (AAPL) understands this and is happy to release weak technology (no Flash or multi tasking on iPhone for instance) with strong marketing, knowing that it works commercially.
Author's disclosure: None.