Google's Big Mistake

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by: Keith Woolcock

What is the first thing you do when logging into a computer? I am guessing it is one of two things: either you check your messages, or you go to Google (NASDAQ:GOOG). Now, when you pick up your smartphone, what is the first thing you do? You’ll still check your messages and at some point you’ll still go to Google, but I am prepared to wager that the latter happens less often.

Even with an Android phone, I suspect the first thing you do, after checking Facebook or email, is to click on an App. That App is likely to take you through to Youtube, or other content you want to consume. There aren’t that many iPads out there yet, but try to imagine how most of us are going to use them. Will it be more iPhone, or will it be more of a PC experience? Do we search or instead, do we click on a button that takes us straight through to what we desire or need?

Here’s another question, how are we likely to use Internet enabled TV? We don’t yet really know, but my guess is that it will be more like the iPad and smartphone experience; it will be a click through affair and less a searching experience. Does this sound to you like a world in which Google will prosper?

The scenarios I have just described will annoy many people and that’s understandable because what is at stake here is a fundamentally different internet experience. As far as cyberspace is concerned, we are talking about something akin to a clash of civilizations. What is unfolding is rather like the change from pantheism to monotheism. Where there were many gods there will be just one. I am exaggerating of course, not even Apple (NASDAQ:AAPL) will end up dominating all the internet, but the internet will become a little more like the modern-world than the ancient world: the temples we worship in will only have one god, not many. Steve Jobs then is the Akhenaton of the Internet, its first monotheist.

Google’s Big Mistake

Bring together a group of company chiefs, such as the heads of Google, Intel (NASDAQ:INTC) and Sony (NYSE:SNE) and you can bet that what pops up first in the conversation is profit. At some point, probably by the time the brandy and cigars arrive, they might get round to considering the customer. On Mount Olympus, when the Gods sat down to dine they didn’t spend much time talking about the little people. Google TV fits this pattern, it is corporate muscle flexing. I can picture what Google and its friends get out of the exercise but it is less clear how you and I benefit.

It wasn't always like this. When Facebook and Google were founded there was no sidling up to Bill Gates, or other Hi-Tech deity. In the early days neither company gave much thought to money. It took Google four years to turn in its first profit. When Brin and Page started they didn’t even have a business plan, what flipped their switch was building the world’s best search tool. Google is the best example of the Net's great zen-like irony: don’t search and you will find. If you want to be really huge don’t focus on money, focus instead on being the best, or being first. Get that right and the millions and then the billions will come to you.

That was then, now Facebook and Google have quit Eden and left their Golden Age behind. Both are focused on profit first and customers second. This is not good karma as the following exercise demonstrates, type: how to cancel my Facebook account? in to Google. When I tried this last week there were 92m hits. Facebook is struggling to make a profit from its considerable customer base. Its response is to attempt to foist ads onto them and meddle with their privacy. It has been publicly flayed for its pains.

On the desktop Google works beautifully. Billions are earned from selling ads and key words that seldom distract us and often are an aid. Unfortunately for Google the game is changing as the internet becomes dominated by smaller screens, or TVs that are watched by families and other groups. These devices are pushing Google to the edge of our internet experience; we’ll still use it, but less so. Instead we click those Application buttons that take us through to what we need or want.

Leaving Eden

The internet is a moral and ethical minefield that engineers, mathematicians, scientists and accountants often struggle with. Yes, it is possible to win millions of customers but your relationship with them is more complex than it was in the old economy. You are privy to your customers' secret lives, which means that your relationship with them is closer to that of a priest, a psychoanalyst, or a counselor. With that in mind consider the following statement, which was made by Eric Schmidt, Google’s chief executive, when he was asked about privacy: “If you have something that you don’t want anyone to know, maybe you shouldn’t be doing it in the first place.”

Hardly encouraging is it? You can imagine Edgar Hoover, the infamous head of the FBI during the McCarthy era, nodding his head in approval, even though his own private life was a pretty sordid affair. Kim Jong-il would sympathize too. By contrast, you and I know that humans are made from crooked timber.

Google and Facebook

Google and Facebook have gone from being sure footed travelers in cyberspace to being clowns, or something rather more sinister. In Google’s case the future looks starker. Yes, Facebook might go the way of Bebo and Myspace, but for the moment at least there does not seem to be a serious alternative out there. Google, by contrast, faces a serious threat from Apple and regulators. Even though the Android is proving a popular device it is hard to see how Google will profit. The software is given away for free and if I am right, advertising will be less important than it was on the desktop.

Likewise, it is not hard to see that internet TV might eventually prove a winner, but that doesn’t mean that Google will prosper. We are living in a media centric age, a smart paradigm, where content is consumed. It is easy to see how Apple, Akamai (NASDAQ:AKAM) and Disney (NYSE:DIS) benefit from this but it is less clear how Google wins. Google’s share price is telling us something and you don't need an internet enabled TV to see the writing on the wall.

Disclosure: No positions