The browbeating Google (GOOG) is getting from short-sighted investors for increased capital investment in social media (where it's behind), online advertising (which it commands) and cloud servers (to meet exploding demand) is a bad sign.
It also is not good that Google CEO Larry Page is refusing particulars on upping investments last quarter over 50% to more than $1 billion each in acquisitions, in online sales and marketing, and in research and development. Without the latter, there is no innovation, although spending alone is no guarantee, as demonstrated by Google flops such as the Chrome browser and not-so-social Buzz.
More than $35 billion in cash reserves and a rigorous acquisition spree haven't saved the Internet giant from missing the social-media train. Although Groupon (being valued at about $20 billion) rebuffed its $6 billion takeout offer last year, Google could acquire any number of thriving social networks, including LinkedIn, Twitter or Zynga (in which it has $100 million invested).
Buying Netflix (NFLX), which has more than doubled its market cap to $20 billion by streaming movies over all platforms and investing in original and first-run fare such as Mad Men, would give Google's YouTube a ferociously branded boost. (That black-and-white video doodle on Google's sparse homepage Friday in honor of Charlie Chaplin 122nd birthday was no coincidence.)
With a racing private valuation of $80 billion, Facebook can bump along the bottom, innovating, failing and succeeding without being publicly distracted or chastised, which explains its reticence to go public. Facebook has been swift and agile in developing ad networks, sales, payment, gaming and other mobile features off of its 650 million social user base.
This raises the question whether even relatively new big public companies can afford to stumble, scramble and search like innovators in order to succeed? The answer the market wants to hear: Only if they accomplish the enterprise and meteoric growth promised --which, of course, is only part of the risk.
Risk is a word that is relative to a behemoth like Google, whose first-quarter profit were up 15% over last year to $2.8 billion on a 27% rise in revenues and solid metrics. Google also has increased by nearly 50% what it spends on compensation to stem employee defections, but is tying future bonuses to Google becoming more competitive in social, clearly its Achilles' heel.
Google's most meaningful social media initiative to date, +1, goes the extraordinary distance of shifting its core search algorithms to the trusted preferences of friends and similar searches.
Even the meteoric adoption of Google's Android operating system isn't sufficient to secure its social fortunes, even though the mobile platform could own half of the smartphone market by 2015, analysts say. Instead, the market dwells on Google's stagnant search share (66%) and share price, which lost 7% after its earnings announcement and was downgraded by CitiGroup.
Just as important to this peculiar dance of rivals is the notion of fleeting domination or whether any company can truly "future proof" itself, as RIM (RIMM) CEO Mike Lazaridis said last week after launching the new Blackberry Playbook. Its HD display is already suffering from the dearth of available video (ala Apple (AAPL) iTunes). No sooner does a company command an industry or sector than interactive technology renders an edge for some new competitor to put it to better, smarter use.
Nothing-- not even Google or Steve Jobs' Apple and its closed ecosystem of super devices -- can remain on top forever. That phenomenon takes new twists and turns with every earnings quarter and tech advancement. Consider more evidence just this week:
- Amazon (AMZN) jumped into the advertising fray with an ad-supported version of the Kindle, selling at a $25 discount or for around $100. It clearly opens the door for the cloud-supported retailer to charge into the tablet market in a big way. CEO Jeff Bezos has his sights set on what Kleiner Perkins partner Mary Meeker describes as the $5 billion mobile Web opportunity by 2015, in which mobile apps and videos will catapult consumers and business users into the cloud. Its 3D printing, streaming music, movie and book services, marketplace partnership, payment systems, social underpinnings and now its new memberships into the "special deals" club puts Amazon in everyone's sweep spot. Amazon has the most sustainable, powerful media ecosystem of all.
- On the heels of selling its movies on Facebook, Time Warner (TWX) is pulling yet another rabbit out of its digital hat with the new "digital everywhere" app that allows consumers to access and pay for (once) its and other studio films for unlimited play wherever. The question is whether the stop gap app is too little, too late to offset steep declines in DVD and home video and the onslaught of over-the-top streaming video. When Netflix saw these trends coming several years ago, CEO Reed Hastings moved decisively to change the course of his company and the industry.
- Wall Street analysts and tech aficionados like the New York Times tech reporter David Pogue criticized Cisco's (CSCO) decision to kill its Flip video phone camera, even though it leads its sector two years after Cisco paid $590 million for the business. In a hasty response to shareholders enraged by weak returns, CEO John Chamber is cutting jobs and consumer-side innovation to concentrate on Cisco's core enterprise business. Kodak and others responded to the dramatic decline in film and camera sales in recent years, while Cisco refused to believe consumers were simply resorting to smartphone snap shots and video.
- Yahoo (YHOO) is in at least its fifth year of rethinking what it wants to be while its stock price and balance sheet languish. The board is said to be deliberating whether its harsh CEO Carol Bartz should go, having clarified its platforms, simplified its corporate structure and perked its search advertising with partnership support from Microsoft. No matter who is put in charge, Yahoo cannot be saved, because it refuses to innovate its business model -- even by acquiring the right start-ups. For now, Yahoo remains the longest running, long-suffering misstep on the Internet.