Facebook has the traffic. Apple (NASDAQ:AAPL) has the brand. The FTC is looking into abuse of Google's key search function. The stock is down over 16% for the first half of the year. Local competitors are eating its lunch in market-after-market, as the Web is increasingly balkanized.
Google+ is not the answer to the Facebook question. It's not going to bring in the under-30 audience advertisers most covet. And it doesn't answer the real Facebook challenge, which is that social networks bring people further down the sales funnel than any ad can. That's why Facebook has had all those privacy fights with its user base – it seeks to monetize its traffic by having people lead themselves into becoming customers.
Google retains a key advantage over all rivals, foreign and domestic. It has lower-cost infrastructure than anyone in the Internet space. Google can answer a question, move a file, store files and handle back-end computing tasks for less than anyone else, because Google has focused on costs for its entire existence.
When you learn how to open a window on a server farm, it lowers costs. When you learn how to put most of your services in a shipping container and connect that to the Web in another city, you lower costs. When you host your services on low-end PCs that work like one big machine, you lower costs.
Google is proud of its technical prowess, rightly so. But even the lowest-cost infrastructure retains some cost. While advertising can pay the bills, it won't deliver growth, not when new forms of marketing (like Facebook) can deliver prospects and buyers, while Google only offers billboards.
So Google needs to sell something. Not sell a piece of itself. But sell products, sell services, collect revenue for what it does, get seriously into commerce.
There are many ways to do this. Google could buy a second-tier online store like Overstock.com (NASDAQ:OSTK) and challenge Amazon (NASDAQ:AMZN) in merchandise sales. It could provide support for multiple cloud architectures and challenge Amazon that way. It could pick up an online movie service with ties to Hollywood (like Hulu) and turn YouTube into the master of NetFlix (NASDAQ:NFLX).
All these kinds of businesses, and more, can benefit from Google's low-cost infrastructure and global reach. Google can take something that's small, whose people know what they're doing, and make them stars, global players, at Internet speed.
But to do any of this, CEO Larry Page needs to change his corporate culture. Google needs to respect the sales process. It needs to adjust its culture so the idea of selling is no longer repellent. It needs to accept the fact that a good business model is just as noble a hack as, well, a noble hack is.
Google programmers are great at creating services, throwing them online, and hoping someone will salute. That leads to fiascos like Google Health, which never had connections with the industry it was trying to serve, and so never had a business case, and never had a chance. It leads to leading-edge services like Blogger getting lost in the scrum, Acquia and Wordpress getting all the money. It leads to “winning” stuff like Android launched with patent and copyright risks, so that the only people making money are lawyers and opponents in lawsuits.
Google creates great services, but it needs to own great businesses. It needs to nurture geniuses who can build businesses, not just services but stuff that creates commerce. It needs to have people either paying it directly for products and services, or enable their purchases through someone else.
Google needs to go further down the sales funnel, where the money is, and respect money-makers as it respects technical people. Until it does this it will drift.
Disclosure: I am long GOOG.