In comparison to technology titans Apple (AAPL) and Microsoft (MSFT), as an investor, I'll take Microsoft over Google (GOOG). Microsoft's patent portfolio and Apple's hardware competence leave them well-positioned to enter new markets, while Google's most-marketed products are more defense-oriented - meaning built with the intention of protecting market share and trajectory rather than disrupting new markets.
But with the current crop of social media companies in Bubble 2.0 - LinkedIn (LNKD), Groupon (GRPN), Pandora (P), Zynga (ZYNG), Facebook, Twitter and a number of others still being inflated by over-sized investment funds in the venture capital market enjoying escalating valuations - it's worth asking: how far can any of these companies grow in terms of real profits before running into Google's turf? How big is the online advertising market, and does Google's entrenched customer base and ability to leverage network effects - to integrate all other data from Google's products to create innovations in advertising that improve ROI for advertisers while also increasing Google's profit margins - make the company an unstoppable force?
Much depends on the approach utilized by these social media companies, and whether they are sufficiently different from Google, the industry incumbent. Thus far, we see they have two critical commonalities with Google:
1. Social media companies rely on talented software engineers (and thus a price war for talent has ensued).
2. Infrastructure development and management are the cost centers; in other words, the cost of building and running large data centers that store and transmit information through the Internet.
Google is far better positioned along these dimensions. The company is built precisely to compete in such a regard. The real social media winner needs to find a way of growing and utilizing different assets. Companies that leverage open source technology is one thing to look for, as is an ability to decentralize infrastructure costs. When we examine P2P architecture systems - systems like bittorrent and bitcoin, or hacktivist groups like Anonymous and LulzSec - we can see examples of how decentralized infrastructure might operate, and the trajectory it may be on.
One challenge with digital decentralization is that of jurisdiction/legislation. Systems like bittorrent are not friendly to national legislation, as they make identifying a singular jurisdiction for prosecution much more difficult (unlike a corporation, which can have an headquarters and official incorporation in a specified locale). The currency system used to manage costs and wealth in a shared infrastructure environment can also conflict with national currency laws. U.S. Sen. Charles Schumer's call for a ban of bitcoin - which manages the infrastructure needed to verify/authenticate transactions using the computing power of all of its participants, which in turn are rewarded with bitcoin currency for sharing their computing power - is a prime example of this.
In sum, I think the current crop of social media companies compete too closely with Google. The trajectory to disrupting Google's reign over online advertising is becoming more clear, but legislative barriers will need to be removed before they can be actualized.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.