Google (GOOG) is the most popular search engine, with a mission to organize the world's information and make it universally accessible and useful. But can it continue to deliver and deliver profitably?
Google has serious business problems on multiple fronts.
Mission and Strategy
A quick inventory of Google's offerings would indicate that it now goes way beyond its original mission. It offers social networking, a mobile operating system, cloud applications such as Google Apps, chat messengers, an email client, a web browser, etc. On its products page, it categorizes its products into three groups:
- Communicate, Show, and Share
- Go Mobile
Multiple offerings, even those that are unrelated, are not necessarily a strategic disadvantage. But when a company seriously and measurably digresses from its stated mission without updating it, at the very least it suggests ambiguity in future direction and lack of sound strategic planning. Consider Microsoft's (MSFT) mission statement: "At Microsoft, our mission and values are to help people and businesses throughout the world realize their full potential."
Granted, this is not the most awe-inspiring mission, but it does encompass the entire scope of its offerings while leaving ample room for new products to be offered. Such a mission statement is typical, if not the most effective, for companies with multiple offerings. Apple's (AAPL) mission statement, in contrast and not extensively publicized, focuses simply on what it currently does without committing itself to what it may offer in the future. This, too, is honest and straightforward from an investor's perspective.
Furthermore, compared with its nearest competitors, although Google claims to be offering a plethora of products and services, these are not major offerings in the product inventory of its competitors or even per industry norms. For instance, beyond its core competence of search, which Google claims as top-notch along with its advertising service, it offers Google Docs, which are largely a free and immensely diluted version of the Microsoft Office suite. It has two versions of social networking, Orkut and the newly introduced Google+, in response to Facebook's (FB) growing popularity.
Anyone who's used Facebook and Orkut, would know immediately why Facebook is more popular. It offers a lot more than a friends list and goes way beyond simply social networking. Within the social media space, it is Facebook and Twitter that conjure an immediate association, not Orkut and Google+. Google Maps is arguably better than the maps on Microsoft Bing and Yahoo (YHOO) in terms of level of detail and possibly areas covered, but this reinforces a point made earlier.
In its original core offering of search services, which Google started with, it does exceed the capabilities of its nearest competitors. Both Google Maps and Search, along with advertisement capability -- in addition to its video sharing and search capability in YouTube -- do offer a service that is better, more intuitive and, in the case of YouTube, without major competition. However, as it moves away from its core expertise, the quality, scope, and depth of its offerings seem to diminish markedly.
On another public relations level, Google touts itself as an innovative company with multiple projects that are being continually tested and performed, future products that would offer no less than revolutionary technology that promises to change the way consumers use present information technology. The now retired Google Labs was one outlet to communicate the latest on its research. However, when I compare Google's latest innovation to its nearest competitors such as Microsoft, Apple, and Oracle, I find that what it touts as innovative is the equivalent of a freebie offered by its competitors.
If Google offers the Android mobile operating system, Apple, in order to offer smartphones, develops not only the operating system but the hardware device itself, including its internal components such as processors, chips, and memory components. So does Nokia (NOK). Granted, Microsoft offers only a mobile operating system, but its operating system is arguably more advanced than Android, which is freely distributable and has more security problems than any competing operating system owing to its open nature.
Google is also facing multiple lawsuits over Android's patents and has had to buy Motorola in a rush to protect itself and build its pool of patents related to mobile phones. From an investor's perspective, the acquisition of Motorola Mobility for a premium of $12.5 billion was more in the nature of a fire extinguisher than its genuine intent to enter the hardware mobile platform industry. Furthermore, for Microsoft, the mobile operating system is a logical extension of its PC operating systems, with the expectation, both of consumers and investors, of the same security, stability, and intuitiveness that is a hallmark of the latest Windows PC operating systems.
Again, Google offers Gmail, which it claims is more intuitive, smarter, and better than any service on the market. Gmail does group email conversations making it easier to trace out older messages and a few other features that make it look intuitive -- including a generous email storage capacity of 10GB. However, while it is touted as a major innovative product, included also as part of its business tools named Google Apps for Business, a free email service is offered by many firms, including its major competitors Yahoo and Microsoft.
There are also indications, internally, of an organization-wide strategic shift as Google has increasingly moved away from its core offerings. Under these circumstances, investors are well-advised to adopt a wait-and-see approach in relation to Google's stock before buying. Those who already own stock may want to sell it, if attractive, or adopt a longer-term buy-and-hold strategy of greater than five years and possibly up to a decade.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.