Institutional Investors Still Don't 'Get' Google

Institutional investors are mostly not tuned into the Google (GOOG) zeitgeist even though they own major positions.  As possibly the most over-followed company on the planet, Google investors will hear about every little ripple of information.

The weirdness stems from the Google culture where engineers can spend time doing pet projects and see the show up as offerings in Google Labs or even as "beta" products in the Google portfolio.

When Google comes out with something like Lively it gets looked at, and generates not only puzzled looks but some concerned questions of whether Google has "lost its way."  The fact is that Google throws quite a bit at the wall to see if it sticks.  Plenty doesn’t make the cut, but none (or very very few) are like Microsoft (MSFT) Vista or Adobe (ADBE) Creative Suite.  For Google and other SaaS-styled companies, it’s not about product cycles.  New products, particularly strategic ones, do have a role to play and bear watching closely.

The problem is that many mainstream investors have a hard time sorting out the important aspects of what’s going on at Google from the unimportant ones.  Offsetting the difficulty in separating the wheat from the chaff is a blissfully short memory that generally means any Google weak launches or eventual failures are forgotten quickly.

Google remains an essential portfolio holding as they are perhaps the best technology architecture for modern computing although they occasionally put out some stinkers.  (Requires Windows XP and Internet Explorer?!)

Developing a good feel for Google as an investment requires an ability to make more "doesn’t matter" decisions than we have seen with any technology company in the past.

Comments

[AmesTiedeman]

Maybe they are smart. Do you really believe in this economy GOOG is going to keep up its growth rate? Not likely.

[SilentGoogleGuy]

Google is still a one trick pony. Nobody is buying Google Apps (why buy when a FREE version is available). Google Enterprise has killed Postini's revenue stream. YouTube is not at all monitized. Hmmmm...Why invest in a one trick pony?

[Vikram]

Some thoughts:
1. Like Microsoft and desktop PCs before, Google does not want to be left out in anything major to do with the web. So if there is anything new (and there is a lot), Google wants to have a finger in the pie.

2. #1 does not imply that Google devotes a lot of resources to every new idea. A team of 2-3 efficient developers is often all that is needed to work on a new idea.

3. Google also does not have to spend a lot (if any) money on marketing new ideas; their primary expenditure is on development. Put the idea on the site, and let people try it out. If it catches on increase the resource allocation and the focus.

4. If the idea does not work, then at the least you have now built up internal expertise about that domain. If the flaw is with the implementation, and a competitor grows in the space, you go and buy them. Your internal project has significantly improved your ability to evaluate potential buy out candidates. If the idea itself is flawed (even the competitors are hurting), then you gradually wind the effort down, while having a presence in the space which can be revived if and when the idea catches the public fancy again.

BTW Lively looks cool, a possible precursor to Google sponsored role- playing games, especially role playing games which you can carry on your gPhone.