Over the last decade, Google (GOOG) has been an undisputed pioneer in technology and the Internet space. But recent developments indicate that this reign of supremacy is gradually eroding. With the high-profile acquisition of Nik Software, a competitor of Facebook's (FB) Instagram, the debate regarding whether Google is as innovative and competitive as it was a decade ago is gaining momentum.
Given Google's dominant place in the Internet advertising food chain, some will say it remains a tech leader. But that's like saying Microsoft (MSFT) is still a tech leader because most computers still use their software. Microsoft today is a tech king but not a tech leader in new and innovative software. Further, an extremely profitable cash cow such as Microsoft does not mean the company is as innovative as it once was - or as innovative as Apple (AAPL) remains today.
Today, management seems to be using a "follow the leader" strategy and this is already starting to cost the company. More than a few of Google's recent high-profile moves, such as the Nik Software acquisition, look like half-baked attempts to quickly cash in on hot spaces. For this reason, the company no longer seems to embody the traits of a high-growth-potential company that constantly innovates with success.
Jumping On The Social Bandwagon After It's Gone
Gmail was one of the simplest, yet most technologically disruptive free services the 21st century has seen to date (not including Facebook). Further, the key to Google's success, not only with Gmail but also with search and online advertising, lies in its innovative yet simple approach to solving a variety of known and unknown needs for both individuals and businesses. When Google+ was launched, it seemed like everyone at Google forgot about those key pillars.
What major pain, known or unknown, was Google+ going to solve?
As far as I can tell, there was no real pain that Google+ would or could solve beyond privacy feature settings when compared to Facebook.
Of course, for years Google saw the hype that Facebook was generating in Silicon Valley for being "innovative" - which was Google's strength. It seems that Google finally cracked at some point and finally devised the blandest possible way to enter the social space. Google+'s lack of true innovation was clear with its lukewarm market reception.
Google+ simply piggybacked off Gmail when the service first launched, and even Google admitted it would only really sink its teeth into the platform if it picked up sufficient momentum. It seemed like Google was merely trying to cash-in on the social media trend with the least amount of effort. Unfortunately, Gmail's wild success wasn't enough to make Google+ anything special at this point.
The real concern here deals with the fact that Google let itself get distracted by the success of a company in a different space that it shares common ground with: the Internet. As well, Google+ was a defensive move instead of an offensive move. Google's attempt to cash in on someone else's immense success equates to a high-profile wash, at best, for investors and brings up serious concerns about management's ability to think outside the box.
Apple is Killing It With the iPhone - What Do We Do?
Android was a complete response to Apple's runaway success with the iPhone. Luckily, Android has been extremely successful, but this doesn't mitigate the reality that it is just another case of Google defensively responding to another highly successful, innovative tech company. Google should have been squashing and battling companies such as Apple and Facebook in a proactive manner by launching new services and or products that were also highly innovative. Instead, Google seems to come up with ideas in knee-jerk-fashion that deliver mixed levels of success.
The hope here is that Google will find the secret formula to mobile ad search, and when combined with Android's huge user base, it could be a huge growth driver in the future. Still, things aren't quite there yet - and "almost" isn't good enough.
Google, now more often than not, seems to come out with new services in a defensive fashion - not a proactive fashion and that is the overriding concern. This leads me to believe that Google is losing its ability to develop truly unique ideas in-house.
Buying Growth By Any Means Necessary
Google has a strong reputation for aggressively and regularly acquiring early-stage companies, trying to capture the next multibillion-dollar idea. In theory, there's nothing wrong with this strategy - as long as Google continues to try to come up with quite a few of its own new billion-dollar ideas. Therein lies the issue though. Google has put all its eggs in the mobile ad basket and has not really looked for any other billion-dollar ideas. Instead, it seems content to just acquire hot ideas, instead of putting in the same level of sweat equity that it used to with its own people. Perhaps I'm wrong but investors measure companies such as Google based on results not effort at this point.
The concern is that this is how Microsoft started its long slow decline into the world of complacent imperial mediocrity - resting on their god-like laurels for far too long. Becoming stagnant or innovative in the tech industry can be a death sentence - or worse: a sentence of purgatory. Microsoft stock has been in purgatory for years and, while Google isn't at that point, this concern shouldn't even be popping into the mind of the investment community but quietly it is.
Google Past Success Won't Guarantee Its Future
Google will doubtlessly remain a very profitable company for the foreseeable future, but that doesn't change the fact that the investment community continues to have very high expectations. Should investors start to sense that Google is resting on its laurels, waiting for the mobile ad space to just come about, the stock could easily start to slide downward.
Even if Google's top line increases, I want to see those increases come from new services or products - not just because the global economy is improving. Therefore, because of Google's perceived increasing reliance on acquisitions, trying to cash in on hot market segments, half-baked ideas like Google+, and being content with what already works makes me feel that the odds of Google's stock easily moving higher is much lower.