Google Has a Short Half life - Maybe Another 2 Years of Dominance

Discussion in 'Stocks' started by ByLoSellHi, Jan 7, 2007.

  1. Okay, let me just say that this is an interesting article on many levels. The methodology is odd, but it's also humorous. But could it possibly be right?

    The title is obviously interesting and the conclusions are controversial, but pay heed to what he says about the costs a company like Google incurs trying to grow.

    If the author's hypothesis rings true ultimately, think about how fragmented this segment may be in a few years, and the prospects for Yahoo.

    Google's Dominance Is More Than Half Over

    Posted on Jan 7th, 2007 with stocks: GOOG

    Mitch Ratcliffe (ZDNet) submits:

    Skrentablog welcomes our new insect overlords from Google (GOOG), arguing that the company has won the battle for market dominance in the "third age of computing." Google has, according to this thinking, and it is compelling, become the environment in which all other companies must compete because it enjoys a 10 billion-to-one "fan-out effect." In other words, because Google links everywhere, it is the starting point for almost all Net usage.

    But I want to point to an important fact that Skrentablog doesn't address, even though it raises the question in the first few lines of a long, worthwhile posting:

    IBM 1950-1980
    Microsoft 1984-1998
    Google 2001-

    What stands out in those dates? IBM (IBM) enjoyed 30 years of dominance. Microsoft (MSFT) 14 years. That suggests that the half-life of the value of market dominance is falling by more than 50 percent in each "age" of computing. Extrapolating from that trend, if we can call it that based on only two ages of computing, Google in 2007 has a year or two of dominance left.

    And, I think, it is reasonable to say this contraction of the dominance cycle is real, as computing is the continuation of earlier information ages that have lasted roughly half as long as the preceding ones: Bureaucratic management and storage of information (approximately 100 years, from 1850 to 1950); printing (1500 to 1900); scribal recording networks maintained by church and mosque (600 to 1450).

    Today's high CPMs at Google—Skrentablog's are suspiciously high based on my analysis of Google's business, though John Battelle affirms them—are not evidence of a sustainable model, as all previous forms of advertising have shown. The only thing CPMs do is shrink. In Google's case, I suspect that some CPM inflation is due to defensive purchasing of keywords by brands seeking to usurp competitors attempting to hijack interest by searchers, a phenomenon that could have drastic consequences if the spell of search marketing shows any cracks.

    Skrentablog also points to low switching costs as evidence that Google will continue to grow market share beyond today's alleged 70 percent to 80 percent of searches. This is also a reason that Google must spend more to acquire additional traffic according to New Lanchester Strategy, an intriguing approach to understanding the dynamics of monopoly and competition. It is very hard to acquire more than 83 percent of a market without experiencing skyrocketing costs of customer acquisition. In Google's case, those costs might include having to buy upstart competitors that, facing very low costs of entry in a vertical search category, start to hive off Google's most valuable traffic.

    Google's time is shorter than anyone is ready to acknowledge, as everyone is too busy trying to figure out how to profit from working with Google. That's the wrong place to be focused, if you want to build your business on stable ground.

    GOOG 1-yr chart: [​IMG]
  2. This is a truly moronic analysis.

    Problems are endless:

    (1) Using 2 data points to extrapolate "dominance cycle contraction".

    (2) Total lack of "software engineer" level expertise...
    Which results in Tunnel Vision on search...
    When, in fact, GOOG is not a "search engine"...
    But rather the world's fastest, cheapest supercomputer...
    Custom built for web-scale apps...
    That can be leveraged to provide virtually any service cheaper than anybody else.

    (3) GOOG's master plan to replace the Windows desktop for home users...
    With a cheap Google Appliance/Web thin client apps/Google supercompter...
    Has ** not even begun ** to be seriously rolled out.
    (Note MSFT can have the business market...
    GOOG just wants the 500 million people in the world with money...
    Who are sick and tired of the hassles of Windows systems).

    (4) The idea that search and ads are worth $500/share... is completely nuts.
    Obviously, a lot of very sophisticated people...
    Are betting on the "paradigm shift" discussed in #3.

    There is a fundamental problem...
    You need a Computer Science degree to understand what GOOG is doing...
    But typing "Google OS" into any search engine is a good start.
  3. If only the computer science grads bought Google it wouldn't be at 500 today.
  4. Google will eventually dominate the transfer and exchange of information through all mediums on planet earth. The market cap will exceed 10 trillion unless the gov decides to try hault its unpresedented growth like with microsoft.
  5. 10 trillion?

    That's more than the GDP of the United States.

    What valuation and growth models do you use?
  6. I am sure that most users will be perfectly comfortable handing over all of their data to Google via exclusive use of webapps.

    I'm sure businesses will be totally cool with that too. They'll want Vista for Information Rights Management but then they'll turn around and give their protected files to employees that use Google OS.

    If anything Google will utilize the enormous amounts of dark fiber its been buying up but not for this BS the network is the computer crap that died with the terminal.

    Oh I have no doubt they will try it as they are already trying to roll it out (Google docs & spreadsheets, etc.). But GOOG only attracts users because it is free for them. Is GOOG going to charge and watch its customer base evaporate or will it be free via advertising (which they have almost already milked dry)?

    And let's face it Windows is dominant because of application compatibility (network effect, etc.). If the network is the computer and I'm using Google OS will my company's preferred software work on it? Oh but wait Google will just write webapps to take care of everything. Sure, sure.

    Now I think Google could make money with their ebay clone and their this and that clone. But all Google does is copy other company's that are usually earlier and better (see Google Finance). Now sure this is what put MS and Apple on the map but the key here is that most of the stuff MS/Apple ripped off made money whereas GOOG is ripping off stuff that is given away for free.

    Google's end users face the lowest switching costs in the history of business. I just click another button or type in another url. All of Google's good will could dry up in a year if it falls out of favor with people. Already other search engines are starting to outperform in relevant search (although this is hard to prove). But I have heard from IT/CS people and from lay users that they believe Google's results are increasingly irrelevant.

    Again that's not to say that will happen but it could happen. It's just silly to argue that Google is going to take on MS when Google has no expertise in the area. They can hire and hire as much as they want and even if they did manage to get the talent together they are going to start from scratch facing the biggest uphill battle in history (displacing Windows and Mac OS and Linux & friends and competing with other would be webapps and online services). Let's face it in most arenas GOOG competes in they present shoddy knockoffs.

    I'm not bearish or bullish on GOOG. I just see the arguments that they will rival MSFT in MSFT's own backyard any time soon as a little silly. I don't think the network is the computer either.

    *I haven't bashed AdSense because frankly it's awesome.

  7. Shoddy knockoffs?

    Google search is the best there is.

    GMail is the best there is.
    Great, simple interface. Near zero spam.
    Anyone who still uses Outlook instead... is what's called a "late adopter".

    And you missed my point.

    GOOG is not out to displace MSFT from the business world...
    Power users will always need a powerful OS.

    It's the 90% that ONLY need Web, email, word, and multimedia...
    That will replace Windows boxes with a FREE connection to GOOG's supercomputer.
    These lucky people will be freed from MSFT hell...
    OS cost and installs, viruses, spam, endless complexity.

    And you twist people's words.

    I said one needs a Computer Science degree to understand what GOOG is doing. Very true.
    So you TWIST... and say only CS guys will buy GOOG. Silly.

    At the IPO most of the stock was held by Silicon Valley venture capital pros... and it still is.
    Hedge funds and venture cap guys have dozens Engineer Consultants on staff...
    And they understand the "paradigm shift" GOOG is working on.

    Your post is actually the first intelligent post on GOOG that I have seen here...
    Everything other post is just nonsensical re-crunching of universally known P/E ratios and whatnot.
  8. This is a span of many decades

    A market cap of 1 trillion is very much possible in the next 4 years though
  9. I can see your point about average users.
  10. I agree.

    However, I do have a computer science degree and I've worked in Silicon Valley for more than a decade and I think the rest of your post is full of s**t.

    First of all, from what I've seen, the more you know about technology the worse you'll do as a tech investor. Tech stocks, particularly ones less than 5 years old, move on fads and dreams far more than on computer science.

    Of course this will discredit the rest of my post, but I can deal with that. :)

    All this talk about the Google supercomputer is BS. Scaling web apps simply isn't that hard, and most important, scaling is not a barrier to entry on the Internet the way it is in almost every other business. You can start a web service and start attracting mind share for less than a million, just like Google and Yahoo and all the other Stanford dorm room startups did. If you have a good enough product and get the eyeballs, money will be no problem, and like I said, the technology of scaling web apps isn't rocket science. How many companies have had great products, attracted eyeballs, and then failed because of they couldn't scale? I can only think of one, Friendster.

    If Google has any durable competitive advantage at all, it's not going to be in IT.

    As for Google's master plan and the Google OS, do you have a shred of evidence that Google is actually banking on this? I think they know what you clearly haven't figured out, that a web-based operating system provides no barrier to entry whatsoever. If your Google OS only lets you access Google web apps, nobody will want it. And if it lets people visit any page and run any app, then Google has no structural barriers to protect their web apps business and their revenues. The only thing they have is a better mousetrap and we all know how long those last on the Internet.

    #10     Jan 8, 2007