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March 19, 2007

Google 2.0, and the Hunt for the Next Googly Thing

Many in the media and analyst community are fretting about the future of Google. While worry about a supposedly "slowing" company that has still grown its share price 30% in the past year might seem misplaced, the company's stock is down almost 4% this year, and that will make this the first time that the company's shares have turned in a down quarter since going public.

What does it mean? The Google 2.0 hypothesis is that investors are nervous about Google's inability to find a second leg for its business. The company remains all search ads, and despite repeated forays into other services -- i.e., Google Finance, radio, Google Apps, etc. -- it has yet to find a new business that takes any heat off the core advertising biz.

True enough, and I'm the last to be a Google apologist, but so what? The $130-billion global advertising business in the middle of the largest change in its hundred-year history. And Google remains ideally positioned to continue to benefit. Granted, the company has to continue to overcome its own growing size -- it wasn't a multi-billion-dollar run-rate company when it did its IPO -- but it is still growing impressively.

So, no concerns? Of course, there are plenty. Let's just start with capital spending. There is a whiff in the investment community that Google could be Amazon 2.0 rather than Microsoft, with capex damaging cash flow, and that has investors rightly concerned.

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