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Google in the New Year

By Mac Greer
December 27, 2006

Shares of Google (Nasdaq: GOOG) are up more than four times in value since the company went public back in August of 2004, and the search-engine giant now sports a market cap north of $130 billion. With its recently announced partnership with NASA, Google is taking its search to new corners of the universe. So what will Google find in 2007?

Bob Cringely is a technology commentator and the author of the book Accidental Empires: How the Boys of Silicon Valley Make Their Millions, Battle Foreign Competition and Still Can't Get a Date. I recently talked with him about the future of Google. I began by asking him whether the YouTube acquisition was a good move.

BC: Oh, yeah, Google had no choice but to make that acquisition. Had Google not bought YouTube, Google would have been opting out of the online video business.

MG: But let me push back there a bit, Bob. It seems like they did have a choice and the choice was basically to say, "You know what? YouTube could potentially get sued out of existence or they could get sued to the point where they're no longer relevant and there's still a question of online video and how that may play out, so we're just going to sit this one out."

BC: Oh, ho ho! Google can't afford to sit anything out. If they're going to be the player that they're claiming to be, if they're going to be the Wall Street icon that Bear Sterns keeps telling us it is, then they're going to have to play in every sandbox available. They were already the No. 2 online video player, with 10% market share, compared to YouTube's 58%. You can bring the rocket scientists in and ask them to crunch those numbers and they'll tell you, Google could never catch up. So they would either buy it or get out of the business, and they chose to buy it, and they made the right move, and it cost them nothing. It cost them stock that didn't cost them money, and the stock went up, so it didn't cost them even less money.

MG: Earlier in the year, you wrote an essay entitled, Google Doesn't Have to Try Nearly as Hard as Microsoft, Yet to Maximize its Success, Google Ought to Try Even Less. I love that title. What do you mean by it all?

BC: Well, the funny thing is that Google actually is headed in the right direction. They can plot out where AdSense and AdWords and things like that are going. They know what they need to do. They're entering radio advertising right now, for example. They're just going to trample in hobnail boots all over the radio business. They're going to do the same thing in the cable TV business. They're going to take over 30%-45% of the total advertising business in the United States, if not the world, over the next five years. Frankly, that's enough. If they do that, they'll meet every Wall Street estimate and more.

MG: And do you think that there's a danger that Google, right now, is so reliant on paid search?

BC: Well, they're not doing as good a job on search as they used to, so in that sense, with their going into all these different technical areas and they have tons of people... They certainly have the talent to do all of it, but their search isn't as good comparatively as it used to be. However, they're not losing any market share. They're gaining market share, so maybe it doesn't matter.

MG: And Bob, Google just announced a partnership with NASA. Is Google going to save the space program?

BC: (Laughs.) Well, with NASA as their landlord, they are. The whole point there was that they wanted to build this huge campus right in the middle of Silicon Valley, and the only place where there was real estate that was available was at NASA Ames Research Center, and in order to make it work, they had to have a partnership. They had to sort of be a NASA contractor to be able to be present there. So it's all a big scam. They're not saving the space program, but they are going to pay the government a lot of rent.

Bob Cringely is the author of the best-selling book Accidental Empires: How the Boys of Silicon Valley Make Their Millions, Battle Foreign Competition and Still Can't Get a Date. He is also the host of the PBS online show Nerd TV.

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Mac Greer does not own any of the stocks discussed. Microsoft is a Motley Fool Inside Value recommendation. The Motley Fool has a disclosure policy.