Google's Costly Rebellion

Once again, Google (Nasdaq: GOOG  ) is out to prove conventional wisdom wrong. According to a story published in today's edition of TheNew York Times, Big Goo builds its own servers and could even get into the business of creating its own chip designs.

There's already plenty of hubbub over whether these initiatives will be good for the company or the industry at large. I have my opinions, but I'm loath to share them. I believe doing so would detract from the larger issue at hand -- namely, that Google has dramatically altered the competitive dynamics in its industry. And that may prove to be really, really bad.

At issue is how many competitors Google has gained in recent months. Here's how it looks now, assuming that server and chip vendors have officially joined the list:

Search Web Access Portals
Yahoo! Earthlink Yahoo!
Microsoft United Online Microsoft
AOL Yahoo! AOL
Microsoft


Productivity
Software

Servers

Chips

Microsoft

Hewlett-Packard

Intel

Sun

Dell

AMD

IBM

Sun

Freescale

IBM

Rackable Systems

What's more, this compilation isn't even close to complete. Dozens of private companies are competing in areas where Google wants to be or already is. Yet, when combined, these firms alone possess more than $34 billion in net cash. Compare that with Google, which has raised two rounds of funding in recent months, giving it roughly $8.4 billion in the bank as of this writing.

Here's my point: As rich as Google is, it may be woefully underfunded for taking on 90% or more of the tech universe. Yet that's what it seems to have planned. It's as if Google wants to build a tech infrastructure so big and impressive that no company will ever want to have an infrastructure of its own. Just outsource your Web applications to us, Google's pitch might read.

That would be an indirect assault on not only Intel (Nasdaq: INTC  ) and Advanced Micro Devices (NYSE: AMD  ) , but also on every server vendor, including server-software vendors such as Red Hat (Nasdaq: RHAT  ) , Sun Microsystems (Nasdaq: SUNW  ) , and IBM (NYSE: IBM  ) . After all, who needs servers when everything is uploaded to Big Goo?

History hasn't been kind to do-it-yourself tech firms. 1980's-era Bob Vilas such as Sun have since dumped most vertical-integration strategies to make room for the cost-efficiency that comes from working with partners. Now, Google wants to rewind the clock. I, for one, don't see it working out well.

Your search for related Foolishness is over:

Intel and Microsoft are Motley Fool Inside Value picks.

High tech. Biotech. Nanotech. Any tech. David Gardner and his Foolish band of analysts cover it all forMotley Fool Rule Breakers. Ask us for anall-access passto the service to get a closer look at the four multibagger stocks the team has uncovered.Go ahead. Your pass is free and good for 30 days.

Fool contributor Tim Beyers thinks he's seen Google somewhere before. Tim didn't own shares in any of the companies mentioned in this story at the time of publication. You can find out what is in his portfolio by checking Tim's Fool profile. The Motley Fool has an ironclad disclosure policy.


Read/Post Comments (0) | Recommend This Article (0)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 514439, ~/Articles/ArticleHandler.aspx, 11/28/2014 5:16:30 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement