Over the course of the last couple of years, there have been plenty of occasions to wonder whether Google (NASDAQ:GOOG) was out of its noodle.
What started out a simple search company with a Spartan interface and non-intrusive ads grew to take the search engine industry by storm, becoming the engine of choice through little more than word of mouth.
I thought I'd examine the reasons Google's taken the world by storm. Not least of which is that it seems the company has historically had an almost psychic grip on where the Internet is heading. Google's IPO prospectus warned: "Do not be surprised if we place smaller bets in areas that seem very speculative or even strange when compared to our current businesses." Google has already proved that several times.
Gmail
It was a strange moment when Google copycatted traditional portals -- Yahoo! (NASDAQ:YHOO) and Microsoft (NASDAQ:MSFT) spring to mind -- in offering Internet users free email addresses with a whopping gigabyte of storage space. So strange, in fact, that some of us -- myself included -- thought Gmail was an April Fools' Day joke.
Despite the howls of privacy advocates, the Gmail service also proliferated through word of mouth -- Google's original M.O., and a brilliant marketing tactic. Though still in the beta-testing phase, Nielsen/Net Ratings already claims Gmail is the seventh most popular email service, with 980,000 users.
These days, it seems that Gmail is closer to a Google-type coup than we might have thought at the onset. It goes without saying that email is an essential communications tool. Years after it became nearly ubiquitous, there's great benefit in being able to aggregate and search one's own data.
Gmail has taken that whole concept to an elegant new level. Even more so, Gmail performs machine scans of emails to post targeted text advertising (in the same subtle and Spartan way that Google's advertising works). In addition to sponsored links, I recently noticed that political conversations zinging back and forth between my friends through Gmail have been appended with related news links as well. Wow.
Glog?
Google's madness seemed even more pronounced with its purchase of Blogger. (Of course, it's not really called Glog.) First response: Hadn't they heard? Blogs don't make money.
These days, though, the purchase seems prescient. Blogging has steadily been gaining confidence among Web surfers. So-called "hobbyist blogs" often contain darn-near expert opinion on a range of subjects. Bloggers have, at times, outscooped journalists from traditional news outlets. This year, for the first time ever, bloggers were allowed access to political conventions, a sign that blogging was hitting prime time.
I've wondered for a while whether through its purchase of Blogger -- a democratization of publishing -- Google was making a bet on providing its own ever-expanding source of content, beyond what Microsoft or Yahoo! had figured out yet -- in other words, leveraging a built-in, growing set of users (and readers) to nurture its very own source of increased ad revenues.
Gbrowser
Now, rumor has it that Google is contemplating its own browser. The company has snapped up the domain name "Gbrowser.com," as well as some employees of Microsoft, who worked on the Internet Explorer browser.
There are also talks of involvement with Mozilla's open-source browser (Firefox, in case you haven't heard), which is the current favorite when it comes to nibbling at market share as Web searchers begin to fear the security flaws in Microsoft's Internet Explorer.
Judging by Google's history, a Google browser would likely be an elegant Internet appliance that would integrate the best things about Google's products and services, and likely would come up with innovative approaches to surfing the Web, and organizing its information for personal use.
More G-nius
As if we thought Google could stop innovating. Right. We all expected it, and Google Desktop has already spiraled its way onto many of our machines by now. Although some might find it a wee bit creepy that it ferrets out keywords from AOL (NYSE:TWX) Instant Messages as well as email, Word documents, and the whole PC desktop enchilada, the truth is, the service works like a charm and beat rivals to the punch (though likely not for long).
And then there's Google's latest adventure. The company acquired Keyhole, a satellite mapping company. What it will use that for is unclear, and how it might mix in with Google's other products and services is something I, for one, look forward to learning -- it's sure to be interesting.
The G-force
What do all these things have in common? These are the ways that Google can capitalize off of its brilliant targeted advertising. And it needs to. According to the final prospectus connected with its IPO, in 2003, Google derived 97% of its revenues from advertising.
Why is it brilliant, when people hate Internet ads? Because, unlike many banner ads that bounce, flash, zoom, or fox-trot across your screen, Google's simple text-based ad results often segue so well with the search that they can hold actual interest for the user. Even the most grudging critic probably has to acknowledge that there was a time when he or she clicked on one of Google's ads because of its relevance to their interests. And that goes for Gmail and Blogger as well.
USA Today recently reported on a study showing that despite Internet users' hatred of advertising, targeted Net ads do work. On the other hand, we already know that advertisers are worried about the effectiveness of traditional print and television advertising. Therefore, online advertising is likely at its peak.
Relevance. That's where Google's got it down, especially with its AdWords and AdSense programs. So while Yahoo!, Microsoft, AOL, and the rest tend toward advertising on their hubs that can be garish and annoying, Google's been playing right into what Internet users want.
Oh, my golly, Google
I've even left out some other great Google products, such as Google Local, Froogle, and the like, all of which exhibit the same characteristics. There's also what's been percolating in Google Labs as well. Recently, I noticed interesting targeted searches launched for the U.S. Government, Apple (NASDAQ:AAPL), and Linux, to name a few more opportunities for targeted advertising tied to specific interests or content.
Whether investors should be jumping in at current levels is another story, and one that seems like it's going to be a cliffhanger. Google has a market cap of more than $46 billion, and its shares have risen steadily since the IPO in August. (Google shares have been tempered just a smidge since the expiration of its lockup period; today they're up 73% from their first day of trading, compared with 81% at the end of last week.) Many have questioned what appears to be a lofty valuation. Furthermore, another recession -- or any real or perceived threat to the viability of Internet advertising revenues -- would hamper Google's ability to increase revenue and earnings, and investors are already expecting them to grow at a hefty clip.
Meanwhile, rivals have long since stopped ignoring Google (and maybe wishing it would go away), launching a myriad of competitive features. Amazon.com (NASDAQ:AMZN), a Motley Fool Stock Advisor pick and certainly a brute force in forward thinking, recently launched A9.com. Amazon has made it obvious that it recognizes and embraces the links between search and commerce, and that it knows how to apply leverage in that field. Furthermore, any number of upstarts could emerge and trump Google, just as it once trumped the rest.
So, sure, in so many ways, Google has put the "gee-whiz" back in "G." I often feel a compulsive need to think about or write about Google innovations, as some of you have probably noticed. While that makes for great fun, such excitement -- and such a high profile -- means Google investors might not have to search too hard to find the "G" in "gut-wrenching."
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Alyce Lomax does not own shares of any of the companies mentioned. When she goes to search, her fingertips automatically type "Google" before she thinks much about it, which is a little scary, come to think of it. The Motley Fool has a disclosure policy.
