Analyst: Google excels at 'good failure'

Summary:No guarantee that Google's push into areas such as travel and social media will ultimately succeed, Ovum analyst notes, but adds that company's track record of failing well will stand in good stead.

Google's extended acquisition spree over the past few years may not all reap successes but its diversification beyond search is necessary, notes an analyst, who adds that the company has a good track record of having "good failures".

The search giant in April ratified its US$700 million acquisition of travel search company ITA Software despite opposition from industry players. It also bought security firm Zynamics, and mobile advertising firm AdMob, among others, in recent years to extend its reach beyond its core search engine business.

Social networking, in particular, is an area Google is buying into as it aims to keep pace with market competitors such as Facebook and Twitter. Last year, it splashed cash on companies such as virtual currency software developer, Jambool, as well as social media startups Angstro and Slide efforts order to build a viable social media platform.

Google's prolonged buying spree in diverse markets, however, does not mean the company is diluting its core business, said Carter Lusher, research fellow at Ovum. Rather, he noted that it is "imperative" for technology companies to penetrate new markets as their core business could get disrupted in a fairly short time, as seen when Google entered the scene and quickly dominated the search market.

"It is critically important for large-capital, publicly traded companies to expand their addressable markets in order to generate the growth that employees with stock options and investors demand," Lusher told ZDNet Asia in his e-mail.

He added that Google's core business and brand is not diluted because the company does not compromise investments in its core business to maintain its dominance in this market.

However, while complacency might not be an area of concern on its part, the analyst warned that the company's "ambitious outreach" might become a significant issue as it would have to manage its growth and remain innovative in light of its many diverse ventures.

That said, Lusher acknowledged that Google has excelled at "good failures", which he described as the ability to fail fast, cut losses, learn from the experience and move on. "Failure is not a bad thing, but failing to fail in an effective manner is," he said.

Perils of overreaching
Over-diversifying had been attributed to Cisco Systems' recent woes from its venture into consumer electronics, following its acquisition of Pure Digital's Flip video business in 2009 for US$590 million and 2005 purchase of cable TV equipment maker Scientific-Atlanta for US$5.3 billion.

Cisco last month announced it would be exiting parts of the consumer market as it realigns its business to focus on five main areas: core routing; switching and services; collaboration; architectures; and video. Its Flip video business was one of the first on the chopping block.

"We are making key, targeted moves as we align operations in support of our network-centric platform strategy," CEO John Chambers said in a statement. "As we move forward, our consumer efforts will focus on how we help our enterprise and service provider customers optimize and expand their offerings for consumers, and help ensure the network's ability to deliver on those offerings."

Chambers had acknowledged in a blog post that the company had "disappointed" its investors and "confused its employees" with its recent business decisions, but promised to get the company back on track.

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