Google is NOT invincible: 5 reasons why

In reporting Q3 earnings Thursday, Schmidt credited his company’s “excellent quarter” to “five things (that) came together”:

The sum of these five things: users, ads, the diversity of our business, the blizzard of new product launches, and the partnership strategy which is in full force, has delivered great, great results and we're very, very pleased with them.

Not only is Schmidt “very, very pleased” with Google’s Q3 results, he, and his executive team, believe “the sum of these five things” will reap Google even greater financial rewards going forward:

SCHMIDT: This is a very, very powerful, powerful way in which many, many companies, many, many users, many, many advertisers will use.

The diversity of our approach is one of our strengths, and we intend to keep going and to focus on both more partnerships, more great products, integrated as general features, growing the Company, investing in our capital, and we hope to continue to do very well.

SERGEY BRIN, Founder and President of Technology: I think all of those things are really coming together and we seem to be able to produce new ways to monetize all the time. So I don't see an obvious ceiling. 

GOOGLE’S 5 “THINGS” AND WHY GOOGLE IS VULNERABLE
Users, Ads, Diversity, Products, Partnerships

Schmidt’s discussion of how Google is “very much in the search business” suggests the company is targeting personalization as a key “new way to monetize” its users:

We understand and we believe that people’s information and the information they want to receive will be consistent and needs to be accessible when and where they want it for them, in a very personalized way. That information will deliver them across many different devices, in any way they want to consume it. The content or information will always be the same, consistent for the user or the person.

The interesting thing is that this approach to having your information personalized is a benefit not only for the user who can continue to refine and target information, which is what we are working on, to people in a very personalized way; but also for businesses who want to know they are spending their money in an effective and targeted way.

What will a greater Google emphasis on “personalization” mean for users of Google services? Increased privacy risks.

In “Google: Can users trust it with their data?” I point out that all users of Google products which track and store users' personal data face privacy risks, undersocre the company's Google-centric privacy policies and itemize the risks for specific Google products:

"Free Google GMail: The high price you pay"

"Google Apps is risky business”"

"Google Reader: Google playing with your privacy”

ADS

In “Google search advertising gold mine at risk” I discuss how Google’s “one trick stallion” AdWords auction money making machine creates "Google Search Advertising Monetization Dependency Risk": 

It is unrealistic to assume that advertisers will continue to raise their own advertising costs in Google’s favor.

I often put forth at this Digital Micro-Markets Blog that Google search advertisers are operating contrary to traditional, standard media buying best practices. Rather than negotiate down published ad rate terms, media buyers blindly, and willingly, bid up their own keyword costs at Google…

Google advertisers are indeed reevaluating their search advertising spends and dependence on Google…

Search advertiser empowerment puts Google’s search advertising gold mine at risk; Advertisers will not knowingly enrich Google shareholders at the expense of their own.

DIVERSITY

Schmidt began the Q3 conference call with a nod to Google’s diversification beyond the U.S. markets: “we had an excellent quarter in all respects, especially including international.”

When asked by an analyst for hard data points on Google’s international performance, however, Omid Kordestani, Senior Vice President of Global Sales and Business Development, offered rosy “color,” but not much solid foundation.

Imran Khan, JP Morgan question and a follow-up:

Give us some color in terms of breadth of advertisers in the France, Spain and Italy market. If I look at Germany, France, Spain, and Italy, it's like 2.5 times bigger than UK, but I think less than 10% of your revenue each of those countries represent. So can you give us some color? What do you think in terms of advertisers take rate?...

if I look at Germany, France, Spain, and Italy and combined those four countries are 2.5 times bigger than UK, but none of those countries are not more than 10% of your revenue countries. So I was wondering, are you seeing any resentment from advertisers that they're not taking the search advertisement? Or what is the reason that you're not seeing a big take rate? You know, commerce is going very strongly in those countries.

Kordestani:

What is really happening is there are just local dynamics that are very different. As an example, traditionally in some of these markets we realize that the websites of, for example, financial institutions were more information-oriented than transaction-oriented. Whereas in the U.S. you can complete a loan transaction or a credit card transaction right away, instantly…

We are actually very, very optimistic about the results we are seeing and the growth we're seeing in Germany, France and Italy, as well as the emerging markets. Across the board, we are seeing, off a very small base, but significant growth rates that are actually ahead of U.S. and Europe in some of the emerging markets. Again, they are small bases and we think though that they have the potential

PRODUCTS

Schmidt touted “the blizzard of new product launches, on precedent for our scale and confusing to almost everyone, seems to create new opportunities for us every day.”

Google’s product blizzard may be aimed at creating new “opportunities,” but it is not a perfect storm of new product successes.

Larry Page, Founder and President of Products offered up Google Checkout as an example of how Google is “innovating” by “bringing out these new products”:

We launched Google Checkout and our goal is really to improve the purchasing experience for users and deliver higher conversion rates for advertisers. We are making steady progress here with strong growth in the number of both buyers and sellers and we continue to penetrate the top 500 U.S. online retailers.

Google’s rosy color, once again, does not conform to market realities; Google Checkout is a high-profile example of Google’s inability to successfully operate in markets other than search and text-based advertising.

In “Google miscalculates with Google Checkout,” I put forth Google’s strategic and tactical blunders with the Checkout product:

The company’s much ballyhooed Goggle Checkout is proving to be not only another failed Google attempt at diversification, but, more significantly, a strategic miscalculation that risks alienating Google advertisers, turning off Google users and souring its relationship with perhaps its biggest customer: eBay…

Unlike Google’s failed destination vertical attempts such as the (who needs) Google Finance, and the underwhelming would-be classifieds killer, Google Base, the dramatic Google Checkout foray puts Google in a must win situation.

Why? Google Checkout aims to directly impact merchant cash registers and consumer wallets. Because real money is at stake, Google Checkout is not a harmless, Google “technology playground” project. Google Checkout plays in the real world where merchant profits, individuals’ pocketbooks and competitor revenue streams are on the line.

PARTNERSHIPS 

In Google partnership strategy: What would Shakespeare think?” I debunk Schmidt’s vaunted “partnership strategy which is in full force,” with a nod to The Bard’s Macbeth:

The leader of the $139 billion market cap Google is not an ‘idiot,’ but the company he leads is doing a lot of ‘strutting’ and ‘fretting’ in the partnership arena…

Schmidt’s commentary, and lack thereof, during yesterday’s Q3 earnings conference call suggests that Schmidt’s partnership announcements may often be just that, announcements ‘full of sound and fury, Signifying nothing.’

Google Speak on its 'landmark deal' with News Corporation (see Google, MySpace $900 million dollar NOT done deal? and To Rupert Murdoch: Is MySpace acquisition really ‘paid for’?) begins with 'strutting' and ends with 'nothing.'

Jonathan Rosenberg, Senior Vice President of Product Management, said Google is looking for a “real big win” from its partnership deal with Intuit integrating access to Google services from within QuickBooks.

Google and Intuit would like us to conclude from their numbers that upon the release of QuickBooks 2007 this Fall, Google will be on its quick and sure way to adding millions of small business customers to its AdWords conquests, displacing traditional small business advertising vehicles such as the Yellow Pages, local newspapers…

Not so fast, literally:

The 6 million installed Intuit user base has no direct impact on Google’s QuickBooks 2007,
Intuit’s Quicken customers are not impacted by QuickBooks’ Google integration,
Intuit must sell new units of QuickBooks 2007 and upgrades to QuickBooks 2007 for Google’s integration to be available to Intuit customers,
Google must convert QuickBooks 2007 users into Google customers…

Contrary to Schmidt’s beliefs, savvy small businesses are not waiting impatiently for Google to give them a turnkey desktop icon enabling Google to fetch all of their company financial information to do what it likes with.

Contrary to Schmidt’s beliefs, savvy small businesses are not waiting impatiently for Google to give them a turnkey icon on their desktop so they can get sucked into the Google-centric AdWords raise your bid continuously auction scheme.

Moreover, contrary to Schmidt’s beliefs, the entire world is not waiting impatiently for Google  to “transform” the Internet to its liking and for its own financial benefit:

This industry is clearly poised for growth, and this is still the early stages of something which is likely to be a very major transformational industry.

As we continue to innovate and bring out these new products, we'll also continue to take our feedback from end users and customers and improve the experiences, bringing the most personalized and targeted information to people, which is ultimately our mission. These new partnerships and as we explore these new ways of working, our learning and feedback from users and customers continue, this allows us to constantly and consistently innovate and to improve organizing the world's information.

Sharing that innovation and expertise with our users and customers will continue to provide access to the world's information while we organize it in a very personalized and targeted way. That benefit drives the entire cycle of Google, and it's fundamental.

The world may start asking if Google’s “organizing” the world’s information “in a very personalized and targeted way” doesn't benefit the “entire cycle of Google” more than it benefits the entire world’s inhabitants.

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