Google is warning shareholders of the “formidable competition” it faces from both Microsoft and Yahoo.
Google considers Microsoft and Yahoo to be its primary competitors, acknowledging in particular that their Internet portals may have a greater ability to attract and retain users than Google does.
On the Microsoft versus Google front, Google underscores the risks it faces because Microsoft has more employees and cash resources than it does. Microsoft development of features making Web search a more integrated part of its Windows operating system and other desktop software products are also of concern.On the Yahoo versus Google front, its longer operating history and more established relationships with customers and end users is recognized by Google as a Yahoo competitive advantage.
Google also indirectly acknowledges that its modus operandi of “ignoring conventional wisdom” in designing its business may hurt its operating results, warning its operating results in future quarters may fall below expectations due to:
A focus on long-term goals over short-term results,
Investments in risky projects,
Potential difficulties in keeping Web sites operational at reasonable cost and without service interruptions,
Potential difficulties in achieving revenue goals for partners guaranteed minimum payments or distribution fees.
Google also underscores that Internet user traffic tends to be seasonal and its rapid growth has masked the cyclicality and seasonality of its business.
Google is disclosing the “significant” competitive and operational risks it faces in its 2006 Annual Report.
Many may believe SEC required statements are merely boiler plate disclaimers. Google, however, defies conventional wisdom even in that regard.
Of particular note, Google warns that acquisitions could result in operating difficulties, dilution and other harmful consequences, saying “We do not have a great deal of experience acquiring companies.”
In itemizing how its inexperience in M & A can adversely impact the company, Google puts forth its ability, or not, to retain employees in the businesses it acquires as a risk element that could hurt its financial condition and results of operations.
Google in fact recently lost the founding management team of one of its highest-profile acquisitions, dMarc Broadcasting. Google acquired dMarc last year to diversifying into offline advertising by hoping to “revolutionize” the radio advertising industry.
Not only have the dMarc founders abandoned the Google-dMarc radio ad sales initiative, Google has been unable to introduce a Google radio advertising product into the marketplace, as I report and analyze in “Can Google crack $74 billion TV ad market?”