Its interesting to see what google is up to.
Put yourself in google's position. They dont have to compete against just one Microsoft or yahoo. Each of their little applications has to compete with thousands of site's, often startup's. Competion for example has been from youtube, writely, jotspot, bluedot, friendster, flickr etc etc etc...
Now there are a couple of ways in which you can handle competition.
a) Beat them at their own game. But when there are so many guys trying to out do one another that may not guarantee you success. Besides google's core still remains its search. Whether it is investing or should be investing the same amount of effort and resources on each of its other applications as it continues to spawn many more out everyday, is a question thats been debated in almost every forum and by every name worth a mention.
b) Simply acquire them. And there is no one to compete against really.
Going by recent events you would be tempted to say google's going the option (b) way.
And rightly so. Its the smartest thing to do.
Here's a few reasons why i think so.
a) Google's main area is search. And they should stick to it and not lose the advantage they have in this area right now.
b) Google stocks are worth a lot today. And going by history this may not be the case a few years down the line. What better to do with a stock that has a price to earnings ratio of more than 60? It is clear that maintaining such a high growth rate as the P/E demands is not very likely. So what better to do with an inflated stock than buy out all their competition?
Its simply brilliant. Google has little to lose, as its not buying out competition paying cash. Its using the current valuation of the stock, which hit its peak on 23rd Oct to buy out really good companies.
So yeah, if you can get yourself somewhere close to competing with google, you might just land yourself with lotsa google shares. And of course, if you do that, dont waste time cashing them out. :)
Your article has some merit. However, it seems to be based on the assumption that all the startups in question (such as YouTube, Writely, Keyhole, etc) would be able to sustain themselves. Google's motivation to acquire them is based (this can be proved from articles at the time although I don't have definitive references to them right now) on the fact that they were great product but would die out due to their immediate ability to sustain themselves as a business. Google sympathizes with such startups because they believe they were lucky enough to get beyond the bump (so to speak) by growing their company through venture capital when they had no real business plan and no plan on monetizing their search engine when they were a fledgling company. Remember, they first experimented with banner ads which did poorly and some where along the way they experimented with adsense which was a technique which another search engine. Can't remember the name but you can find it in the book: The Google Story by David Vise and Mark Malseed.
ReplyDeletespelling corrections:
ReplyDelete1. due to their immediate inability to sustain themselves as a business.
2. Overture was the search engine from which Google's auction is based. Still can't remember the name of the search engine on which adsense was based.
It was Overture that they tried to emulate. But they did not like the model overture worked on, which ensured that the person who paid more would have his ad on the page. I didnt really come across a name in that book that indicated where the ad sense idea came from.
ReplyDeleteI guess Google's behaviour can be interpreted in many ways. And i think they would prefer maintaining the goody clean feeling associated with them by saying they want to help these fledgling startups. But its also true that they do not have as huge a user base as yahoo or msn and the day there is a better search engine, they could become history.
It makes sense for them to build some stickiness onto their products by buying/creating services that users will be attracted to. Their user base is precious and there is no point fragmenting this user base over 10 good apps. They'd rather have it all under the google umbrella. What else can explain their acquiring Youtube, which was no fledgling startup and esp when google had its own Google videos. Yahoo has always relied on its user base. They have never moved away from that model and are continuing to do so. Its google's trn tocatch up on that front.