‘Tis the season for large technology companies to announce their results for the end of 2011, and last night it was Google’s turn, along with other behemoths Microsoft, Intel and IBM. With expectations lofty, Google’s performance was found lacking by investors, who sent the stock down nearly 10 percent after the company reported that while revenues grew, the prices it was able to charge for advertising had declined about 8 percent.
In absolute terms, these were hardly problematic results. After all, Google did generate more than $8 billion in revenue for the last three months of 2011, which was a substantial increase from the $6 billion it generated a year earlier, along with $2.7 billion in revenue—in three months. Growing that much when the growth of the United States and Europe was barely 2 percent is hardly cause for alarm. Bringing in more revenue than most African governments is hardly reason to carp. If anything, it is cause to observe yet again just how privileged companies are in the global economy, able to generate growth that is the envy of most people and any country. And Google along with its technology peers rake in billions in profits with nary a protester in Silicon Valley decrying the inequity. Banks get opprobrium. Apple executives, Groupon founders and Google visionaries get lauded.
Yet Google’s results and the sharply negative reaction speak to the nature of techland. Google has been so dominant a player that it is easy to forget that it nonetheless operates in a fluid, dynamic, and challenging ecosystem that has little regard for the leaders of yesterday and can see even a dominant franchise erode in a heartbeat. Google has become a verb, but so did Xerox, and that didn’t save the latter from shrinking almost to the point of extinction.
Google has one primary source of revenue: search ads. Its algorithms and dominance in search catapulted the company to success more than a decade ago, and buried what appeared to be formidable rivals for the same ad revenue—Yahoo, AOL, Lycos, Excite, to name a few. Some of those survived, some didn’t; none captured the share of the multi-billion-dollar search ad market as Google did and still does.
But beyond search, Google has not found a significant source of additional revenue. It has been wildly successful with its Android operating system for mobile devices and hence its $12 billion acquisition of Motorola, but given that Android began life as a free system, transforming that into a substantial profit center is a challenge for Google. It also must be careful of tension with the main user of its Android system, the Korean giant Samsung. And its new entry in social networking, Google, already has nearly 100 million users, but even Facebook has long-term questions about how to turn even half a billion users into a sustainable business.
Microsoft has been fielding these questions for about twice as long as Google has existed, and it too reported its results last night to greater acclaim. Microsoft has become the Rodney Dangerfield of tech giants, successful but lacking in respect. It is nothing if not a proverbial cash cow, with its Windows platform and Enterprise services dominating business and PCs, and even with the waning of the PC and the rise of mobile, Microsoft has never ceased to amass dollars. Now, after a decade of seeming to have the innovation crown claimed by Apple, Microsoft is showing some signs of defining the future with its new mobile operating system and a host of other offerings.
And then there is the oldest of the lot, IBM, which also announced its results yesterday and like Microsoft, generated some surprise with just how robust its business is. IBM defined the computer age and then was nearly destroyed by it in the late 1980s. It has completely redefined itself, and has become a global solutions company helping multinationals and governments analyze, see and solve their issues, whether hiring (and yes firing) on a global scale or providing electricity and water in the most efficient manner.
The small stumbles of Google may be nothing but an untied shoelace, but the prior examples of Microsoft and IBM should give the search giant pause. It took more than 130 years for the once-great Kodak to slide into irrelevancy and bankruptcy, but the Internet age does not afford any company time to figure things out.
Apple is rare example of an Internet-age company that reversed a vertiginous decline when Steve Jobs returned in 1997, but the crucial difference with Google is that Apple makes hardware, which even in an accelerated era still requires physical effort, actual factories and certain barriers to entry. Google makes nothing tangible, though its software and formulas and services have substantial value and real demand. Its rise to become one of the world’s largest and most influential companies happened in a decade, and the downside of that upside is that it could be eclipsed in the next decade if it cannot find a next source of revenue.
Like Microsoft, Google may be embedded in the way all of us do things too intimately for the company to be in any near-term danger of actual collapse, but its position is less secure than it looks. It search engines are knowledge engines that facilitate the next waves of innovation that could end its dominance. Doing what it does best in essence increases the possibility of its own eclipse.
Wall Street likes to think of itself as highly competitive and ruthless, but banks are sinecures compared with the creative and destructive cycles enabled by the tech giants and the assorted tech minnows that comprise the economic ecology of Silicon Valley.
Google must be mindful lest it become a present-day King Croesus, that monarch of the ancients who had all the wealth in the world but ended up a prisoner of a Persian king and watched as his own empire crumbled. “Count no man happy until he is dead,” was the lesson of his reign. Google has unlocked untold information and allowed billions to access the lexicon of human knowledge. Whether it will be around to celebrate the fruits of its achievements in decades to come—that remains to be seen.