Wednesday, May 13, 2009

HBR :: Why Google's One-Trick Pony Struggles to Learn New Tricks

Why Google's One-Trick Pony Struggles to Learn New Tricks - Conversation Starter -
But Google faces a tough situation in that, in 2008, 97% of its revenues come from Web advertising, and 68% of that advertising is on its own Web sites. That's down only slightly from 69% in 2007. This is a problem because while Google has been on a torrid growth pace for the past few years, it's essentially a one-trick pony: search advertising. Make no mistake, it's a very nice trick, but one that has little upside outside of organic growth. And Google isn't likely to grow much more in search advertising given its dominance, especially in advertising-rich markets like the United States.

Being at the right place at the right time can take one so far. Somewhere down the line, to sustain growth and survive, you have to do things the old fashioned way. You know, the boring stuff, like market analysis, competitor profiling, growth forecasting etc., etc? This is why value investors such as Warren Buffet has always avoided investing in IT companies. Here are some quotes from an interview immediately after the dot com burst in 2001 (other than "I told you so!").

"The fact is that a bubble market has allowed the creation of bubble companies, entities designed more with an eye to making money off investors rather than for them."
Cort had all the right ingredients for a purchase: "a fine though unglamorous business, an outstanding manager and a price... that made sense." [on his acquisition of Cort Business Services]

So here's a goal for the new IT entrepreneur. Create a company with solid business roots. A company worthy of Warren Buffet's attention. If he  one day invests in your company, you have achieved something no one in your industry has achieved so far.