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Google Anti-Gravity Ray is Fading

Posted by Bob Warfield on July 18, 2008

When a company has a monopoly on an extremely valuable franchise that is growing rocket fast, all sorts of unreasonable things happen.  That company levitates.  Almost no amount of spending can bring it down to Earth.  Until, that is, the growth begins to slow.  At that point the anti-gravity ray starts to fade.  What usually happens first is a profitability crisis.  Often the company’s revenues are still growing impressively, but they’re not blowing away analyst’s estimates.  When that happens, attention focuses on profitabililty instead of unbridled growth.

So it was with Google today.

They hit the revenue growth number but missed the profitability number by quite a bit.  The market will punish them severely for it.  Google, for it’s part, will now have to live in a world without anti-gravity.  It wil have to manage itself more efficiently by the numbers, in other words.

The company is legendary for continuous hiring, giving people 20% of their time to work on projects of their choosing, and projects that get built at considerable cost but do not see the light of day or produce meaningful revenue.  All courtesy of the anti-gravity ray.  Unless they can restore its effectiveness, all of that largesse must inevitably slow to a halt.  After all, when a company makes its revenue numbers, but misses its profit numbers, its because expenses are too high.  Fiscal conservatism will have to be put in place.

It will be interesting to see how the innovator’s culture deals with this new challenge.  A crack down on expenses usually doesn’t happen all at once.  Google strikes me as a place that will consider its options carefully before doing anything precipitous.

Om Malik says its a sign Silicon Valley should be worried.  Indeed, an awful lot of the Valley’s economy is associated with ad revenue in some form or fashion.  But there are vital other areas.  SaaS businesses, for example, seem to be doing pretty well from what I gather asking around.  They’re raising money quite successfully and the smaller SaaS players are growing like weeds.

Overseas spending is also an important area that is bucking the trend.  In this day and age, having an effective global strategy is crucial.

If you don’t have an anti-gravity ray, try selling service (Software as a Service or the old fashioned kind–IBM did well on services this quarter) and make sure you’ve got overseas exposure.

8 Responses to “Google Anti-Gravity Ray is Fading”

  1. […] Posted by citychap on July 18, 2008 Google’s latest quarterly results have been posted and the SmoothSpan blog has some interesting comments on its article: Google Anti-Gravity Ray is Fading […]

  2. Looks like the train is running out of track. The treadmill of dividends will be the new issue and new territory for Google.

    I’m still waiting for the day Google starts changing their “Free” tools section into a “Subscription”.

  3. […] Google Anti-Gravity Ray is Fading, SmoothSpan Blog […]

  4. […] Warfield claims that Google’s Google Anti-Gravity Ray is Fading. The Wall Street Journal thinks that Google’s heydays are […]

  5. […] Comments This is the time to … on Google Anti-Gravity Ray is…smoothspan on Do You Read the SaaS Curmudgeo…kepesben on Do You Read the SaaS […]

  6. […] Google is a company that in some ways has not had to think about strategy.  Their dual search and advertising franchises have powered unlimited growth and the opportunities to dabble that go along with that.  But they’re nearing the limits of the envelope.  They’re regressing to grow at the mean market growth of those areas, which is a lot slower growth than they’re used to.  Inevitably Wall Street follows up slowing growth with tremendous profitability pressure which they seem ill-equipped to address. […]

  7. […] As I wrote some time ago, their anti-gravity ray has failed and they are now earthbound.  The same could be said of Yahoo’s share price.  It’s a great pity for shareholders that management didn’t take that big juicy merger offer made lo these many months ago.  In the end, said management got tossed and Yahoo shareholders got a much worse deal.  OTOH, MSFT shareholders are getting most of the value at a much more reasonable price. Possibly related posts: (automatically generated)Microsoft + Yahoo the Only Counter-Google Combination that Makes Sense? (T…Microsoft says “boo-hoo” over Yahoo/Google ad deal.Money Talks and … walks !Microsoft, Yahoo Reach Search Deal […]

  8. […] Warfield claims that Google’s Google Anti-Gravity Ray is Fading. The Wall Street Journal thinks that Google’s heydays are […]

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