Like past monoliths of new growth industries, Google appears to be invincible. But Google is vulnerable just because it is thinly spread in a rapidly changing marketplace where rivals are eating away at the edges and fighting for turf. A major shift in technology or consumer behavior could alter the playing field, just as it once did for broadcast TV networks, music companies, telephone companies and typewriter manufacturers.
Google is locked in its fiercest battles over search, email, office applications, social networking, portals and brand advertising, Web browsers, mobile operating systems, ad servers and exchanges, and operating systems. Some of its biggest challenges:
Real-time social search. Facebook's aggressive integration of real-time search and social data, fortified by its acquisition of Friend Feed, challenges Twitter and Google, which is responding with a next-generation search platform. As the fourth-largest site in the world, Facebook is sneaking up on the competition with new applications that include allowing users to publish their updates to their Twitter accounts. Twitter's new geolocation feature and Apple's anticipated integration of social networking apps into its iTunes will up the ante.
Microsoft-Yahoo's combined search and advertising assault. While the combined forces of Microsoft and Yahoo will give Google much-needed competition, the combo also will perfect specific distinctive services that will grow their own loyal market share. Search penetration of the online population is 73% for Microsoft and Yahoo combined, compared with 84% for Google, although Google users generally search twice as much as the competition. Although the number of searches is where the money is made, comScore points out that Yahoo-Microsoft can bridge the gap by convincing their own users to search more.
Plain-vanilla search. There is plenty of room to make search more relevant, intuitive and specific. Many players are chasing this vision, including Microsoft's Bing combined with Yahoo Search, Wolfram Alpha, and Cuil (a start-up from ex-Googlers). Microsoft's new Bing is already the fourth-most-popular shopping comparison site in the U.S., according to Hitwise.
Digital books. Amazon, Microsoft, Yahoo, library and nonprofit groups are waging legal anti-competitive war to stop Google from commercializing digital copies of books under a new pact with authors and publishers that is still awaiting court approval. Amazon especially has a huge stake as the world's leading online retailer and bookseller, and the maker of the Kindle e-reader.
Streaming video and video search. The fact that YouTube still trails Hulu.com (an online video streaming site backed by NBC Universal, Fox and ABC) is evidence that Google has been as slow as its rivals as cracking the monetization code. Although YouTube is expected to increase revenues 40% to $300 million, it does nothing to expand or diversify Google's 95% dependence on advertising.
Mobile search, applications and advertising. With cell phones already outnumbering all other screens, mobile is by far the most promising and lucrative industry segment, although Google and Apple have barely scratched its surface. While Google is positioned to lead the way in mobile applications and innovation, it will need to play well with others to move the business to a new level. Instead, competitive ties are becoming more strained. Most recently, Apple and AT&T are having to explain to the Federal Communications Commission why they removed Google's free voice app from the iPhone in response to Google blocking Skype and other VoIP services from its Android phone. Still, analysts say they expect Google to continue mobile partnerships with everyone to protect its position as the most-used mobile search engine in the U.S.
Like other monopoly players, Google is expected to come under close antitrust scrutiny during the Democratic Obama administration. That is unlikely to prevent it from using at least $15 billion in cash (half the cash reserves of Microsoft, Apple and Cisco) to buy what it needs. That could include salesforce.com, Mindjet, Clearwire and Hunch.com.
Despite its unprecedented run since its 2004 initial public offering IPO, Google's position in the world has dramatically changed. It was the trailblazer for online search and setting new innovation standards five years ago. Today Google follows as much as it leads.
Still, it is gaining renewed short-term support from Wall Street. Goldman Sachs analyst James Mitchell added Google to the firm's premiere "buy" list with a $560 share price target. He forecasts an explosion of European sales in 2010 and a 40% increase in display advertising. Mitchell joins Citibank analyst Mark Mahaney, who recently forecast that Google stock will rise another 25% as a result of improved search spending, mobile growth, online retail boosts to both search and display advertising, boosts in real-time search and turning YouTube profitable.
Long-term, Google has some pressing issues that are too easily discounted and overlooked by investors:
Can or should Google expect to continue to dominate all complex aspects of online search, advertising and data management as they evolve and move into cloud computing?
How will Google use, or be allowed to capitalize on, the extensive databases it collects and stores about all users?
In a complex high-tech world, can Google be good at and innovate everything?
Where can and should it strive to make the most important marketplace advances?
Is Google ultimately as vulnerable as every one-time dynamic monopoly?
In the end, could Google turn out to be its own worst enemy?