• by Diane Mermigas , March 3, 2008

Say what you want about Google. It is not like any other media technology hybrid on the planet. It's not just its mammoth size, even with its diminished stock price. Google's incredible growth, risk and power story is all in the numbers--metric weaknesses aside.

Yet Google's depth and breadth cannot be appreciated until you take into account many of its disparate metrics, which are redefining what it is to be a new media player. Google qualifies as a new breed of media company. Google's enterprising technological backbone makes it the most powerful aggregator of search-based content, advertising and communications.

That same broad tech mandate is what makes it an innovator in ways that other companies can only dream about. Reminiscent of the early giants of the Industrial Revolution, such as Westinghouse, Google seeks to incentivize innovators with prize money in such non-media endeavors as the Android Developer Challenge, the Lunar X Prize and developing alternative energy options. Plus, Google co-founders Sergey Brin and Larry Page are sticking to their pledge to devote 1% of Google's equity and profits to solve global issues.

However, even a company considered the top brand in the universe--by Millward Brown Optimor--must endure the ravages of maturity. (The global market researcher determined that Google's marquee value is $66.4 billion, based on its ability to drive profits and their growth prospects.) Google's market cap has fallen to about $159 billion, based on its stock trading at around $472 per share--compared with a high of $747.24 per share in November, trading on potential growth rather than returns on investment. That is bigger than the market caps of Time Warner, Walt Disney, and Yahoo combined.

Some of Google's recent woes were triggered by financial and performance metrics that far outdistance its rivals. Google reported $16.6 billion in revenues in 2007, nearly all from ad sales on Google and Google network Web sites--up from $10.6 billion in revenues in 2006. Although slightly more than half of its revenues are generated in the U.S., 15% continue to come from the UK and 33% from the rest of the world. According to its recently filed 10K, research and development at $2.1 billion and total costs at $11.5 billion comprised much more of Google's revenues in 2007. That represents much more than most media and Internet companies spend on like ventures.

At a time when many media and Internet giants are tightening expenses and reducing headcount, Google has increased both. It increased its headcount by 57% from late 2006 to late 2007, and now employs more than 16,805. Google still encourages employees to spend 20% of their time on individual entrepreneurial projects, although that has been reduced from 30% a year earlier.

Following its 2007 earnings report, Wall Street was quick to point to signs of "cracks" in Google's hyper-growth, like missing estimates for revenue growth, losing core search share to Yahoo and reporting operating margins below consensus.

In what has become controversial data flash points, Nielsen Media reported that Google claimed 57% of all U.S. searches in January--up from a slight slip in December and still down from 57.7% in November 2007. comScore contends that Google has been flat. Hitwise put out a note this week saying the traffic going from Google to retail sites has actually been increasing, defying the notion that online search is about to be besieged by a recession. What riled industry analysts and Google's stock last week was comScore data showing that Google's domestic paid-search sponsored clicks were down 7.5% in January from December and flat from a year earlier. Google blames the drop on technical changes. Google's click-through rates declined from 12.4% in December 2007 to 10.4% in January, comScore said.

The big question is whether Google's AdWords clients could experience spending declines this year that would slow Google's overall revenue growth. Google conceded as much in its 10K filing. Much depends on how fast the $21 billion online advertising market continues to grow. Analysts like Bernstein's Jeffrey Lindsay point to the uptick in other Google metrics: a 53% rise in total number of searches over the prior year, an 8.4% rise in search share, and a 19% rise in unique visitors. comScore says Google's U.S. paid clicks grew 25% over the prior year, and 8% sequentially in the fourth quarter.

What Google's numbers don't reveal is a future hinged on factors out of its control. Like any ad-dependent company, it is vulnerable to macroeconomic conditions. Google must make major headway in display and video ad search, partly on the heels of completing its controversial $3.1 billion acquisition of DoubleClick. It must find more effective ways of realizing ROI on its YouTube social network.

Given its formidable challenges, some believe that Google is unwisely being distracted--whether it is by buying a chuck of Yahoo in order to foil Microsoft's $2 billion unsolicited bid or joining a consortium to build a new trans-Pacific cable from Japan to California that will increase current capacity by 20% and move its growing user data worldwide. And there is that sticky wicket of launching Google Health to store and transport personal medical reports in a service not covered by the Health Insurance Portability and Accountability Act.

One thing is certain: Google is changing the media MO, only to wrestle with some fundamentally familiar demons.