Why Google is headed for trouble

Never mind the gossip and tales of intrigue. Ignore the stories of betrayal and affairs. Forget the animosity and ego tripping.

No, the real reason you should be nervous if you are betting on Google long term is that Schmidt gave his first iPhone away.

By August of 2007 it’s reported that “Schmidt had long ago given up on the Apple handset because he couldn’t stand the on-screen keyboard. His wife had tested a prototype, but didn’t care to keep it. Schmidt, we’re told, ended up giving his iPhone to [his mistress] as a gift”

Here is a guy who has in his hands one of the first iPhones and he treats it with contempt.

He did not get it.

Nor, it seems, does he get the iPad.

Google does not understand where computing is going.

I don’t mean this in a small way. I mean this in a big way.

  • M

    Ha Ha, Do you have the mistress' product evaluation too?
    I find your conclusions that Google "does not get it" questionable. After all, they wrote the the second most popular OS, and could overtake Apple's.

  • The Bear case for Google (as written by Jason Schwarz in his newsletter)

    I’m ready to take it one step further and forecast that this Apple/Google war will cause Google stock to plummet back to its IPO levels of 2005. After its first year of trading back in 2005, Google had reached $300 a share. Over the next 24 months Google will be back at $300 a share for an entirely new set of reasons.

    1-This company is running like a chicken with its head cut off. CEO Eric Schmidt is flying solo without the help of founders Larry Page and Sergey Brin. In a rapidly changing landscape of mobile innovation Google is having difficulty making money on anything other than its core PC search business. Google knows they are vulnerable which explains why we hear of them trying to experiment with things like broadband and Google TV. It’s all a big joke. Even Android is a joke. They don’t make any money off of it. Google is running scared.

    2-The shift towards mobile is not favorable for Google. They are at risk of significant search advertising declines. Mobile versions of Twitter, Facebook, and Bing look stronger than Google. And I would not bet against Steve Jobs and Quattro. Jobs is always two years ahead of everyone else and we know they have been hiring to boost Quattro’s exposure on Madison Avenue. Apple’s mobile Web market share is enough to kill Google if Apple chooses to cut them out of the ecosystem.

    3–The founding visionaries are selling their shares. This suggests that they have lost confidence in the direction of the company as well.

    4-No exposure to China. This China thing has been catastrophic for Google. After struggling to gain any share from Baidu, Google recently announced they are 99.9 percent sure they will be leaving the country that has more Internet users than the U.S. has people. Not good. Especially if they have any aspirations of growing their Android platform.

    5-Recent Android market share gains are misleading. Android is gaining market share among smartphones because Google has offered it up for free to dozens of hardware manufacturers. The real Google phone, the Nexus One, isn’t selling at all. Consumer trust in the Google brand is diminishing because of the repeated failures of the G1, the Droid, and now the Nexus One. The way that Google has rushed these products to market is embarrassing. I’m not suggesting that Android is going to disappear or even that it won’t end up being a success but I am saying that Android market share numbers are misleading because it makes investors think that Google is making money off it when they really aren’t.

    Search advertising on PC’s is Google’s bread and butter, two years from now the landscape will be completely different. Investors will look at Google as a declining search market share story. That’s not a good thing when you’re stock is priced near $600 a share. Google reminds me of Research in Motion (RIMM) two years ago. Back then everyone assumed RIMM was untouchable as well. The problem is, when you go to war against Apple you better be more than a one trick pony. Google is scrambling to come up with a solution but so far they have come up empty. I’m convinced that Steve Jobs is spending the majority of his time working out the details for Quattro. Apple will release a revolutionary mobile advertising platform that will mark the end of Google’s run. Again, I’m not saying that Google is going to disappear but I am saying that their days of high growth are over and that spells trouble for the stock over the next 24 months.

  • M

    I agree, for the most part. Google is a media company and it makes all of it's money off of advertising. That is why I don't own its stock in the first place. And yes, the media could change, like newspapers and magazines have changed and the corresponding advertising revenue could dry up. In fact that is guaranteed to happen.

    But like high tech itself, they could reinvent themselves. The very fact that they are putting free OS there that is being used shows they know what they are doing. That they are not making money off of it is beside the point. They got their foot in the door and could charge for the next upgrade for example. Their stock price is besides the point.

    If they wish to subsidize these side business that it their prerogative. The real question is how will it affect Apple's fortunes?

    It is obviously cutting into Apple's market share. An Android phone could have (would have likely) been an Iphone sale.

  • "An Android phone could have (would have likely) been an Iphone sale."

    Android is still not widely distributed head-to-head with iPhone. The largest volumes for Android in the US are on Verizon (Droid) and T-Mobile (Nexus One).

    Regardless of this, Android is a potential (if not actual) disaster because of the destructive effect it has on Google's revenues. Losing Apple as a platform for Google's services will hurt a lot more than any gain from Android (and it's hard to see any gain from Android in the foreseeable future).

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