Google's parents watch their 'child prodigy' taking on the Earth
The Australian: Google's parents watch their 'child prodigy' taking on the Earth [January 02, 2006]
The undisputed king of search is growing at breathless speed with stock trading at 95 times earnings, Paul Durman reports
January 02, 2006
IN his letter to shareholders in Google's last annual report, Sergey Brin, one of the company's founders, compared the search-engine company to a seven-year-old child. "Google was born in 1998. If it were a person, it would have started elementary school last summer. While it may seem we have come far already, this is just the beginning of a lifetime."
It was in 2005 that Google grew up. In only its first full year as a public company, it became the world's most valuable media business, a testament to the explosive growth of pay-per-click advertising. By last Friday, its shares valued the business at $US124 billion ($169 billion) -- five times its value on flotation in August 2004.
As Google's revenues continue to double year-on-year -- sales for 2005 look set to reach $US6 billion -- it has become increasingly hard to ignore the company's impact on the wider economy. This is certainly true for traditional media groups. Newspapers are suffering from weak sales of classified advertising, while television broadcasters are struggling with a fragmented audience that is spending more time online.
The seemingly endless ambition of Brin and co-founder Larry Page poses a challenge for other industries, too. Google Talk and the Gmail e-mail service represent a first tentative step into telecoms. Google's proliferation of web-based services is also perhaps the biggest threat to Microsoft in the software giant's 30-year history.
The strong growth in online advertising -- and Google's increasing share of that business -- is the principal reason the company's share price has soared from $US193 a year ago to $US415 last Friday. Brin and Page, still both only 32, have taken advantage of the rise, each cashing in $US1.3 billion of shares.
An aura of invincibility has grown up around the internet company, fostered by the pace of its product innovation. One of the most stunning examples was the June launch of Google Earth, which uses satellite pictures to allow users to "fly" through space to see views of places of interest.
The company has also introduced video search; cleverly integrated its mapping and local-search services; launched a desktop search tool; and announced the creation of Google Talk, its response to the fast-expanding area of internet telephony.
Many of the new products have yet to generate much in the way of revenue. Google's shares already trade on dizzying multiples -- 95 times its earnings in 2005.
Google remains heavily dependent on its original activity, the one where it is the undisputed king -- search. Many of the firm's newer products encourage more online searching, thus creating more opportunities to display its pay-per-click ads.
Critics suggest that Google is more vulnerable than is immediately apparent. Its pre-Christmas agreement to pay $US1 billion to Time-Warner for a 5 per cent stake in AOL underlined the importance Google places on securing online traffic from the internet service provider. With 26 million subscribers, AOL is the single biggest source of Google's search inquiries, and hence its revenues.
The company faces many challenges. They include coping with the sheer pace of its growth, and the inevitable impact on its culture, noted for its lack of hierarchy and its emphasis on employees' enjoyment and self-fulfilment.
Google began last year with 3000 employees; by the end of September it had almost 5000. It is hiring at breakneck speed in every part of its business. Until recently, it had only a skeleton sales and marketing operation in Europe. Now it has 800 employees, and is looking to recruit 100 software engineers in Zurich.
Despite this rapidly rising payroll, Google openly admits that it lacks experience operating outside of the US.
The first signs of a Google backlash are already visible. The company's rapid hiring, bidding up the cost of the best software talent, has raised hackles in Silicon Valley.
The Google Print initiative -- a bold attempt to digitise the world's books -- has angered many authors and publishers who fear that the company's plans amount to wholesale copyright infringement.
There are also concerns that Google's business could facilitate an invasion of privacy. This issue first arose in 2004 when Google launched Gmail, causing outrage when people realised it planned to display ads based on the content of emails.
As Brin could plausibly argue, these are the difficulties of a business growing up in the full glare of global publicity. In last year's annual report, he pointed out that "if Google were a person, it would graduate from high school in 2016. Today, it would only have seen a glimmer of its full potential".
Some glimmer.
The Times
January 1, 2006 at 12:58 PM in Portals | Permalink
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