Google trips up into real world
October 19, 2012
As slip-ups go, hitting the button that let out Google’s quarterlies early was expensive – try 9 per cent of the value of one of the world’s most valuable companies.
It was a printer’s mistake – how ironic an old world communicator should undermine such a cutting edge outfit. The market was spooked by the unexpected announcement but the real news was, after all, that Google’s Q3 earnings were 20 per cent down on last year and that was worse than any analyst’s predictions.
So what’s going on? Larry Page, the CEO and, remember, the founder who has stepped back in taking back over from a professional manager, apologised for the ‘scramble’. He explained that Google had had a strong quarter and intoned: “I am also really excited about the progress we’re making creating a beautifully simple, intuitive Google experience across all devices.” Yadda Yadda Yadda.
What really went wrong is that Google met the real world for the first time. Google was a brilliant idea brought to market early and then executed brilliantly. That momentum brought it sector domination and that has brought it fabulous success in the face of a world recession.
Then, for good reason, it bought Motorola – there were quite a lot of compelling strategic reasons and also the benefit of Motorola being cheap at a time when Google was one of the few companies that could afford even the reduced price. But it was a bit much – wasn’t it – to expect these genius innovators would also be outstandingly gifted at the dull stuff of integrating a highly technical but also highly traditional hierarchical global company? They’re not terrible at it (or at least the evidence either way is yet to emerge) but it is really difficult stuff that everyone always underestimates. Surprise, surprise, the integration is costing a lot more than forecast.
Add top that the very prosaic but, nonetheless, profit harming strong dollar – Google is a global earner after all, and you have identified the hole. It is nothing to do with fundamentals. Google is the opposite of Facebook. It is a business whose function is its business model and its business model makes a lot of money and looks set to do so for a long, long time. Facebook has a function that may or may not be a business model and is having a hard time making money. Facebook stock has already – as predicted here – taken a proper (and wholly justified) kicking and will take years to recover, if it ever does. Google will be fine and will recover within days or weeks.