Has Google got its business model wrong?

Google's logo. One of the most familiar beacons of all that is good about the web - and the best story of what it takes to become a successful corporation in the 2000's.  Or is it? (It's a registered trademark by the way of Google Inc.)

There are some things that business people take for granted - new startups take longer to make money, cash is always king and Google is one of the best examples of a successful business. Rule-101 of business says that the ground you walk on is never as stable as you think it is - so has Google got it right?

It's my opinion that US investors are way off the mark on tech company stock values.  Recently Twitter launched and was greeted with enthusiasm, a little while before it was Facebook's turn.  But seriously WHERE IS THE VALUE?

As an enthusiast of all things social network oriented and web oriented you might think me a weird source of criticism for valuations of companies that in many respects fly the flag for our industry - but my origins are not in the technology sphere and so I guess I'm not a purist.  I've also been on the wrong side of investment discussions in tech-startups in the United Kingdom - a country that has absolutely no appreciation of how to value software (our government could make 'How not to make a software industry' a degree level subject-matter area).

The strongest commercial argument for web-community centric companies is that communities are places where advertising can happen and this is perhaps the future source of 'places to find new customers' which is an obvious draw for commercial organizations willing to invest in sourcing new business.  At the head of this crowd is Google.  The basic 'reason for being' of Google is to provide the people of the world with access to the content of the world.  It is the defacto search engine for the majority of western world surfers and stands alone in the quality of its search engine and its ability to find stuff online.

Makes sense then that Google should have a robust future - it 'owns' the map to the Web.

But what if you didn't need a map?

Our future has a habit of following the past.  The closest parallel we have to the future of the community-centric 'social' web is the 19th Century evolution of coffee houses in London.  When coffee houses were introduced they quickly became 'a place to meet' for any type of community that wanted to gather somewhere (sound familiar?).  What happened next is particulalrly interesting; specific communities began to gather in SPECIFIC coffee houses - 'Lloyds' coffee house was where the insurance folk would meet,  'Rainbow' was where the poets, actors, politicians and other luvvies would meet, and so on.  News soon went around that if you want to meet other like-minded people talking about YOUR area of interest, 'this or that' coffee house was the place to be.  The evolution of coffee houses led to the formation of Lloyds of London, the London Stock Exchange and, some might argue, was the instrument that eventually to our free press.

Let me know bring this diversion back to topic.  When I use the web, YES I do use Google to find things, I use twitter to share things and I take advantage of these sites.  But I don't pay anything for the services I use. What I don't do is USE the adverts that are regularly placed on these sites.  They don't influence my buying decision.  Why not?  Because when I want to buy a car I go to Autotrader.com, when I want to find a hotel room I go to Hotels.com, a flight? Opodo, a house? Rightmove... and if I want to buy anything else I go to Amazon.com.  These are the market-places I trust and I return to time and again.  So how often do I search for things that I want to buy?  Answer: Much less than I used to and the number of searches I do is shrinking as days go by because I know where to find what I need - 'I KNOW THE COFFEE HOUSES'.

What does this mean for US Tech Stocks?  In my opinion, it means they're resting on shifting sand and are highly unlikely to return the values their stock valuations might suggest.  In the last quarter Google's own stock dropped.  I expect it will not be the last time this happens as advertising incomes fail to show their promise.

The winners of the battle for hearts and minds (and advertising spend) in the future will be those sites that become synonymous with a TYPE of community, a genre of buyer.  There will always be coffee shops, but there is only one Lloyds of London, only one London Stock Exchange.

Sorry Google, you've got it wrong.


I.