Shall we short Google?

At the “thought leaders dinner” in April, when asked which tech companies to short, 12 of the 15 ‘thought leaders’ shorted Google. One of them, Peter Sims wrote a piece at Techcrunch expressing his concern that Google might become next Microsoft.

the opinions in that room were not based on the company’s past performance. They were based on insights about Google’s future. Below are the reasons people cited for shorting the company (which, interestingly, were fairly diverse):

Google has experienced a severe talent drain over the past several years, losing some of its most entrepreneurial and innovative people. Although Google’s has high retention rates, Google’s talent challenge is not in terms of numbers, it’s the type of people who are leaving and why they are leaving. The talent drain from Google has been well documented. Venture capitalists in the room (without a vested interest in the companies) argued that Facebook and Zynga are currently considered hot places to work in Silicon Valley. Google has, for example, seen a stream of people leave for Facebook including, more recently, the likes of Erick Tseng, the senior product manager of Android, Google’s critically important mobile initiative.
People close go Google say upward management is slowly replacing the company’s early culture of innovation. Entrepreneurial types and thought leaders who feel confined or unmotivated are moving. People will even say that it reminds them of Yahoo back in 2004-2005, not the meritocracy they once joined.

The company has run out of easy growth opportunities and must now find big chunks of new revenue. With the core search business maturing, Google increasingly seems to increasingly feel the need to make some “big bets.” That is a problem that maturing companies face that CEOs call “the tyranny of large numbers.” Even mobile search, which is seeing impressive growth numbers of a small base, is still too small to make a material difference for the company. The company is obviously trying like crazy to find growth pockets, knowing that mobile is a ways off. The recent $700 million ITA acquisition is a great case in point of how it is going to spread out some medium-sized to big-bets to see what sticks. That is, companies must find bigger and bigger chunks of revenue to maintain growth rates. This problem is documented well by innovation researchers Professor Clayton Christensen in The Innovators Solution, and Jim Collins in How the Mighty Fall.
The company lacks a coherent strategy, especially in mobile. As Schmidt and other Google execs have stated, mobile is core to future growth. A number of people around the table that night had unique insight into Google’s mobile efforts. They argued that growing nascent mobile revenues will take significant time, especially since there aren’t many sizable acquisition targets available in mobile after Google’s purchase of AdMob. Instead, the recent purchase of ITA Software was an indicator of how the company might make some medium to big bets to see what sticks.
It’s about people, people, people. Google’s engineering-dominated culture isn’t news to anyone. But As Peter Drucker opined in his landmark book Innovation and Entrepreneurship, “Successful innovators…look at figures, and they look at people.” The company has long recruited people who fit a very specific profile.
Product manager candidates, for example, are told they must have computer science degrees from top universities. But while Google’s core algorithm was a brilliant feat of engineering innovation, a growing chorus of voices question whether it can be sustained. That cookie-cutter approach to people misses important opportunities for diversity and creates glass ceilings for non-engineers, both of which stifle innovation. Cultural hubris, another pattern Jim Collins in particular raises, is of foremost concern. It is often said that at Google the engineers lead engineering, product, and even marketing decisions. But when the company has failed, such as with Google Wave or Google Radio, critics have questioned whether the company really understands people.

For these reasons and more, perhaps the question that “in the know” Silicon Valley observers are now increasingly asking is: Could Google be the next Microsoft? That is, much like Google revolutionized search, Microsoft was a pioneer with its market-dominating operating systems and Microsoft Office. But outside the Xbox, Microsoft has struggled severely to produce new innovations. Deeper cultural problems were hidden by amazing performance and success.

One thing is for certain: it’s a pivotal time in Google’s history. If the company does not put these types of issues on the table, the chorus of short sellers will increase. But with mountains of cash, access to great people and big problems, I see the moment as an opportunity. It’s a chance to reflect, ask some tough questions, openly discuss the challenges, and incorporate some fresh thinking and people, so that this great symbol of global innovation can evolve and grow.

First of all, it is not such a bad thing to be like Microsoft. Microsoft was, and still is a good company.
I would like to compare Google to Apple. I use all kinds of Google products every day, and like them. The so-called failed Google Wave is a good product, and revolutionary. However, I have not paid a penny to Google, and no plan to pay for any of the services yet. If Google start to charge, I will probably start to look for free alternatives. I contribute zero to Google revenue. I have several Apple products, and I bought them even though I thought they are over-priced. I believe both Apple and Google have a good understanding of the trends of computing: Mobile and cloud. Apple does have a problem of monetize any of their products; they have a good profit margin. Google has to monetize all the goodies they have. They have to persuade users like me to pay, or find a way to generate revenue. Just like the early days of internet boom, investors are worried about business model. That’s why we see the shorting.