I've been following the search market for years (since before start of tech boom) and looked into Google's IPO filing quite extensively. I actually shifted my position on Google after reviewing their prospectus & related materials from a 'buy' to an 'avoid'.
Personally I believe Google have a great business in a niche market.
Their search technology is excellent & they have first rate people.
My personal concerns are over their ability to manage their market & their reliance on the advertising revenue streams. They are significantly (several times) more reliant on online advertisements than companies like Yahoo.
The advertising market is one that is severely affected by swings in economic climate, and for Google this in particular means the US economy.
This makes their base cashflow unstable. It's likely to experience significant swings in revenue year on year beyond their control. That's not good.
They could look at 'unniching' & becoming a portal as Yahoo has done. Well good luck, but that does pit them against significantly larger and more entrenched competition. They've shown indications that they intent pursuing this course through their Gmail concept - which still has a number of legal bugs to resolve.....but from here Google is playing follow-me rather than leading. Even though GMail is planned to offer large storage ability, that's easily replicable & their personalised ads concept offers little to users.
Google has no inherent competitive advantage in the portal area - it's sole competitive advantage is in search technology. Thus it would have to rely on some new and unknown competitive advantage to succeed in this area.
Also while their search technology is excellent, there are significant competitors working to take parts of this market back.
Google has lost a number of its large back-ender deals with people like Microsoft and Yahoo. Yahoo has made several significant purchases in the search technology area and has 'reclaimed' it's position as an innovater in search. Microsoft has shown some promising early stage prototypes of a highly functional, if not flashy, search engine of its own.
Google will retain some advantage in terms of it's databse size & strong, yet simple design. However this is an erodable advantage.
My forecast is that Google will remain a strong niche competitor while struggling to achieve a foothold in the portal market.
It will underachieve for investors in the 2+ year timeframe, finding it hard to find the growth to justify the valuations & within 5 years will either settle into a niche, increasingly facilitator/back-end role or will be sold to another player at a fraction of the list price.
So if you want to make quick dollars on speculation, consider the IPO. But if you're looking for a medium-term growth stock, look further.
Gratuitous Plug - BTW: I also wrote a bit about them in the context of the battle between search engines in a Internet.au article that should be on shelves in the near future (under Jas's name)
Cheers,
Aceyducey
