Google: Ahead of the Curve or Losing its Way?

This is a guest post by Wall St. Cheat Sheet’s Damien Hoffman.

Earlier this month, Google announced a new broadband initiative. A few days earlier, they announced a rumored Twitter killer. Months ago, it was Google Wave. Is all this entrepreneurial zest a sign Google is a leader? Or, is the search/ad giant losing focus?

Google is smart to attempt to enhance email with Wave or mass text messaging with Buzz. They are smart to expand web services and software which compliment search and advertising. They are also smart to stake their claim in the white hot mobile world.

Broadband is a completely different story. As Warren Buffett notes, these types of businesses are extremely cyclical and have low returns on equity. The hardware game is a perpetual horse race requiring tons of capital to simply stay in the race against competitors. For example, Google currently sports a 20.3% return on equity and 27.57% profit margins, while top telecom company Verizon returns 8.77% on equity and has 3.39% profit margins.

I understand Google is tired of waiting for telecoms to deliver better web speed. The way telecom giants boasted in 1999, I thought we’d have ESP by 2010. But managing manual labor crews digging up streets, repair technicians riding around in trucks, and an endless staff of customer service reps dealing with pissed customers is an entirely different ballgame than keeping quantitative geniuses motivated at computer screens and letting software addicts help each other in help forums.

Wave and Buzz have flopped so far. Rather than spend time and money on entering the capital intensive and risky broadband sector, maybe Google should spend more time perfecting some of the high potential “Lab” products they have introduced. Maybe they should have considered buying Twitter rather than spending countless hours in strategy sessions about lobbying the FCC.

Unless the government is heavily subsidizing Google’s broadband “experiment,” I would be weary of investing in Google until seeing how all this shakes out at the financial bottom line. Awkward moves outside core competencies tend to haunt companies more than they end up helping. Either way, in a few years we can Google the answer.

Disclosure: No position in GOOG.

Damien Hoffman
is the Editor in Chief of Wall St. Cheat Sheet.

  • Florent Mathieu

    An interesting insight on why it s useful to still be aware that the world around might not be moving as fast as your company does, and that getting to a steady state, doesn t mean you will be wiped out of the internet map, or is it one of its characteristics?

    Google moves shows the hyperactivity required in meeting customer growing demands, and getting everything from the customers answered fast. too strange and fast for a traditional, rational decision-making requiring balancing pros and cons.

    It does change our day to day behaviour, and given the success of the past, these Google customers might appear to get frustrated more and more easily, sustainable move? investing in rational piece of equipment and infrastructure, even if moving a lot technologically, might prove to provide a relief stage and deserved break for a software company like google evolving in the more than quick IT sector, time to reflect a bit on what they ve been doing, and slow the pace reasonably and sustainably.

    On the highway, the fastest is the one who goes over everybody else, it does still include the risk of stopping for good. Here I am doing a metaphor on the speed of change so common in IT that we don t see anymore the difference between what nice to have and must have. So get out of buzz and wave and keep it rationale if I dare conclude,or just focus in stayin the highly dynamic IT environment coming back to your roots of thinking and analysing and getting a system fully efficient and properly implemented and maintained like you know how to from your first sucess.

    I dont know, I am not from IT, but welcome these views showing these kind of understanding.