BERKELEY, Calif. (MarketWatch) � Everyone is writing about Google Inc. since the stock dropped after the company�s latest earnings report.
The fact is that Google GOOG �was hoped to be the next Microsoft Corp. MSFT , with the shares getting on the doubling treadmill for a decade or so, then going flat. Google skyrocketed to $500 and above rather quickly and has since stalled.
There are a couple of things to note that do not bode well for Google in the long run.
Click to Play What�s up with Google�s earnings?Fourth-quarter earnings rise but come in below analysts' targets, and that doomed the search firm's stock. Currency and tax issues, combined with a recent rally, set up the shares for a fall, according to MarketWatch tech editor Dan Gallagher. Lauren Rudser reports. (Photo: AP)
The main issue is that while the company dominates the search market, it is not monopolizing it the way Microsoft ruled the operating-system market and then the productivity-software market. From there, Microsoft was able to make inroads into other profitable niches.
Google is different. It�s not selling a product, as it makes its money from advertising. It�s a media company, plain and simple. (Every time Microsoft ventures into media, it backs off. Even with Bing it seems skittish.)
Which brings us to Yahoo Inc. YHOO , one of the first pure online-media companies selling advertisements around various forms of content, from search results and email to user groups.
At some point, inventors decide that the company has nothing special going on and the stock falls to some boring level, and there it stays.
The problem with a media company is the problem magazines have with circulation. At some point, you max out. You�ve permeated the market, saturated the audience. Now all you can do is fill the magazine with ads.
Google knows that it has reached full market penetration. The company could improve page views perhaps by teaching people how to use Google more with advertising, promoting oddball uses. This would mean showing people how easy it is to find a phone number with Google. This sort of thing will move more ad inventory.
But for all practical purposes, Google has grown all it can grow in the search business. It really has nowhere to go but down.
/quotes/zigman/93888/quotes/nls/goog GOOG 570.41, -8.18, -1.41%
A new technology could come around and change the way people search. Who knows? Google knows it is vulnerable to technological change.
The Mountain View, Calif.-based company hopes to expand in other ways. Most noteworthy are its Google+ and Android platforms. Google+ is a Facebook-like social network that has 90 million users with plenty of room for growth.
Various clever advertising initiatives can be mounted on the back of Google+, but these are not necessarily new customers for the messages. They already use Google search.
On the other hand, the smartphone platform has enormous upside once the mechanism for nonannoying advertising can be determined.
This is why Google is buying Motorola Mobility Holdings Inc. �and grabbing every patent it can. The future of the company is the Android phone and it knows this.
You�ll recall that it took years and years before Google managed to create the right form of advertising balance to make search-engine marketing work at all. In the 1990s, investors used to laugh at the idea that a search engine could make money. Seriously, they did.
Google has the brain power to make money off the phone platform. When it finally does, then the stock can head to $1,000 and higher.
Just remember that with the search engine it took years. This will too.
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