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Thu, 13 May 2004
Google's weak growth story
We live in the age of the growth story. In the technology realm, there's a presumption that things will get better, faster, bigger. That presumption is so ingrained, in fact, that it's hard to remember that things that get better may not get more valuable. Especially on the Internet.
Google takes this one step further than most by not even trying to explain why it will get more valuable. In fact, Google has engendered so much loyalty that other people are stepping in to argue that Google is building an "operating system", with the implication that this will be incredibly valuable. The idea has shades of Isaac Asimov's old Multivac, a single world-wide computer. The Google guys didn't need to write this story; their fans wrote it for them.
As Venturpreneur's Gordon Smith puts it:
The most surprising thing in this prospectus- which is full of surprises - is that the company does not articulate a growth story in the Prospectus Summary. If you are concerned about Google's future, as every investor should be, you want to know what's next. That information is simply absent. Their business model is simply stated: "We generate revenue by delivering relevant, cost-effective online advertising."
Google states repeatedly that it expects to keep growing. But margins (currently enormous) are declining as it grows. Each extra piece of growth is less useful than the last. Googfle is a geek toy, and all the geeks are already on board.
I admire the honesty with which Google is stating its case. Faced with a stratospheric valuation, it has decided not to try for low Earth orbit. It will keep its promises vague and its threats specific, in the sure knowledge that people will still throw money at it.
In a perfect world, the Google prospectus might say: "Management believes that Google stock is being hyped to buggery. Buy it and hold it, and you'll probably regret it. That's why we're selling it." But that's being picky. The Gooogle vendors are already a lot more honest than everyone else.
