Since the beginning of the year, Google's stock has fallen over 25% -- about 2-3 times the fall of the relevant indexes.

• The good news for Google shareholders is that most all of Google's stock price problems are self-inflicted, so they could fix them -- if they wanted to.
• The bad news for Google shareholders is that Google is unlikely to change its problematic bahavior -- because "leopards don't change their spots."

Why is Google its own worst enemy?

First, Google routinely alienates its friends and allies.

Many have missed the high significance of the NTIA Commerce Department report: "Networked Nation: Broadband in America."

• In particular, press reports, which zeroed in on the histrionics of broadband critics, totally "missed the proverbial forest for the trees" on this one.
• The fact is that this report is a very big deal for national broadband policy.    

First, this official United States Government report represents the consensus policy thinking and sign-off of all the many parts of the United States Government involved in setting United States broadband policy, including but not limited to: NTIA, FCC, FTC, USTR, CEA, OMB, OSTP, and the Federal Departments of Commerce, Treasury, State, Justice, and Agriculture. 

Second, this is the first and only official and comprehensive U.S. Executive Branch assessment of U.S. broadband strategy/policy and of U.S. progress in deploying broadband. Broadband critics can no longer say there is no official or clear U.S. Government broadband policy, because here it is:

Google must have been caught off guard last week by the Microsoft-Yahoo bid because they are reacting quite rashly and arguably in a way that is not in the best interests of their shareholders...

First, is it wise for Google to be proactively and angrily  "kicking the antitrust bee hive" in the U.S. and in Europe when their DoubleClick acquisition is still pending with EU regulators?

• Did it ever occur to Google that they could take the close call in the EU over their pending merger -- that previously was trending in their favor -- and give opponents of the deal in the EU -- more ammunition that this market is too concentrated and that antitrust officials should be more concerned about this market?
  • Has Google forgotten that they have 90% search share in Gemany/Spain and 75% share in France/UK? 

Second, in leading the charge against Microsoft-Yahoo in Washington, has it occurred to any adult in Mountain View that this will only accelerate Washington interest and attention to adopt the FTC's (5-0) proposed behavioral advertising privacy principles/regulation, which would require opt-in and "affirmative express consent" before Google could use "sensitive data."?

After last quarter's earnings report by Google, I questioned whether Google was more interested in "empire building" spending than in rewarding shareholders (see point three of this previous post.)

• I've heard lots of explanations why investors have soured on Google's stock:
  • Economic downturn (Google said no on its call)
  • Pay-per-click rates; (Google downplayed this in its call)
  • slowing traffic/searches... (ditto)
• My simple explanation is that the "momentum pixie dust" that Google has been flying on for a long time -- simply came to back to earth.
  • Investors know what fuels "momentum pixie dust" is actual and expected earnings acceleration.

What blew away the "momentum pixie dust" surrounding Google's stock? At least for the time being?

I can't say I'm at all surprised to see Microsoft seek to acquire Yahoo. 

• It makes obvious business sense for both Microsoft and Yahoo -- because it is the only viable and timely strategic option for either company to become a serious and credible competitor to Google-DoubleClick's rapidly increasing dominance of search and Internet advertising.
• And given the FTC's surprisingly-strong consolidation-endorsing analysis of the Google-DoubleClick merger -- a previously-perceived yellow antitrust light to such a merger by Microsoft -- now has a bright blinking green light for approval.
  • Timing-wise it's obvious to Microsoft to get approval now while the getting is so good.

In the 4Q07 Google reported that revenue grew 51%!

• To put this in perspective, Google grew incremental revenues by $1.6b (4Q06 to 4Q07) which is almost as much as  Yahoo's entire revenues for the same quarter of $1.83b. 
• Moreover, at 51% revenue growth, Google grew over six times faster than Yahoo at 8%.
• Furthermore, Yahoo is projecting capital expenditures (in part to improve search) will be $675-775m for all of 2008, while Google just reported that it spent $678 million on cap ex in just 4Q07.
• Lastly, Yahoo is announcing layoffs of about 1,000 people, while last quarter Google hired 889 people.

Given that Yahoo is Google's main competitor in search and Internet advertising, it certainly looks like the market is rapidly tipping in favor of Google as I explained in Googleopoly.net my analysis of the network effects and dominance of Google in the context of the Google DoubleClick merger.

I had to stop myself from bursting out laughing when listening to Google-YouTube's product counsel, Mia Garlick, speak on the Internet Caucus panel on "Internet Copyright Filters: Finding the Balance."

• Google-YouTube's representative said with a straight face: "human review trumps technology" in copyright filtering.  

Let that little quote sink in for a moment.

Google...

• the self-described technology company,
• the algorithm leader,
• the company that automates virtually everything internally,
• the company that is not interested in pursuing businesses or tasks that cannot be automated or condensed to an algorithm,
• the company that has taken innovation and technology to a new level on the Internet,
• the company that uses technology for customer service not humans...
  •  is saying that "human review trumps technology"?

If human review of content trumps technology, why doesn't Google rank/filter all the world's content in its search process with human review rather than technology -- if human review is better?

Please don't miss the new NetCompetition.org one-pager I produced on the politics of net neutrality.

I make the case that net neutrality is:

• A fringe issue and a factional business dispute;
• Not sound Democratic policy; and
• Not sound Republican policy.

I made it available at the Internet Caucus event today.   

http://netcompetition.org/Why_Net_Neutrality_is_Not_a_Mainstream_Issue.pdf

For anyone wanting a good forward-looking perspective about the real challenges facing the Internet, look no further than the great new study "Estimating the Exaflood" by Bret Swanson and George Gilder.

Why this study is so timely and relevant is that the real problem facing the Internet is how to keep up with the exploding capacity demands of migrating to a video-driven Internet.

• The net neutrality utopians want to assume that bandwidth is infinite and free -- magically supplied by others for their p2p bandwidth gluttony -- with no costs to, or no affect on, others.
• The real world does not operate that way...

The report also is an important backdrop for why broadband networks must be allowed reasonable network management.

• Without massive investment and reasonable network management, the quality and the responsiveness of the Internet will suffer as the exaflood surges.

I am on the Congressional Internet Caucus wireless panel Wednesday with Blair Levin of Stifel Nicolaus, Michael Calabrese of the New America Foundation, and Jason Devitt of Skydeck.

The panel is on: "Opening up 700 MHz & White Spaces" What hath the FCC wrought?"

• Should be interesting given that I am the only panelist not under the influence of "openness"...