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Bursting its own stock bubble: Why Google is its own worst enemy

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.

  • The New York Times editorial board, which should be a natural ideological ally, busted Google badly in its editorial today: "Who's the 800-Pound Gorilla?"
    • The NYT saw through Google's anti-competitive complaints about Microsoft-Yahoo as "self-serving," "disingenuous," and "so much empty whining."  
  • Google has badly alienated its shareholders (it's most ardent believers) who wanted to believe that Google would reward them for their investment.  
    • Despite Google's torrid revenue growth (51%) for a company its size, investors are learning that Google already has spending plans for whatever revenue that comes in.
      • Google's near total lack of spending discipline may be the biggest wildcard for investors in dealing with the company.
    • Moreover, despite being an un-regulated high-growth stock, Google went out of its way to promote more regulation of wireless -- to the point of publicly pledging to bid $4.6b for 700 MHz spectrum that in turn would have committed them to spend billions more in network construction and operation, and long-term debt.
      • While Google is unlikely to become a wireless operator, talking seriously about it, sent a powerful signal to shareholders that Google is more than willing to become a big cap ex spender and/or enter a regulated business. 
        • (And if they were never really serious about becoming a wireless player, but just fulfilling a political obligation, investors have a right to ask: what part of what Google says can they trust to be true?)   

Second, Google picks fights gratuitously, collecting powerful enemies unnecessarily.

  • The combination of two storied Google management policies leads  Google to pick competitive fights with potential competitors to Google in virtually every direction. 
    • Google allows Googlers 20% of their time to work on whatever they want, and combined with Google's famed "innovation without permission" supervision-averse culture, there are literally thousands of Google employees going off half-cocked in every direction -- without any adult supervision sorting out which competitive assaults on which companies or industries may be ill-advised and not in the best interests of the company.
    • This "what me worry" management style may create the "explosion" of innovation Google founders seek, but it also creates a ton of unnecessary "radioactive fallout" that breeds corporate enemies Google doesn't want or need.
  • In response to 2005 press reports that communications companies wanted Google and other online companies to pay more for bandwidth, Google launched a preemptive net neutrality political campaign to effectively price-regulate the companies' networks on which Google depends for its growth. 
    • Originally, Yahoo and Microsoft were alligned with Google in a pro-net neutrality coalition called ItsOurNet, but Google's hardline Washington tactics alienated its allies to the extent that Google now only has eBay-Skype as a major corporate ally in its net neutrality crusade.           

Third, Google shines a public spotlight on its strategic weaknesses and vulnerabilities.

  • In launching a big urgent high-profile net neutrality campaign to prevent their bandwidth costs from rising, they effectively shined a spotlight on their rising bandwidth cost liability and that their business depends on activist governmental protection. 
  • In launching a big urgent, high-profile campaign for wireless open access regulation Google spotlighted they need major government assistance in order to be able to grow in the wireless space.
  • In opening a big flashy Washington DC office with great fanfare, Google shined a big public spotlight on its rapidly growing regulatory risk overhang.
  • In launching a big high-profile campaign against Microsoft-Yahoo because it threatens "openness and innovation' on the Internet, Google shined a big public spotlight on their dominance of Internet advertising and that they want activist government protection from competition.      

Finally Google ignores important problems that others care deeply about. 

In short, all of the drags on Google's stock listed above are of Google's own making. If Google wanted to, they could fix them. 

  • Unfortunately for Google investors, Google is its own worst enemy.