I was just reading an interesting article by MG Siegler over on TechCrunch.
MG talks about how Google has become a natural monopoly in Search and how it keeps “bring the meh” (delivering average or below average products) because it needs to keep extending its revenue base to meet shareholder expectations. The problem that MG points out rightfully so is that Google keeps using their Search product to do it, so they muscle into new categories with their monopoly product. Where this gets them into trouble is that this can often be seen as what lawyers call, “predatory behaviour” – using your dominant position in one area to enter another and undermine competition intentionally.
Clearly, Google are on a course where the US Government or the European Union Competition watchdogs are going to come for them. Realistically, it has to happen, Google have gotten so big that they seem to not care for anything else other than Google’s interests. That’s when things go awry.
I think there’s a simple business answer here and while the Google Boys might not like it, I personally think for shareholders it could be an absolute winfall.
Preemptively break Google up.
There, I said it… I would split Google into four business units, all publicly listed and totally autonomous from one another.
I would start with Google Search. This entity would include just the search assets, all of the profile, social network and app stuff would go elsewhere. Google Search would be focussed entirely on building THE BEST search engine in the world – making sense of the world’s ever growing information. It would generate revenue from selling ad space in the search results. The catch is, these ad spaces would be auctioned off via a system like AdWords, but it would be open to other Ad Companies and individuals. This would be a ridiculously profitable business.
The next one would be Google Advertising, maybe go back to the DoubleClick brand, who knows. This company would own the content network and be able to compete for AdWords space for their customers. Effectively, this would just be a very good digital advertising firm. Again, this would no doubt be a profitable business.
The third unit would be Google Apps. This would be Gmail, Google Docs, Blogger, all of the profile information and the social stuff. This business would have to stand on its own two feet. Gmail could probably make good money having their own AdWords style ads (again open to everyone to bid) next to mail results and by charging a fee. I think this is an area where Google Corporate has wasted a bunch of money on “me too” projects that don’t make sense. Ultimately this would be a nice little business if someone ran a sword through the crap and focussed on the game at hand.
Finally, you’d have the mobile business. This could include the App Store and the mobile Ad companies Google has acquired along with Motorola. Again, I think this could be a profitable business, but that’s up to how it’s run. Right now, there is a stench around Android over copyright theft and whether or not Google are just doing this business to hurt Apple and keep their Search product on handsets no matter the cost. Like I said, this could be a profitable business if it focussed on delivering customer value in the mobile space and stopped being cuckolded to the other whims of Google.
As a shareholder you’d end up with shares in four pretty damn good companies. A couple would need some serious hands on management to get them through the troubled times, but the Search and Advertising businesses would probably become more profitable away from each other than together. Imagine if Google’s AdWords were available to any Ad Network to bid on based on Keyword Price? You could see people advertising on say Bing and having their ad appear in Google’s AdWords. The competition for that real estate would be fierce and very lucrative.
You might also have one or two of those businesses bought out at a premium price which again, as a shareholder would be exceptional. The Apps business would immediately be in play for some of the bigger companies who’ve missed the boat entirely on this wave of innovation – Oracle, IBM and others. Imagine being able to own Google Search and getting bought out for cash at 3x value for their App Business – it’s like all your Christmases have come at once for an investor.
And think about the hordes of millions in cash locked overseas. Google could offer investors a one-time cash dividend on break up.
Unfortunately, this plan will never come. Ego and stubborn management will step in and they’ll end up locked in some ridiculous battle with government regulators for years to come. The only loser will be shareholders, just like Microsoft’s over a decade ago.
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