Google rules - but for how long?
The tech giant trumps Microsoft with a $1 billion AOL deal, the latest in a string of big moves.
Plug in the name "Google" on the company's Internet search engine, and the online results will be a kind of electronic armada representing Google's burgeoning array of services.
There's the company's modest home page, with its simple search form. Then comes Google News, Google Local (directions and maps), Google AdSense (advertising), Google Earth (satellite images), Google in French.
And right in the middle of all that, before you get to Google Sightseeing or Google Desktop Download, the list includes the first website run by another organization, a page called Google Watch devoted to sharp critiques of the company. The negative link comes sooner on Google than it does when the same search is performed on the search engine offered by Yahoo!, a main rival.
All this is just one way of summing up what has become increasingly clear this year, and this week: Google is the most ubiquitous presence on the Internet, and its threat to high-tech giants such as Microsoft is very real indeed.
But built into this dominance is a dilemma: Google's very success opens it up to new criticism. Google's growth prospects are vast, but in the ever-changing realm of high-tech, one lesson is that monopolistic power is rarely as real or permanent as it may seem.
"They themselves know that this is a rapidly changing landscape, and they have to keep innovating," says Paul Saffo, director of the Institute for the Future in Palo Alto, Calif. "It's a really interesting horse race.... They are literally fleeing into the future."
The latest laps in the race have been going Google's way. Earlier this week came the news of a major setback for Microsoft, which is trying to carve out a larger presence on the Internet.
Google announced it would pay $1 billion for a 5 percent stake in Time Warner's web service, America Online (AOL). The deal solidifies a partnership between two of the most popular websites, with the two expecting to generate more online advertising revenue together than they could apart.
Already, Google has been providing search services and distributing ads on the AOL website, making AOL Google's biggest customer.
But this week's news is significant mainly for what didn't happen: Microsoft lost its long effort to partner its MSN Internet service with AOL. As recently as last week, it looked as if a Microsoft-AOL deal was possible.
"Microsoft was already far behind regardless of whether this deal would have been sealed or not," says Todd Chanko, an analyst at Jupiter Research.
In essence, Microsoft is the king of the personal-computer revolution, while Google is the colossus of the Internet revolution. Right now, the momentum is with the Internet. High-tech services are increasingly online, while software for the individual PC is in a phase of incremental improvement.
While Microsoft struggles to adapt, Google appears able to leverage its role as the Web's most popular search tool, using that position to grab ad revenue and roll out new services. In little more than a year on the market, its stock has soared from about $100 per share to more than $400 today. The company is worth $127 billion, even though it is so new it's not represented in the Standard & Poor's 500 stock index.
"They're taking lots of really smart risks and doing things that are very strategic," says Mr. Saffo. But he adds that its position is inherently insecure.
To its credit, the Mountain View, Calif., company knows this. Founders Larry Page and Sergey Brin have codified a corporate culture in which workers are given regular days for unscripted work, based on the assumption that innovation can't be scripted from the top.
But Google isn't the only innovator out there. Microsoft and others also have deep pockets and a significant presence on the Internet. AOL, for example, has Web-based revenues that, at about $9 billion, remain almost twice as big as Google's, though Google is gaining fast.
Google has piles of cash to buy other companies, branch into new lines of business, and hire the best minds in the industry.
But analysts see several ways the company could falter in its big ambitions:
• Be overtaken in technology. The field of online search is still young, and while a secret algorithm vaulted Google to the top, others are in the business and could develop better tools.
• Lose credibility with users. "One of the appeals of Google is that it's incredibly sleek and clean," Mr. Chanko says. Will that change amid shareholder pressure to boost profits? "That's what we're going to see."
• Poor execution. Any arrogance or disorganization could be costly. Says Garrett French, of the marketing company Websourced: "One thing Microsoft is not is disorganized."