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War With Apple Will Push Google to $300
Google ( GOOG ) is in trouble. I'm forecasting the next 24 months will take this stock back to its first year IPO levels of $300 a share. They've ruffled the wrong feathers. When I hear Apple ( AAPL ) CEO Steve Jobs mention that he feels betrayed by Google CEO Eric Schmidt and when I see Apple go out and buy their own mobile advertising firm I begin to question Google's future growth prospects. Apple's Quattro is coming, it's going to be revolutionary, and it's going to be the most important contributor to Google's demise. But it won't be the only contributor. With Google it's a matter of picking their poison:
1- Leadership . This company is running like a chicken with its head cut off. CEO Eric Schmidt is flying solo without the help of founders Larry Page and Sergey Brin who are actually selling shares themselves. Not exactly a ringing endorsement from the innovators.
2 - Profitable Innovation . In a rapidly changing landscape of mobile innovation, Google is having difficulty making money on anything other than its core desktop search business. Desktop search advertising was a great business to be in during decade 2000 but its growth now looks limited because of the shift towards mobile computing. Schmidt knows they are vulnerable which explains why we hear about yet another Google experiment on a weekly basis. Last week it was Google broadband. This week it's Google TV. It's all a big joke. Even Android is a joke. The recent market share gains from Android are misleading because it suggests Google is making money when all they've really done is give it away for free. Investors are ready to see profits beyond desktop advertising. 24 months from now, desktop Internet surfing will be in dramatic decline.
3 - Mobile Search Competition . Mobile versions of Twitter, Facebook, and Bing will give Google a run for their money. And I would not bet against Steve Jobs and Quattro. The problem for Google is that the mobile Internet relies on applications rather than websites. Apple controls more than half of the mobile Web market share and Google is one Steve Jobs decision away from being left out of the Apple ecosystem. This makes Google extremely vulnerable. Sources from BusinessWeek revealed that Steve Jobs hopes to 'overhaul mobile advertising in the same way they had revolutionized music players and phones.' Appleinsider reported that
Specifics at the moment are not known, but a number of potential approaches were offered: Apple could rely on user data collected through iTunes and the App Store, along with geo-location technology due to GPS in the iPhone, to create targeted, local advertisements that would be more relevant to consumers. The company could also utilize gimmicks, such as having users shake their iPhone to win a prize. "Some developers have profited by embedding ads in their apps, but the payments tend to be insignificant since the ads are usually smaller, less effective versions of their Web banner forms," the report said. "According to a source familiar with his thinking, Jobs has recognized that 'mobile ads suck' and that improving that situation will make Apple even harder to beat."
4 - Brand Trust . Nexus One was a disaster on so many levels. Google rushed the product to market without customer service. Google rushed the product to market and the trademark application was subsequently denied by the United States Patent and Trademark office. Google rushed the product to market and caught all of their Android partners off guard who never thought Google would come out with their own phone to compete. Now do you understand why I compare this company to a chicken running with its head cut off? While Apple spent years securing patents to protect the intellectual property of the iPhone, Google is late to the game and is running scared. How much money will consumers invest in Android apps when they know Google offers no Tablet and might not continue with the Nexus One? Whereas you go with Apple and you know that your apps and iTunes library will work on your iPod, iPhone, iPad, and next year they'll probably work on the iTV as well.
5 - China . This China thing has been catastrophic for Google. After struggling to gain any share from Baidu ( BIDU ), Google is out of a country that has more Internet users than the U.S. has people. Not good. Especially if they had any aspirations of growing their Chinese Android platform.
Desktop search advertising is Google's bread and butter. Two years from now the landscape will be completely different. Investors will look at Google as a declining search market share story. That's not a good thing when your stock is priced near $600 a share. Google reminds me of Research in Motion ( RIMM ) two years ago. Back then everyone assumed RIMM was untouchable as well. The problem is, when you go to war against Apple you better be more than a one trick pony.
Google is scrambling to come up with a family of products similar to Apple but it simply is not in their company DNA. They do search, that's it. Their software is profitless and their hardware is copycat. I'm not saying that Google is going to disappear but I am saying that their days of high growth are over and that means the stock is doomed over the next 24 months. Investors might make more on Google puts than on Apple calls. Trade with me side by side at www.economictiming.com .
Disclosure: Long aapl, short goog
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