Wednesday, June 25, 2014

PREDICTION: Google Will Stumble

Michael S. Rozeff writes at LRC:
In the news today is a Google acquisition of a company called Nest for $3.2 billion and an acquisition by Nest of a company called Dropcam for $0.555 billion. These companies make products that have nothing to do with Google’s main line of business. These are called “unrelated” acquisitions. Google has been acquiring one company a week since 2010. Since 2001, one partial list contains 158 companies. Based on the history of other companies that have followed similar acquisition practices, I predict that Google will have a major setback, such as an accounting scandal, an unexpected loss, an unexpected slowing in its rate of growth, or business problems in one or more of these units. I doubt very much that either the management of this company or security analysts actually know what’s going on in so many companies. It is possible that some sharp analyst will publish an expose of Google that shows that its growth has been through accounting manipulation. Buying companies at what have to be competitive prices cannot achieve exceptional returns.

Beyond that, it is always possible, even probable, that a new search engine comes along that’s better than Google. It may already exist, but is not widely known. I don’t keep up with such things, but I’ve been increasingly disappointed with the kinds of searches that Google produces since they too often simply lead to commercialized web sites. I’m also one of those who thinks that Google is mucking up its clean page with its doodles and moving images.
Rozeffl may have something here. I am convinced there is a lot more money than brains in Silicon Valley. At the core, there are probably 15% of the venture capital people in SV who are very smart and know what they are doing, but there are many others who really don't have a clue.

I know of one start-up technology company that was burning through cash and realized that they would run out in about 6 months, so they decided that the best thing to do would be to merge with a larger company.The firm had some software that was a little interesting but no sales. After putting themselves on the market, a larger firm did make an all stock bid for them. About 4 weeks before the deal was to be closed, the smaller firm received the financials of the larger firm, the larger firm was going to run out of money even quicker than the smaller firm. The deal was called off and they both then went and succesfully raised more money for their unprofitable ventures.

From what I have heard the people at Google are all very smart, but Rozeff has a point. There is a lot of flaky stuff going on in SV, fueled by Fed money printing, and it is hard to see how Google will escape without a scratch, when the next downturn in the cycle occurs. I am not sure any problem will be severe enough to cause serious problems for Google, but Rozeff's point should not be dismissed with just a wave of the hand..



  1. I don't see Google as a "Search Engine" company as Mr. Rozeff does. Google is a Big Data company. As a Big Data company, Nest and Dropcam make perfect sense. They both provide data points to Google about the preferences and patterns of consumers.

    They may be growing too fast to be able to monitor their business acquisitions, but I don't buy into the "unrelated business" proposition as it relates to these two companies, specifically.

  2. Software as a Service providers have been trending toward vertical integration. Amazon, Apple, and Google are all doing this. It looks like they are all making a play for different aspects of home-to-internet integrated products.

    It's hard to know where each of these companys' roadmaps are going. The purchases may seem disjointed but our outside view is probably a bit short-sighted.

    Amazon revealed their piece of the puzzle with their new phone. They are working on an extremely tightly integrated set of consumer products with their Prime service ecosystem.

    This feels like where Google is trying to go also, it just may take a few years to put it all together.