Partner Pay Intrudes on Google Fantasy

Hard Chargers

One can interpret Google's ability to pay out a higher percentage as a sign of its economic strength. But one can just as easily interpret it as a sign that those partner sites, by virtue of their own brands and the traffic they generate, have bargaining power they can exert over Google. As Yahoo! and other companies expand their own efforts in the pay-per-click search market and content-targeted advertising, you can expect that 81% number to increase. Time will tell if the size of the market overcomes the higher traffic acquisition costs.

That comparison to Yahoo! hints at another challenge to the Google ideal: The problem with not caring how much it costs to run your company or develop new technology is that you're competing against people who do care.

Yahoo! isn't the only qualified competitor going after the same money that is collecting in Google's coffers. Microsoft (MSFT) is hard at work on its own search technology. Time Warner's (TWX) America Online, which has a small but growing paid search business, could likely end up as another power to be dealt with, given its huge audience and ad-sales experience.

Google has rightly developed a following based on the quality and relevance of its search. But those competitors are no doubt working to improve the quality and relevance of their own search results. And, as we learned from the IPO, Google's exclusive license on one aspect of technology it uses to judge relevance of Internet content will become non-exclusive in just seven years.

There's nothing wrong with running a chocolate factory, or an Internet-search company, any way you please. There's nothing wrong with believing that you'll have infinite resources. But a few years from now, if times get a little harder for Google, investors might begin to question whether the money spent on workplace washing machines might better be deployed elsewhere. Like anyone who might have invested Wonka's fictional factory, there won't be much they can do about it.

And unlike Warren Buffett -- a value investor and all-around tightwad who owns a candy store, See's Candies, himself -- the people in charge may just not care.

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