Google Bears Burden of Net Setback

Eggs in One Basket

Addressing that Yahoo!-Google comparison, another investor -- also speaking on condition of anonymity -- says that while Yahoo! is an obvious choice to benchmark Google's value, Google suffers in one respect from the comparison. Yahoo!'s first quarter -- in which businesses such as branded online advertising, job listings and Internet access improved -- spotlights how Google isn't as protected by a business model that's diversified beyond the paid search business.

That puts pressure on Google to diversify, says the investor, and creates a scenario under which Google would be a serial acquirer of businesses, in turn putting further pressure on Google to maintain and grow its current business while integrating all these acquisitions. The investor says he doesn't own any Yahoo! shares.

Chervitz, also addressing the Yahoo!-Google benchmark, acknowledges that Google does have "incredibly loyal" users. But, he says, Yahoo! has a leg up on Google because Yahoo! has so much information about its users, ranging from registration information and credit card numbers on file. Google, by comparison, has a relatively anonymous user base, except for people who have signed up for its experimental Gmail email service. "You cannot just compare [Google's] search revenue with all the other things that Yahoo! has done to build its business," Chervitz says.

Operational comparisons with Yahoo! aside, these buy-siders are coming up with a variety of positive and negative factors they have to weigh in their assessment of Google.

A third anonymous investor says Google will clearly benefit from high barriers to entry into the paid search business. "There won't be any new startups in the business," the investor says.

Despite that, the investor's interest in bidding for Google is cooled by the heat of the market's excitement. "If it trades for less than 70 times earnings, I'd be surprised," the investor says. "The valuation is going to scare me away."