This column was originally published on RealMoney on Dec. 1 at 3:31 p.m. EST. It's being republished as a bonus for TheStreet.com readers.
More than a year ago, when
Microsoft rolled out its new Internet
search engine to much fanfare and selling of
Google stock, I penned a column called
Google Targets Microsoft With Desktop Search.
That was $80 billion of Google valuation and trillions of user searches
ago.
With Google at a $120 billion market cap and generating billions of
earnings now,
there's no doubt that Softee (and every other company on the planet) now
has Google fully in its sights. But I still believe investors should
"flip it" when it comes to that analysis.
Google still has everyone, including Microsoft, on
their heels, and
Google's on the offensive rather than the defensive. As Bill Gates
put it recently, "Whether it's Google or Apple or free software, we've got
some fantastic competitors and it keeps us on our toes."
He calls it toes;
I call it heels.
As I've outlined throughout 2005, Google is positioning itself to be a
source-agnostic gatekeeper to all of the content on the planet, from white
pages in Ruidoso, N.M., to "Andy Griffith" reruns to Charles Dickens'
Tale
of Two Cities. And although the company continues to exploit many new
and/or
currently unthought-of revenue streams, Google's going to continue to
experience
secular growth in Internet
advertisement, as will MSN,
Yahoo!, and any other Internet
company that reaches a critical mass of users. (That's not to say those
who haven't reached critical mass won't enjoy secular growth, but it'll be
harder to model.)
That is probably the key point to remember when trying to assess the
competitive threats in industries like Internet search and advertising.
It's all about secular growth within cyclical markets. Sure,
competition will heat up and Microsoft might cut prices for advertising on
its networks and search results. But Internet advertising accounts for
less than 10% of all advertising sales now. That percentage will be
going to 20% in the next few years and will eventually hit 50% and more in
the decades to come.
Cody Willard
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