Google Ready for Liftoff

A slew of new products grabs attention.
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Google's

(GOOG) - Get Report

once-rangebound stock may be ready for a real breakthrough.

Despite a recent rally that's pushed the stock to an all-time closing high at $519.19, shares of Google is still only 10% above levels of nearly 18 months ago -- at the start of 2006. Earnings per share, meanwhile, have jumped about 140% to $3.68 during the first quarter from $1.54 for the quarter ended December 2005.

Google's stagnation followed a gain of 450% after the company first went public in 2004, and the massive run-up may have led to an even bigger inflation in ambition. CEO Eric Schmidt famously declared that the company could reap $100 billion in revenue, and Google set out to do everything from selling radio ads to providing free wireless Internet access in its hometown of Mountain View, Calif.

But Google finally seems to have regained its focus. In May, Schmidt said that Google pinpointed "search, ads and

applications" as the key to its otherwise sprawling strategy. And recent moves show that it was more than just lip service. The company has announced a slew of initiatives that will give it some serious heft along these crucial lines.

As a result, Wall Street could get what it has long been looking for in Google: a company with a solid plan to use its dominance in the increasingly central search category to muscle its way into adjacent markets, while not casting its net so wide as to make new thrusts nearly meaningless.

Google is starting by solidifying its position in the first leg of its strategy: search. And one of its least-talked-about offerings in that core operation also turns out to be among its most popular. The iGoogle service, which lets users set up customizable Web pages, was the company's most popular service for 2006, rivaling the growth rates of the YouTube video sharing service, Google Vice President of Search Product and User Experience Marissa Mayer said in an interview.

iGoogle lets users design their own Web pages, easily including news listings, snapshots from their Google email accounts, weather or sports information, and literally thousands of other pieces of information offered by small Web gadgets. Most recently, Google unveiled a plan that lets users quickly create their own custom gadgets.

"We saw that users wanted to have richer access to content on their homepages," Mayer said. "There are things you want to search for, but there are things like news or what's in your inbox that you also want told to you."

But despite iGoogle's slick layout and customizable background, its value to Google is anything but merely ornamental. Users who found the loaded setups from

Yahoo!

(YHOO)

and

Microsoft

(MSFT) - Get Report

more appealing now have reason to jump ship. And users who take the time to customize a Google page end up using the search engine more -- and are more likely to be loyal.

iGoogle will help the company stave off one of the biggest threats it faces in search: the fickleness of users who can jump from one engine to the next. "Ultimately, we are different from some of the previous incarnations of large companies and large monopoly power, which people have been alleging we are, because we are one click away from losing that end user," Schmidt said at a recent conference.

The popularity of the iGoogle service helps tie in users who otherwise might leave company's barren search page.

Video Helped the Search Star

Google's recently launched universal search service, which combines aspects such as image, video, local and news search into one results page, could also further the company's dominance in the search market. But along with making search more valuable and boosting the number of queries, the service will also give a big boost to the new types of advertising Google is set to introduce.

Videos listed on the results page, for example, can already be played without leaving the page. Being able to locate and easily view videos on the Google page itself could cause viewings to soar. This, in turn, could allow the company to quickly dominate the booming video advertising market. Including items from other categories such as Checkout, which allows merchants to sell items easily, or the Base directory of items could also make the company's a player in e-commerce.

And the deal Google announced with local TV operator Hearst-Argyle on Monday indicates that the company could finally be gearing up to make money off video in a new way. Hearst-Argyle will broadcast its content on YouTube and share revenue with Google. The deal offers a great template for Google to partner with the myriad small, local broadcasters around the country as well.

That, and Google's recent entry into the display ad market through its DoubleClick acquisition, lay the groundwork for the company to stomp into the burgeoning market for rich video and display ads. And tying it all together with the growing strength of its search offers investors a much better gameplan than the one-off hawking of newspaper space or satellite TV ads.

Google has also been ratcheting up its applications business. The company recently announced Google Gears, a service that lets users work offline with the company's popular online suite of services. The well-received tool is a good positioning for the anticipated bridging of the online and offline worlds. And high-profile deals with companies such as

Salesforce.com

(CRM) - Get Report

and

Apple

(AAPL) - Get Report

could also easily evolve into more application-development opportunities.

All of this sets up a story that will be pleasing to Wall Street's ears when it finally sinks in. The market may still buy Schmidt's vision of a $100 billion in revenue -- if only he can show them how to get there $1 billion at a time.