Monday, November 17, 2008

Google's slowing growth

Google's slowing growth, was highlighted today in Silicon Alley Insider where Henry Blodget noted that the bloom has fallen off the GOOG rose.

The slowing growth seems to be a natural outcome of its massive market share, in a time when its customers are slowing their growth in related spending; thereby slowing the shift from off-line to on-line. Unlike folk such as Yahoo, it's nothing personal. No doubt that when the sun comes out there is still plenty of hay in GOOG's fields, to be harvested when days are sunny again.

But, the overall message is right, secular growth is slowing, and it's not a one quarter event. It seems to me that re-accelerating growth for GOOG will depend upon the combination of two factors:

1. Short term- continue to add value to the basic product; thereby encouraging more people to use it. In the Companies I have invested in that use GOOG as a key component to their marketing efforts, these investments add incremental gross margin, therefore, we continue to make them. Provided that their return is above that of alternative uses of marketing/sales capital. If they added more margin, no doubt management would allocated more dollars to their GOOG campaigns. The added transparency in Analytics, SEO primers and Trends absolutely helps create a win/win.

2. Longer term (and riskier)- continue to make bets in emerging areas where they can lead a paradigm shift. Schmidt was on Apple's board before the iPhone was released, and a scant couple of years later, it's a totally different company. These investments must be in large markets that can move the growth needle AND could be accelerated via acquisition.

It seems to me that the moribund Enterprise market would be ripe for the type of innovation Google could bring. Perhaps, Chrome is a toe in the water that gives them more comfort that the waters are fine for a full dive. Combining with 'CRM' would give it a fine base of corporate customers which they could immediately add tremendous value to by integrating more value WHILE lowering prices AND INCREASING gross margins.

While we are at it, these factors also could be exploited by entrepreneurs in young companies who, via riding a new paradigm, may create massive customer value, the same way GOOG did/does.

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