Always trust content from Borepatch!

Sometime back I wrote about how I'd switched from Google to Bing as my default search engine:

I made the switch, in all of my browsers.  Bing is now the default search engine for me.  No, this isn't because of Google's long and sorry neglect of American patriotic holidays, although that's always been an annoyance.

It's because I don't trust the search results.

I list my reasons there, but it boils down that that most critical of words when you deal with customers: trust.

Reader Ron emails to point out that I'm not the only one:

I just switched the default search engine in my browser from Google to Bing. And if you care about working efficiently, or getting the right results when you search, then maybe you should too. Don't laugh!

Google changed the way search works this week. It deeply integrated Google+ into search results. It's ostensibly meant to deliver more personalized results. But it pulls those personalized results largely from Google services—Google+, Picasa, YouTube. Search for a restaurant, and instead of its Yelp page, the top result might be someone you know discussing it on Google Plus. Over at SearchEngineland,Danny Sullivan has compiled a series of damning examples of the ways Google's new interface promotes Plus over relevancy. Long story short: It's a huge step backwards.

This Gizmodo story - and the links it cites - make for fascinating reading.  Why would Google play games with people's trust?  I mean, if you get a critical mass of people like me, then the number of searches collapses, the ad revenue associated with those searches collapses, and Google's earnings per share collapse.  What could possibly cause them to act this recklessly with the company's future?

I think that it's the Law Of Large Numbers.

As an example, assume that company X has a market capitalization of $400 billion and company Y has a market capitalization of $5 billion. In order for company X to grow by 50%, it must increase its market capitalization by $200 billion, while company Y would only have to increase its market capitalization by $2.5 billion. The law of large numbers suggests that it is much more likely that company Y will be able to expand by 50% than company X. 

Google's Market Capitalization is $190 billion.  To grow by even 10%, they need that to turn into $209 billion.  At a current P/E of 20, that means that they need to increase their revenue by $19B/20, or an extra Billion dollars.  Where does that come from?

It's hard to see them growing their market share, which seems to have maxed out at around 66%.  The search advertising market seems to have settled into the typical high tech pattern of a dominant company (the "gorilla"), a primary smaller competitor (the "chimp"), and a bunch of small players (the "monkeys").  Bing is picking up share from monkeys like Yahoo, while Google seems stalled.  But even if their market share is stalled, is there an extra 10% there?  Good luck with that.

But it's even worse than that.  As more effective competitors emerge, you see what you would expect in a competitive market - the price Google can charge for its ads is dropping:

NEW YORK (AP) - Shares of Internet search engine Google Inc. fell in premarket trading Friday after it revealed that it got less money for each ad in the fourth quarter.

The stock was down $49.46, or 7.7 percent, at $590.11 per share in trading ahead of the market opening. The shares haven't been below $600 in regular trading since Dec. 1.

Investors had expected that the surge of online holiday shopping in the U.S. would let Google charge more for its ads. Instead, the average price fell by 8 percent from the same time in 2010.

So they need to grow their market share by more than 10% to get that extra Billion.  How?

By selling the trust they've developed with their customers, is what it seems.  I've used Google since they were a beta, way back in 1998.  I switched from Yahoo and Altavista to Google because I believed that the search results were more accurate.  I've now switched from Google to Bing for the same reason.  And so did the author of the Gizmodo story.

I'm not sure that I'm ready to short Google, but someone is going to make a ton of money doing that some day.  Because when Google has The Big Miss, their stock will drop by 50%.  The market rewards Tech companies with ridiculous P/E rations, but only when they perform.  When they miss, the market overcorrects.  Sorry, I don't make the rules here.

It's odd that a company like Google seems to blind to the realities of new media.

Thanks to Ron for triggering a post where I tread onto Silicon Graybeard territory.