Free FatCat Newsletter
Learn how to manage your money betterSubscribe Now
There is a school of thought that Google is on the brink of becoming too large to succeed.
A month ago, Google was riding high: market acceptance of Google+ was immediate and all-encompassing. It not only posted stellar revenues, but during the earnings call CEO Larry Page’s poise all but erased the impression he made with his reticence in his first call back at the helm during the previous quarter.
Then Google really reached for the stars with its proposed $12.5 billion acquisition of Motorola Mobility.
There are a lot of reasons to think this deal might not come to fruition. But what if it does? There is a school of thought that Google – like many other corporations that went before it – is on the brink of becoming too large to succeed.
“There are very few cases where a company does better when it gets larger,“ says Harlan Platt, a finance professor at Northeastern University’s College of Business. “Examples of companies that have gotten too large are General Motors, Cisco, and Microsoft.”
Platt, as it happens, was answering a question I had a few months ago about Yahoo — whether it was getting too big to succeed. (Platt’s answer was yes.). What prompted my inquiry were reports that Yahoo wanted to acquire Hulu.
But Google, in that short period of time, has surpassed anything Yahoo, or Microsoft or Apple could dream of proposing. The exception is HP, but that is a company bent on recalibrating in a different direction.
S&P Agrees – And It is Always Right
S&P downgraded Google last week, presumably for reasons along these lines. In fact, S&P has been watching Google ever since it rolled out Google+, Azita Arvani of the Arvani Group notes, and not exactly with a bright gleam in its eye.
“Despite the initial excitement around Google+, S&P downgraded Google from Strong Buy to Buy on July 26th,“ she says. Then came the second downgrade on the heels of Motorola announcement.
In a way S&P’s outlook is understandable, she says: it is evaluating Google’s actions from a financial and short-term perspective, and it likes to see a good level of certainty. It also reasons that it is not sure that Motorola patents will protect its Android operating system and help with IP disputes.
“In reality, no one really knows what the IP legal battle would look like. We just know that Google will be in a better position with Moto patents than without,” she says.
Also, Google has gotten to where it is by conducting business from an innovation-to-change-the-world perspective and longer term horizon. “Innovation, by definition, involves experimentation, and lacks certainty. So, Google has been and will be experimenting with a number of products and services. Some may look good to analysts but most have uncertain futures.”
But here’s the rub: what if S&P is right?
The Microsoft Model
This year on May 12 the government prosecution of Microsoft on antitrust grounds, a mammoth, years-long saga that captured the IT’s undivided attention thirteen years ago ended with little fanfare — except for, that is, thoughts of what could have been. Could Microsoft had been better positioned to fight off Google if its energies and resources hadn’t been focused on the government fight. And perhaps more intriguingly: would Microsoft, maybe, been better off if it had been carved into two as the government originally wanted. Ironically the arguments are nearly identical – if that had happened, it could have been better positioned to fight off Google and perhaps seen the future around search.
There are little other similarities between Google and Microsoft, other than their respective sizes and now it appears it is Google that has the anti trust bull’s-eye on its back.
But there’s enough speculation that Google may want to try to be an integrated hardware and software developer with this Motorola purchase to take the “too big to succeed” concept seriously.
“Google will be experimenting with having a hardware division,” Arvani says. “Will it be successful? Will it be about smartphones and tablets or about set-top boxes? No one can tell. But Google thinks it would be worth experimenting.”
I just had a question regarding franked dividends.
If for example:...
Hello, I am concidering a part ten agreement and wanted some advice. I owe about $280,000 (business...
I have been reading comments in the media recently from people who have differing views on bankruptcy...
Ha anyone had experiences with My Rate Home Loans?
They say they are cheaper due to no...
I am in a capital protected investment scheme and it is, to be charitable, useless in...
My daughter decided to opt out of a course with an education department. We have a debt now &...
Hi all FatCat members,
Some of you may have received a message from a member on...
ASIC has a paper on interest free deals, which are not always what they appear to be...
Have you been the victim of a scam? Please share your stories and advice to help others avoid falling...