Google's expansion comes at a price: it's losing popularity
As the world's biggest search engine starts to compete with old media it risks becoming the 'Microsoft of the Internet'. Richard Wachman reports.
Is Google becoming the new Microsoft? On one level, the question is preposterous, as the two companies do different things. Google is the most widely used Internet search engine and dominates online advertising. Microsoft rules the world of computer operating systems: its ubiquitous Windows powers most of the world's personal computers. In addition, Microsoft has a commanding position in basic office software, such as word-processing and spreadsheets.
But increasingly, the two technology giants are treading on each other's toes. For instance, Microsoft is building a search engine business, while Google is launching products that allow users to tap into Google-branded word processing and other web services.
The war between the two has become especially bitter as Google has been poaching some of the best talent from Microsoft, infuriating its executives and spooking its investors.
But Google seems to be winning the battle for hearts and minds as it presents itself as the place to work if you are young, ambitious and talented. Thirty years ago, Microsoft's founder Bill Gates conveyed a similar message. History is turning full circle.
But as Google expands into new areas across the media landscape, threatening companies far beyond Microsoft, it is also attracting some of the fear and loathing with which Gates is all too familiar.
When Microsoft became dominant in the Eighties and Nineties it made enemies in high places, as rivals complained that it acted like a monopoly; investigations on either side of the Atlantic were launched into whether it was abusing its market position. In Europe, Microsoft has drawn stinging criticism from the competition authorities and has been repeatedly fined.
Google is not under investigation by anti-trust bodies and it appears to have the goodwill of its customers, as surveys show it enjoys widespread popularity. Microsoft, on the other hand, tends to polarise opinion: 'People either hate it or love it, there is nothing much in between,' says one computer buff.
But as the Google empire extends its reach, the company led by Larry Page and Sergey Brin is coming under fire from a number of quarters. Take Google's strategy of marrying search with content that saw Brin and Page splash out $1.65bn for YouTube, sending shock waves around the global media industry. 'A search engine that can show films and pretty much anything else for free looks like it can turn the world of entertainment on its head,' says one analyst. But old media has hit back.
Viacom, which owns MTV, has filed a $1bn lawsuit, alleging that 160,000 of its clips, from hit programmes such as The Daily Show and SpongeBob SquarePants, are being aired without its permission. The company has asked whether it is right for YouTube to make millions from advertising when some of its attractions are made up of pirated content - an allegation that parent company Google vigorously denies.
Last week, there was more trouble for Google when several media giants said they were teaming up to create their own video-sharing service in a bid to blunt the incursion of YouTube/Google. Rupert Murdoch's News Corporation and NBC Universal are linking with Google's Internet rivals, Microsoft, Yahoo!, AOL and MySpace (owned by News Corp) to offer entertainment and videos to an audience of several hundred million. A Wall Street analyst says: 'The development is all about holding onto advertising dollars migrating to the web; there are billions at stake here.'
But it is about something else as well. According to Greg Sterling, head of Sterling Market Intelligence, a New York-based research agency specialising in Internet companies, Google has an image problem. He says: 'In the industry, around Wall Street and in Silicon Valley, there is a perception that Google is the Microsoft of the Internet. It has to do with power, of course. In simple terms, Google has become a victim of its own success.'
With its share of online advertising put at anywhere between 40 per cent and 70 per cent, Google has been astonishingly successful in a short period of time. But its move into areas that are outside its core business - mobile phones, newspapers and radio - has raised eyebrows in the investment community. The shares reached $500 in 2006, but have fallen 13 per cent since January, reflecting worries about its diversification into new markets. Google, for instance, has agreed to sell adverts for 66 US newspapers and has bought dMarc, an automated network for selling radio advertisements. Google, it appears, wants to dominate the advertising market, both online and off.
Shareholder uncertainty may seem surprising to ordinary mortals, as the company still commands a stock market value of around $150bn and last year produced annual profits of nearly $3bn from income of $11bn. Nevertheless, Google is no longer the hottest thing on Wall Street and has underperformed the wider market index in recent months. Investors fear that retaliation from competitors could choke off growth that had already showed signs of slowing when it reported its latest quarterly figures. And anxiety persists about the court case with Viacom, which could cost Google untold millions in damages if lost.
Viacom is by no means the only legal headache for Brin and Page: around the world, their firm is involved in scores of lawsuits touching on alleged copyright violation and trademark infringement. A court in Belgium last year ruled that Google should refrain from posting news articles from French- and German-language newspapers on its Google News service. In the US, the Authors Guild and a group of publishers backed by the influential Association of American Publishers have sued Google for making digital copies of copyrighted books from libraries.
But the book industry isn't taking any chances and is racing to digitise its books to counter the threat from a company always willing to stick its neck out and test established boundaries.
Sterling says: 'Publishers must act fast or risk suffering the same fate as the music majors, which responded slowly to music downloading at great cost to themselves.'
For Google it is a zero-sum game because extending its reach into publishing or films is a way of grabbing additional online advertising that would otherwise go to someone else. So the stakes are high.
To propel itself forward, Google must take risks to protect its pre-eminent position, while seeking out new ways of generating revenue in a media market that is increasingly cut-throat. And the company must do so even if it means making itself very unpopular, as Microsoft did before it.
In search of profits
Google was floated in the US in 2004 with a price tag of $23bn but today it is worth $150bn after generating revenue of $11bn in 2006. The company is known for its relaxed corporate culture and works on the basis of a number of informal principles, including: 'You can make money without doing evil'; 'You can be serious without a suit'; 'Work should be challenging and the challenge should be fun'.
Most of Google's revenue is derived from its online advertising programmes. Google AdWords allows advertisers to display ads in Google's search results. In 2006, Forbes said that founders Sergey Brin and Larry Page were the 12th and 13th richest people in the US, worth $14.1bn and $14bn.