Since last year, the Google Phenomenon has been crawling steadily in to all factions of society, from the broadsheet financial papers right down to the teenage journal weeklies, making Larry Page and Sergey Brin household celebrities worth billions of dollars and determined to change the way everyone works, plays and interacts over the next decade. When even notoriously “anti-American corporate” Italian periodicals start declaring the rise of U.S. companies, you know something’s going on: only last week, Le Point featured both founders on the front cover and declared boldly inside: “L’ambition de Google parait n’avoir aucune limite” (the ambition of Google seems to recognise no boundaries).
Suddenly everyone in every single place is speaking about Google teaming up with Sun Microsystems, who has come politely and helpfully out of left wing, to possibly generate the most advanced new desktop program around, making a challenge to the Windows standard. And Google is laying the groundwork with numerous Beta check applications, taking on everything from academia (Google Scholar) to e-mail (Google Mail) down to web chat and VOIP communications (Google Talk).
But how credible are these threats? Definitely the savvy invitation-only launch of applications such as GMail and Google Talk has elicited some favourable press, and the functionality and usability of its Beta launches has been very well received by both the public and by technical critics, but could this innovative relative newcomer take on Microsoft? Plenty of appear to think so.
What is fascinating however, despite the potential Microsoft-Google wars, is that all this publicity signals a demand from the world at huge for some kind of change of the current program standardization. Lots of Microsoft’s success depends on whether its next foray in to the market, Windows Vista, can provide a sufficient change to satisfy the demands of customers worn out of filing by a limit of subject and surfing by a limit of criteria.
Because, contrary to public opinion, it looks like Google might have over-sold itself early. A P/E ratio at its current level cannot be sustained for an indefinite time period. The only way that Google can possibly maintain this sort of cost to earnings valuation is to actually deliver a viable desktop program before Microsoft comes out with its challenge next year. If it doesn’t, and the cost of its shares starts to fall (as it surely will), Google is going to find itself having to split its current stock in order to attract more investors to its equity, a strategy that could lead it to decline further. Capital withdrawal from shareholders at the moment of a head-on confrontation with a monolith such as Microsoft can be disastrous to the result, when Microsoft is sitting right now at a comparatively low industry valuation.
Microsoft has been a public company for long to know the tricks of the trade that rookie Google still has yet to acquire: Page and Brin ought to be cautious where they tread.