Google Has a DNA Issue

I have been expressing negative opinions on Google for awhile.   “Will Google be a Major Player in Mobile Computing?” – was one of the first ones back in April 2010.  In June of 2011, I threw down the gauntlet with RIM is Done – Who’s Next?  There have been many more.  While some may regard my comments as an Apple fan ranting – the proof is in the pudding.  Since the April 2010 article, Google’s stock is up a whopping 4.9% versus 13.9% for the market.  Over that same time frame Apple is up 76.5%.  In my world, the Stock Market is the final arbiter.  I will let the technology bloggers debate on open versus closed and other such nonsense.

After Google’s disappointing earnings last week, more are starting to see it my way.  Colin Gillis of BGC Partners, downgraded Google to “Hold”:

“We are downgrading as we see shares are range-bound until summer and Google’s stock may stall as the holiday season has passed, and the company struggles to integrate its low margin hardware acquisition [i.e., Motorola Mobility]…Looking into 2012, we see harder comparisons, the potential for a slowing macro economy, and significant margin impact from its pending hardware acquisition.”

I could care less about a slowing macro economy or harder comparisons.  IMO, Google’s problems are pretty simple.

I worked in high-tech software sales for 10 years. From day one, it was ingrained in our heads that we sell our products based on value delivered.  Not at cost, not for free, but based on value.  The amount of value Android hardware manufacturers receive from Android is astronomical. It is fair to say that many of them would be facing a similar fate as Research in Motion without Android.  It’s simply not acceptable for Google to give Android away for free.  Google should be receiving a direct monetary benefit from Android in addition to praying that someone clicks on an ad.  Android is not their only product with a flawed business model, but Google docs and others.  Value based selling is not in Google’s DNA and it may be too late to incorporate now.

I believe that Google will continue to be a great company, but a middle of the road stock.  As an individual investor, I have no room in my portfolio for such a stock.

Disclosure: Long Apple.

banner ad