Google and Its Stock Split

April 16, 2012

I pointed out that the big news from the Google quarterly report was the erosion of revenue from Google’s core business.

Other addled geese, poobahs, and mavens found the stock split more troubling. A good example of the reaction is this Reuters real news story: “Google’s Evil Stock Split.” The idea is that Google seems to be perilously close to violating guidelines put in place 90 years ago. Here’s the key point in my opinion:

Google has, now, clearly violated the spirit of the NYSE rules, if not their letter. It took 15 months for the independent directors on the board to be persuaded of this, in long and secret deliberations.

Well, the independent directors * were * convinced.

I also enjoyed this comment in the Reuters real news story:

This move, then, is basically a way for Google to try to retreat back into its pre-IPO shell as much as possible. It never really wanted to go public in the first place — it was forced into that by the 500-shareholder rule — but at this point, Google is far too entrenched in the corporate landscape to be able to turn back the clock. It’s too big, and too important, and has been public for too long. That’s the thing about going public: it might suck, but once you’ve done it, you’ve done it. And at that point, if you try to pull a stunt like this, you risk looking all too much like Rupert Murdoch.

Okay, real Silicon Valley is starting to look like the real news paragon, Rupert Murdoch.

Wow.

My take is very simple.

The Googlers know that revenue softening can no longer be swept under the rug or surrounded with big band music and fancy dancing. The numbers are too big. The declines are double digits. The grousing about Panda and the push to get people to buy AdWords to visible to some Web site operators.

Therefore, the stock play is designed to leave the existing management team in charge as the financial news get increasingly dodgey. The Google senior management team does not want to be looking at a start up to fund without the Google ID card in their pocket.

So the erosion of online ad efficiency is causing the control push. Because this has been going on among the independent directors, I have concluded that the revenue erosion was noticeable in 2010, maybe earlier.

Will control reverse the online advertising money machine’s functioning. Nah, but the days of the “Google can do no wrong” are either over or drawing to a close. Google has these issues with which to contend:

  1. Legal hassles. Big disc brake applied to some activities.
  2. Amazon, Apple, and Facebook. Each of these companies has learned from Google. This is The Google Legacy I wrote about back in 2004 or 2005. You might want to check it out because Amazon, Apple, and Facebook have out Googled Google and seem to be gaining strength as Google does the fancy dancing.
  3. Costs from brute force solutions. Google spends a lot of dough to keep its brute force indexing system up and running. Facebook, on the other hand, can just spider Web urls which its members have posted. No brute force required to get started with an interesting search solution. Amazon has slapped A9 in the AWS plumbing and can move into search niches where Google has not gotten significant traction. Apple, which Google really wants to emulate, keep chugging along with a walled garden and customers’ religious fervor.    Do you know anyone with religious fervor toward the Google. Well, I know one company. Oracle. See item one above.

Net net: Blekko/Yandex and Facebook could put the squeeze on the Google with a little luck and some good timing. How will Google respond? No clue. Google is not accustomed to playing defense. Ego is a potent concept. As the Greek tragedian said:

Cleverness is not wisdom. Bacchæ l. 395

Stephen E Arnold, April 18, 2012

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