What If Google Is Just a One-Trick Pony?

Is Google's lock on online advertising enough? It might be enough if all you want is a company that dominates the search-related keyword advertising business. Google will likely fill that role for the foreseeable future, and that’s worth a certain amount — but how much is it worth? Does it justify the price-to-earnings multiple of 24 times that Google’s stock currently trades at? Maybe not.

This has been the issue with Microsoft over at least the past decade: The company generates huge amounts of cash, and is profitable as heck, but what investors are willing to pay for has continued to decline. This is why many have started to ask the question: Is Google the new Microsoft? Google’s biggest problem is that it has consistently failed to produce any new lines of business apart from keyword-related advertising, which still produces over 90 percent of its income. It’s true that — as the company took pains to point out during its recent earnings call — Google is making money from display advertising, YouTube views, mobile, etc. But this is (comparatively, at least) peanuts. The web giant is famous for giving its employees “20-percent time,” and these projects can turn into great services, such as Gmail and Google News — and there’s also the company’s expanding Android efforts and other initiatives. But do these generate new revenue or profits for the company? To the extent that they help drive search traffic, yes. But that’s still just a variation on the same trick.