If you have spent the last decade doubling down, again and again, on the proposition that Google Inc (NASDAQ:GOOG) is a better deal than Yahoo! Inc. (NASDAQ:YHOO), you are a wealthy fool indeed.
But every trend ends, and some actually reverse.
Since hiring ex-Google executive Marissa Mayer last July, Yahoo! Inc. (NASDAQ:YHOO) has been on a roll, a return of about 42%. But under Larry Page, Google Inc (NASDAQ:GOOG) has done just about as well, up 41%.
The question is where do we go from here? And to convince you on the merits, I need to make both a bearish case for Google – or at least a less-bullish one – and a very bullish case for Yahoo! Inc. (NASDAQ:YHOO), which has been down for well over a decade.
Down With Google?
First we have the law of large numbers to contend with.
Google Inc (NASDAQ:GOOG) is now worth $271 billion. It had revenue of $50 billion last year, with profit margins of about 25%, and it’s been growing at about 25% per year like clockwork for several years running.
Google Inc (NASDAQ:GOOG) is the dominant advertising platform on the planet now. Its Android phones are beating Apple‘s iPhone in the market, and its Chromebooks are suddenly giving Microsoft Corporation (NASDAQ:MSFT) a run for its desktop money. Page has made the company more focused, ditching products right-and-left if they don’t bring in cash, or at least massive usage numbers. His Google Plus social network is no longer a joke when compared with Facebook Inc (NASDAQ:FB), and he is uniting a disparate army of old-line retailers to take on Amazon.com, Inc. (NASDAQ:AMZN) through new shipping guarantees.
What could go wrong?
Well, in focusing the company’s energies, Page has let a lot of good people go, including Mayer, and is now surrounded by what are essentially yes-men. Wired calls this “the great narrowing” and it includes pushing people like Andy Rubin further from the C-suite. Jeff Huber, who was behind Google Inc (NASDAQ:GOOG) Maps and its commerce business, has also moved into something Google calls “Project X.”
Instead of engineers at the top of the stack, Google is bringing in managers, at high salaries, buying private jets and making that chain of command more rigid. Would you rather work for someone who knows what you’re doing or some suit making 10 times your pay?
The decision to jettison Google Reader, an RSS reader that had become dominant in that market despite little support, is also troubling to a host of journalists, a small but vitally important public who have, in the past, supported Google’s “do no evil” image.
What may be most troubling of all is Google Inc (NASDAQ:GOOG)’s failure, so far, to gain significant traffic with the Google Compute Engine, its entry in the cloud service business, against Amazon Web Services. Amazon is still seen as the de-facto standard there, and the “Android” of the space may well be OpenStack, an open source alternative first pushed by NASA and Rackspace, and now endorsed by IBM, HP, Dell, and most of the old Bell companies.