Googlescape: Are we headed for Bubble II?

For a reviving tech equities market, Google will be an awful first IPO.

It will all feel very familiar: overexcited investment bankers pumping air into the offering; a gullible, breathless press; cheering venture capitalists led by the Teflon-like Kleiner Perkins Caufield & Byers; and thousands of actual users of the technology that will tee up their broker to get a piece of the "new eBay."

What the world needs now is a calm, ordered, rational, smart equities market in technology--not overpriced froth. Google at a $6 billion valuation would be great. Google with a market cap north of $15 billion blows in the stench of Bubble II.

It's redolent of Netscape's IPO in 1995, when the company slammed through a $2 billion-plus market cap on its first day of trading. But its hold on the browser market quickly succumbed with Microsoft's entry, and Netscape ceased to exist as an independent company in 1999.

What the world needs now is a calm, ordered, rational, smart equities market in technology--not overpriced froth.

Now it's denouement time in the portal market. AOL fades: With no competitive search and no compelling experience, customer losses will accelerate. The big battle will be Google versus Microsoft versus Yahoo.

Microsoft won't have the best technology--it never does and never will. But it will have the advantage of tying the desktop to MSN and adding a new generation of search. Microsoft is going to persist, in its dogged way, and end up as No. 1.

Yahoo, playing off of its consistent experience and Overture/Inktomi soon-to-be-improved search, will play a strong No. 2 to Microsoft.

Google, if it doesn't swoon over its IPO, will be in position for a long-shot challenge. The company's primary strategy should be a diversification beyond search and the "we've got the best technology" syndrome into a defendable market position.

Google's a great company, with smart people and fantastic technology. But perspective is the order of the day, not irrational exuberance. Google can't survive on search alone.

Factor one: Competition. Google has made lots of enemies. It is destroying the pop-up ad business and shifting ad revenue to paid search, of which it is the leader. MSN, AOL, Yahoo and other sites are getting bypassed and deconstructed by Googling users that don't need the walled gardens of portals to ensure content relevancy. The control freaks of Redmond do not like it when anyone starts bypassing their monopoly or slapping toolbars on top of their operating systems and browsers. Microsoft loves complex software like search. Remember, the company started in the languages business. Taking down Google with better search is in its strike zone--this is a business it understands, unlike game consoles or TV.

Google can't survive on search alone.

Factor two: no barriers to entry. What was the search engine you used before Google? (Mine was AltaVista.) How long did it take you to switch to Google? Seconds. How long will it take to switch out of Google? Seconds. All great businesses are built on a monopoly. The Internet monopoly often hinges on high customer switching costs (online banking, Amazon one-click buyers, eBay). Google has no natural monopoly--there are no walls protecting Google's market position.

Factor three: The Web is changing. Google is a step in the long march to better search. Yes, Google's scheme yields fantastic results. But the Web is inexorably dynamic. During the next five years, it will move from containing primarily file-based content (HTML pages) to containing more executable content (e.g., online gaming or new structure imposed by Web services such as XML). When that happens, the usefulness of link-based search will wane. Simply stated, Google is very much of the times, with no advantage in the more structured, executable Internet that lies ahead.

Right now, one of the most splendid technologies on the planet is Google search. The Web's tangle of unsorted, disorganized content is now accessible, sortable and useful. My favorite quote from the Christmas season came from an online retailer who said, and I paraphrase, "We used to pursue customers with e-mail or banner ads. With Google, the customer chases us."

And Google keeps getting better. After continually bemoaning the pop-up ads polluting my screen, I loaded the Google toolbar, which pre-emptively nukes all pop-ups. For years, I've cursed at having to fill in Web forms again and again with my address, etc. Bang, the Google toolbar does it automatically. The Web has gone through two major phases in its short history: pre-Google and post-Google. Sergei Brin and Larry Page, Google's founders, may go down in history as the guys who saved the Internet after the ignominious blat of Bubble I.

So you get the message--I like Google. But the hype, silliness and rumored $15 billion-plus market cap of the company's impending IPO beckons. Is Google's search good? Yes. Is the company worth tens of billions? No.