Top 10 Reasons to Not Buy Google Stock

Google is a great website, but a lesson of the dotcom bubble is that a great website is not always a great business, advises Dr. Steve Baba, Ph.D. of Seemly.com.

(PRWEB) April 4, 2004--Top 10 Reasons to Not Buy Google Stock

Google is a great website, but a lesson of the dotcom bubble is that a great website is not always a great business, advises Dr. Steve Baba, Ph.D. of Seemly.com.

Googles expected IPO has attracted enormous, one-sided, positive buzz from Google fans and techies nostalgic about the boom years. For balance, below is a devils advocate listing of Googles potential business challenges.

1. Microsoft and Yahoo might actually try and compete with Google. Until recently, Yahoo was hampered by an old directory model and Microsofts (outsourced) search was so bad that it attracted the attention of the FTC for being misleading.

2. The rapidly declining cost of technology, computers, storage, and bandwidth (Moores Law), will reduce the cost of entry for competitors enabling dozens or even hundreds of new competitors. In a few years, any two graduate students may be able to start a search engine from their dorm room without venture capital.

3. Any competitor can outsource software deployment to India, Russia or China, which will reduce the cost of entry for competitors enabling dozens of new competitors. Google can also reduce software costs by outsourcing, but the fact remains that with lower costs of entry, there will be more competitors.

4. Remember AltaVista.com. Like Altavista.com, Googles customers" are not locked into Google and may quickly abandon Google.

5. Googles revenue source, contextual Pay Per Click advertising (PPC), is causing a race to the bottom as the most expensive/profitable products outbid less expensive products for the limited PPC positions. Consumers may eventually learn that they are paying for the high PPC costs and look elsewhere for more affordable products.

6. Googles revenue source, Pay Per Click advertising, may be blocked by ad blocking software. While Googles ads are not intrusive as pop-up ads, given a choice, people may decide to block Googles ads or replace Googles ads with more useful third party content. Just as Googles toolbar blocks (competitors) popup ads, other products block Googles ads -- especially those that block ALL ads."

7. Googles reported 50% margin with its AdSence (displaying Google ads on third party sites) is unsustainably high for a middleman. Competitors will offer similar services in the future, taking less of a cut.

8. Being number one, Google is the number one target for search engine spammers and search engine optimizers, which reduces Googles quality. Google recently had to change its page ranking in response to link farms and blog link manipulation, such as having miserable failure" point to George Bush. Of course, other search engines are also targeted, but not to the extent Google is a target.

9. Much of Googles future profit potential depends on brand extension to other services, such as the shopping comparison site Froogle. Brand extension has always been a risky strategy even for the best managed firm.

10. Everyone online, including Internet entrepreneurs, uses Google or a Google competitor, making search a well-known business opportunity. Half the Internet entrepreneurs that I have known have brainstormed starting a search engine business, most quickly abandoning the thought. But as the costs of technology and software fall (#2 and #3) more Internet entrepreneurs may start search engines leading to a competitive and innovative search industry.

There are many good reasons to buy Google stock, but these are well covered elsewhere. Steve Baba has a Ph.D. in Economics and is the author of Business Domain Names, a free ebook on www.seemly.com.

*** UPDATED TO 23 REASONS at www.gstockreport.com July 20, 2004 ***