How Google Can Get Its Mojo Back in the Wake of a 'Sell' Rating

One Analyst Sees 'Downside,' but Our Columnist Sees Opportunity

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Just before Thanksgiving, the unthinkable happened. OK, sure, these days the unthinkable is par for the course -- and yet it was still pretty amazing to see Merriman Curhan Ford analyst Richard Fetyko initiate coverage of Google with a "sell" rating.
Phone Home: Will a key acquisition help Google further conquer the mobile space?
Phone Home: Will a key acquisition help Google further conquer the mobile space?

"Google is likely to be among the first to rally as the economy stabilizes," he wrote in a report first quoted by Barron's. "However, near-term, we see downside to consensus estimates and believe that investors will get a better entry point in the next six months." (And what is that entry point? "We see the stock touching down to $200 to $240 near-term," Fetyko concluded, "which is where we would consider buying it." GOOG was in the $250 to $270 range last week, which is already a more than 50% discount from the all-time high, so Fetyko's "sell" rating doesn't exactly translate to "Run for the hills!" but still.)

It sure is interesting to see even Google get suddenly humbled. A single "sell" rating it can probably nervously laugh off (for the moment), but it's harder to ignore the company's own recent internal rumblings about belt-tightening and its rather hasty retreat from attempting to compete with virtual world Second Life with Google Lively, which it's killing off this month after only half a year in public beta. (See my colleague Ken Wheaton's piquant analysis of the whole virtual-world phenomenon's relevance, or lack thereof,to marketers here: tinyurl.com/55motm.)

So how can -- will -- Google get its mojo back? A few predictions:

Google will monetize tons more white space -- including, finally, its home page
Unlike its competitors, Google actually has a huge amount of untapped screen real estate it has yet to monetize. For instance, it's just now starting to sell against its YouTube search results, and it's finally selling ads against Google Finance (what took so long?). As Meghan Keane at Wired.com reports, ads are also coming to Google Image Search and Google News search results too -- at least in test mode.

But what about, most glaringly, the home page? It's almost become a religious doctrine that Google's exceedingly spare, ad-free home page is inviolable (with a few exceptions, such as the cutesy holiday-themed decorations of its logo). The reason, theoretically, is Google's oft-stated "basic principle" that "ads by Google should always be relevant and useful." But the truth is, Google knows what's potentially relevant and useful to millions of its users even before they initiate searches -- thanks to its banked knowledge of previous searches and other data (such as information gleaned from Gmail contents). At some point soon, I predict Google will conclude there is nothing inherently wrong with, for example, feeding an "American Idol" ad (on, say, the eve of January's ninth-season debut or the spring finale) to the Google search home pages of users who have previously searched on "David Archuleta" or "Carrie Underwood."

Google will buy Yelp
The blessing in disguise of Google's failed Lively experiment: It's a helpful reminder that Google can't figure out everything all by itself. While its new "voice search" capability for the iPhone is a true technological wonder, if Google really wants to offer relevant, real-time, commerce-linked search in the mobile space, it should buy Yelp, the reader-review-driven service. Other companies are in that niche, of course, but in the past year Yelp has achieved a true critical mass of enviable user engagement and loyalty in the biggest U.S. markets -- and its beautifully executed, location-aware iPhone app is unmatched and phenomenally useful. (Keep in mind that the iPhone just overtook Motorola's Razr as the top-selling cellphone, so as iPhone goes, so goes the mainstream mobile market. The Google phone has a lot of catching up to do.) In the spring, when San Francisco-based Yelp surged to about 9 million unique visitors, Silicon Alley Insider listed it as a "contender" for its SAI 25 list of the World's Most Valuable Digital Startups with a guesstimated worth of $225 million; as of last week, though, its Nasdaq-indexed "SAI 25 Live" list put Yelp at a bargain-basement $135 mil.

Google will give its engineers "25% time"
Google famously offers its engineers "20% time" so that, in Google's words, "they're free to work on what they're really passionate about." AdSense for Content, remember, came out of 20% brainstorming. Google's competitors will generally spend the recession not innovating (mostly because they'll be too busy laying off employees or outright going out of business). As Google shuts down or de-emphasizes more and more experimental projects such as Lively, the initial temptation will be to see some engineers' "excess capacity" as an excuse to "right-size" (to use the prevailing Orwellian term). But I predict Google will instead see the wisdom of using its $6 billion cash cushion to keep its temporarily underemployed engineers hard at work inventing the media/advertising future. (It will likely lay off non-R&D staff -- mostly by reducing the number of non-salaried full-time contractors -- but that's another story.)

Google might take some hits from Wall Street -- beyond Merriman Curhan Ford's "sell" rating -- for doing that. But who listens to Wall Street anymore? Google, listen to your heart!
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