I saw a headline recently that said that Google’s earnings disappointed shareholders. Now, I get that the company gives some guidance that creates some expectation but here’s the problem: this $38 billion company only grew 25% in Q4 2011. Let me say that again,this $38 billion company ONLY grew 25%. This compares to 33% growth in Q3. I get that in a relatively short period of time that is a substantial drop, but I also get that our expectations are really getting out-of-line with reality.
In a different heading, I recently saw that the S&P 500 is down 13% since 2006. We know that the markets have struggled mightily in the last decade yet we continue to have visions of the glory days of old. We put our hopes (and money) in the high-tech growth companies. Certainly, it makes sense that those with nascent and expanding technologies will drive market growth. But, we have to expect that the law of diminishing returns will kick in for, yes, even the high-tech companies.
Now is a good time for a good dose of reality. We expect the engineering wizards at Google to continue to produce search algorithms that will keep advertisers and consumers coming back for more. But, with 2 in every 3 web searches worldwide going to Google, we have to ask, how much more can they get? In fact, how much more do they want? I suspect not much given the investment in Chrome, Android, YouTube, Gmail and Google+. But these are much smaller businesses than Search and Google’s best monetization to-date of most of these has been, well, …with search. So, we’ll have to get used to diminishing returns on the growth of search (and Google) unless or until one of the new investment areas really catches fire.