Apple war could hurt Google shares

Google shares could tumble to IPO levels during the next 2 years as the company struggles to compete with Apple.

By TheStreet Staff Mar 24, 2010 1:19PM

TheStreetBy Jason Schwarz, TheStreet


Google's (GOOG) in trouble. I expect the stock to return to its initial-public-offering levels of $300 a share during the next two years. The Internet search giant has ruffled the wrong feathers.


When I hear Apple (AAPL) Chief Executive Steve Jobs mention that he feels betrayed by Google CEO Eric Schmidt, and when I see Apple go out and buy its own mobile advertising company, I begin to question Google's future growth prospects.


Apple's Quattro is coming. It's going to be revolutionary, but it will also be the most important contributor to Google's demise. It won't be the only factor. With Google, it's a matter of picking its poison.


1. Leadership


This company is running like a chicken with its head cut off. Schmidt is flying solo without the help of founders Larry Page and Sergey Brin, who have been selling shares. It's not exactly a ringing endorsement from the innovators.


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2. Profitable innovation


In a rapidly changing landscape of mobile innovation, Google is having difficulty making money on anything other than its core desktop search business. Desktop search advertising was a great business to be in during the last decade, but its growth now looks limited because of the shift toward mobile computing.


Schmidt knows Google is vulnerable, which explains why we hear about yet another Google experiment on a weekly basis. Last week it was Google broadband. This week it's Google TV. It's all a big joke. Even Android is a joke.


Recent market share gains from Android are misleading because the data suggest Google is making money when all the company has done is give it away for free. Investors are ready to see profits beyond desktop advertising. Two years from now, desktop Internet surfing will be in dramatic decline.


3. Mobile search competition


Mobile versions of Twitter, Facebook and Microsoft's (MSFT) Bing will give Google a run for its money. And I would not bet against Jobs and Apple's Quattro. The problem for Google is that the mobile Internet relies on applications rather than Web sites. Apple controls more than half of the mobile Web market share, and Google is one Jobs decision away from being left out of the Apple ecosystem. This makes Google extremely vulnerable.


Business Week reported that Jobs hopes to "overhaul mobile advertising in the same way they had revolutionized music players and phones," citing unnamed sources. AppleInsider reported that "specifics at the moment are not known, but a number of potential approaches were offered: Apple could rely on user data collected through iTunes and the App Store, along with geo-location technology due to GPS in the iPhone, to create targeted, local advertisements that would be more relevant to consumers. The company could also utilize gimmicks, such as having users shake their iPhone to win a prize."


The report added that "some developers have profited by embedding ads in their apps, but the payments tend to be insignificant since the ads are usually smaller, less effective versions of their Web banner forms." In addition, "according to a source familiar with his thinking, Jobs has recognized that 'mobile ads suck' and that improving that situation will make Apple even harder to beat."


 4. Brand trust


Google's Nexus One was a disaster on so many levels. Google rushed the product to market without customer service. The trademark application was subsequently denied by the US Patent and Trademark office. It rushed the product to market and caught all of its Android partners off-guard who never thought Google would come out with its own phone to compete.


Now do you understand why I compare this company to a chicken running with its head cut off?


While Apple spent years securing patents to protect the intellectual property of the iPhone, Google is late to the game and is running scared. How much money will consumers invest in Android apps when they know Google offers no tablet computer and might not continue with the Nexus One? Whereas you go with Apple and you know that your apps and iTunes library will work on your iPod, iPhone, iPad, and next year they'll probably work on the iTV as well.


 5. China


This China thing has been catastrophic for Google. After struggling to gain any share from Baidu (BIDU), Google is out of a country that has more Internet users than the U.S. has people. Not good, especially if Google had any aspirations of growing its Chinese Android platform.


 Desktop search advertising is Google's bread and butter, but two years from now the landscape will be completely different. Investors will look at Google as a declining search-market share story. That's not a good thing when you're stock is priced near $600 a share.


Google reminds me of Research In Motion (RIMM) two years ago. Back then, everyone assumed RIM was untouchable as well. The problem is that when you go to war against Apple you better be more than a one-trick pony.


Google is scrambling to come up with a family of products similar to Apple's, but it simply is not in the company DNA. Google does search: That's it. Its software is profitless and its hardware is copycat. I'm not saying that Google is going to disappear, but I am saying that its days of high growth are over, and that means the stock is doomed over the next 24 months.


Investors might make more on Google puts than on Apple calls.


Jason Schwarz, chief investment analyst of Economic Timing, contributes to TheStreet. He's also the author of "The Alpha Hunter" and "Apple Revolution."


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