This Tech Champion’s in Trouble

03/21/2012 10:30 am EST


Igor Greenwald

Chief Investment Strategist, MLP Profits

Google's core business will erode as "intelligent" software delivers answers without its search ads, writes senior editor Igor Greenwald.

There’s a tech behemoth out there with a fast-growing business, a good-looking chart, a huge stockpile of cash, and total dominance of one of the most lucrative markets on Earth. And it belongs on an endangered species list.

No, not Apple (AAPL), no matter how hot its iPad gets for Consumer Reports. Apple’s consumer cult and monopoly on Apple products aren’t going away any time soon, while recent revenue growth of 73% suggests it’s steamrolling what currently passes for competition.

Hewlett-Packard (HPQ), which is about to merge its PC and printing divisions in the latest bit of deck-chair shuffling aboard the Titanic, needs to sell seven machines to match the profit from a single Mac. I’m writing this on one of those machines that made HP fifty bucks, and I’ve lost count of the number of times I’ve wished I’d dug deeper for a MacBook.

But HP is not this tale’s endangered behemoth—it’s really more of a woolly mammoth. The behemoth, meanwhile, is still doing well. But perhaps not for very much longer.

Google (GOOG) is giving away its Android operating system in an effort to defend its search advertising turf. And yet Apple’s phones have recently taken market share on the strength of consumer fascination with Siri, an early version of the intelligent-agent software that represents technology’s next frontier and profit driver.

The threat to Google isn’t so much that Android and Google+ remain unprofitable cost sinks. It’s that this spending won’t prevent the eventual erosion of Google’s ad revenue, as less and less searching gets done via keywords on portals, with their inevitable sponsored links.

One day soon Siri’s granddaughter, or perhaps the son of Watson, will recall my fondness for island vacations, briefly mull my schedule and finances, and suggest this great airfare to Puerto Rico that just cropped up. I’ll never see a list of search results.

And should I request follow up information, I won’t care less whose search engine was trawled for the answers, if one was used at all instead of a survey of the most useful known sites.

That’s the near future knocking, and it’s got no good news for Google, whose current dominance is based on sheer force of habit, uncounted installed toolbars and, increasingly, the traffic sent its way by Apple and other intermediaries.

So that's the backdrop to the curious recent Wall Street Journal story in which Google’s top search executive talked up imminent technical improvements and a long-term effort to enter the “next generation of search.”

Also on the to-do list: to “catch up to Siri’s voice-activated mobile search,” the writer added. Google is, of course, working on its own pseudo-Siri.

The company’s been doing a lot of catching up of late. A recent high-profile defector has described in unflattering terms last year’s top-down push to launch Google+, which seeks to blunt the inroads Facebook has made in assembling valuable personal information Google sorely lacks as it tries to improve the relevance of its searches.

Google is paying a lot of smart people an awful lot of money not to have grasped its precarious position. Search engines, yesterday’s golden goose, are tomorrow’s low-cost commodity. The profit center of the future, as now, will be at the point where people sort and filter their information, and the rote of prioritized keyword matches is about to be replaced by pinpoint analyses and rankings tailored to known personal preferences.

In this field, Google is already behind Apple and IBM (IBM). And its rearguard attempt to insinuate itself into the hardware via Android is doomed to fail, simply because the hardware will shrink until it’s just an earbud, or implant, connecting the information user to the “cloud.”

That future will belong to the designers of the most intelligent and facile agents, ones that interact easily and learn fast. And right now, Apple has mastered the user interface better than anyone.

That doesn’t mean Google can’t catch up, but it does mean that whether it does or not, the gold mine that is will not mint fortunes indefinitely.

Google’s got brainpower to spare: its driverless cars and data goggles are the stuff of science fiction. And it’s going to need every trick up its sleeve once keyword searches go the way of the dialup modem.

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