Google just dodged a bullet. But their Achilles heel still can be exposed by the European Union’s monopoly litigation. Ninety five percent of Google’s revenue comes from Ad Words. They are a brilliantly successful revenue generator. The profit in Ad Words comes from Search. However, this amazing revenue generator is also Google’s Achilles heel.
Advertising revenue allows Google to be what Bell Labs was back in the 20th century — one of the most innovative technology companies in the world. Ad Words allows Google to provide a plethora of products and services for free, a price point only other goliath companies can compete with.
Apple’s favorite saying is, “If you’re not paying for a product or service — then you are the product or service.” As Google has demonstrated, people are willing to give up their privacy for free access to technology. All of Google's technologies are, in effect, additional platforms for them to gather data on users or present advertising.
Government monopoly litigation in Europe and the Sherman Antitrust act in the United States play an important role for large companies, but not in the way most people think. When the U.S. government goes after a company for antitrust violations because they've become too big, many people think government is over reaching.
I think the government is the canary in the coal mine. The government is telling a company it's time to divest, and chances are, the company has gotten too big to be managed effectively.
The only person really negatively affected by a break up is the company CEO. After a separation, shareholders have stock in two successful companies, employees have a job in one of the companies, executives have more paths for success, and the CEO has a smaller organization to run.
The high-Tech History of Antitrust: 3 Quick Case StudiesBack in the 1980's, IBM won their antitrust suit. The government wanted to break IBM into two firms: a large computer and small computer company. To fight possible divestiture, IBM licensed an operating system for PC's instead of using one they had previously developed, thus creating the Microsoft juggernaut.
Instead of using an internally created processor for PC's, IBM used a third party processor thus creating the Intel juggernaut. By the 1990's, IBM realized that small computers and printers were hobbling them, and sold these business units off. For stakeholders and employees, a more advantageous solution would have been to have their stock split into a small computer company — think Lenovo, Microsoft and Intel as one company, and what remains of IBM — a large computer solutions company.
AT&T fought the U.S. government on anti-trust issues for years, finally succumbing to divestiture in the mid 1980's. AT&T found that divestiture gave them a much better way to manage their company. AT&T was way too far flung of an empire. They continued to divest even after the government no longer required them to.
In the 1990's, Microsoft was in the cross hairs of the U.S. government. Microsoft won. But look at the company today. Their revenue is high. But they’re struggling with market share. Rather than being focused on customers and innovation, they have become too big to manage and their ability to innovate is hobbled by internal squabbles.
Back in the 1990's, if Microsoft had broken up into an OS company and an applications company, these new entities likely would have become more flexible and able to lead the market with their technology. Shareholders would have stock in two profitable companies and employees would be working in a more innovative environment.
Now back to Google. Technologically they are into everything and tend to be a Juggernaut in each of these fields — think search, maps, mobile OS, video. Plus, they now they are dealing with European litigation. The real problem: these products either don’t bring in revenue or are barely breaking even on their advertising revenue (re: YouTube) since advertising and collecting information on users is how Google makes money. How do you break that up?