Thursday, October 9, 2008

Local Android skepticism

In a part of the world where everyone is either praising or fearing every move of Eric Schmidt and the Monster of Mountain View, Merc columnist Chris O’Brien this morning had a very skeptical column about Google’s new cellphone operating system, entitled “Why we'll all soon forget about Google's Android.”

Citing a Chinese VC’s indifference to the T-Mobile G1 announcement, O’Brien concludes:

[His] response provides a little perspective on the immense hype Android has generated in Silicon Valley. Around the globe, Android is barely a blip on the radar. And that's unlikely to change.

Instead, expect Android to remain the latest in a long list of Google curiosities introduced amid great fanfare, only to quietly fade into the background.

But there are several challenges I don't see Android overcoming.

First, it starts off way down the list of operating systems for smart phones. At the top of the heap are BlackBerry, Windows Mobile, the iPhone, and Symbian. This last one is produced by a consortium of the largest cell phone manufacturers in the world, including Ericsson and Nokia.

And it was recently announced that Symbian will become open-source. Throw in the fact that a group called the LiMo Foundation is developing a Linux-based operating system for mobile phones, and Android becomes just one of three open-source options.

Yes, you say, but this is Google. To which I say: Yes, but this is Google.

The company has been churning out countless initiatives in every direction, but they seem to have no coordination. A year ago, it launched the Open Social initiative to counter Facebook. Heard anything about that lately?
Another factor cited by O’Brien is Google’s lack of focus. Quoting CNET, O’Brien notes that in the near future Android will not use Chrome (proving my earlier speculation false). Instead, Google funded two separate WebKit-based open source browser efforts, one for the mobile phone Linux stack and one for personal computers. I read this as Google allowing decentralized innovation without concern for synergy or even code reuse.

O’Brien is now our most provocative local tech columnist, and he raises some excellent points. Still, there’s no way to prove (or disprove) his thesis today. We don’t know if this is the next Maps or News or Gmail — building on its search dominance — or whether this is the latest unsuccessful, loosely related diversification effort ala Google Answers or Froogle or Lively.

Of course, as Nick Carr observed, Google still gets ad revenues off of failure. All those gPhone users will be using and Google Talk and Google Maps rather than their Yahoo or MSN equivalents.

O’Brien is bearish on Android, and some of his larger indictments imply he’s bearish on Google too. I’m not sure the markets yet agree. I don’t normally speculate on stock values, but in this case, Google’s stock is certainly the #1 indicator of industry and financial market sentiment about its prospects for growth and perhaps Total World Domination.

Google’s shares are off 52.5% this year, versus 55.2% for Apple (perceived as a luxury brand) and only 38% for the NASADAQ as a whole. Google (according to Yahoo Finance) still has a trailing 12 month P/E of 21.6 vs. 17.4 for Apple. IBM (with a great quarterly earnings and forecast) has a P/E of 11.0 and is only off 17.7% this year, while P&G sports a P/E of 16.7.

Google is no longer priced as invincible, but do the fundamentals justify its growth P/E? Or is the price price sustained by an unwillingness of Google zillionaires and stock speculators to lock in this year’s 50+% paper loss and sell at prices not seen in three years? I think the real test will be on Dec. 31 — if the stock is below 300 (or even 350), money managers may cleanse the shares from their public portfolios to avoid embarrassment.

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