Google vs Microsoft Part 2: The Business Model Flaw

In part 1, we discussed why Google stock was not a good bet in terms of only some basic financial calculations and ratios. Today, we will discuss a fundamental business model flaw in Google.

The only reason one might consider investing in Google at this point is if it can somehow offer incredible growth and earnings, but this is unlikely. Considering that their executives are not confident, that should be reason enough to believe that Google will not grow much more. However, there is also a flaw in their business model, which will lead to their eventual downfall.
The raging war between Google and Microsoft for domination of the world is hot as ever, but though for a while Microsoft appeared to be down, Google cannot win this war. Both companies boast an enormous product array, investing in many different areas in technology on both the consumer and enterprise end. Most of Google’s offerings are touted to the consumer, but Microsoft is generally more profitable on the enterprise end. However, that does not mean either of them want to lose any potential profits, and so they compete heavily on both sides. Then let us take a look at some of their core products and why Microsoft will ultimately be the victor.
Google predominantly is a search engine. They may have a lot of different products, but their revenue comes almost exclusively from the search ad business and Google Adsense/Adwords. In fact, most of their other products either make negligible amounts or plainly lose money: YouTube, Blogger, Gmail, Google Apps, and Google Earth, to list some of the widely known (they have many more unprofitable products). Google Apps is the only one that may have some potential for future earnings, but faces the formidable Microsoft Office monopoly. The only part of it that is appealing is the low-cost and some of the cloud features offered. Unfortunately for Google, Microsoft is soon to host Web versions of Office, and will soon offer cloud counterparts for Office as well. All of these products that Google has can only be sustained simply because the search engine ad business makes so much money; compared with Microsoft which makes money through a variety of products: Windows, Office, Server, and Xbox. There is also another crucial difference: Google makes money only from ads, while Microsoft makes money by selling products and services.

Such is the flaw in the business model of Google, and ultimately, it is not good if Microsoft begins to take ANY of Google's search engine share.

If you'd like to see the earlier post on the Google the tech company stock vs Microsoft in part 1, then just click the link.

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