Google Beats Q4 Earnings But Shares Dive

In just-announced fourth-quarter earnings, Google handily beat expectations for fourth-quarter profits. They rose fivefold (thanks to some $1 billion in writeoffs a year ago) on a 17% jump in sales, both considerably higher than analysts expected. But investors clearly had hoped for more, and they were sending Google’s shares down 5% in after-hours trading.

I’m on the call, which you can also listen to on YouTube. (And Seeking Alpha has the transcript here.) So far, I’m not hearing much surprising. But one message came through loud and clear: Despite recent battles with Apple, glitches in the rollout of its Nexus One cell phone, challenges in China, and competition with just about everyone in tech, Google’s core business–search advertising–is starting to roll again following the past year’s economy-driven slowdown. “We’re back in business full blast,” CEO Eric Schmidt said on the conference call.

In particular, Schmidt says display will be the “next huge business” for Google. And he says it’s a little-known story how successful Google has been in display–though he didn’t add any details. He views 2010 as the year this will become apparent. More on what Google plans to do in display from my BusinessWeek story last year.

Mobile may start to become a noticeable piece of that display ad business as well, bolstered by its purchase of AdMob in November. Then there’s YouTube, which Google also said was doing well–though again with no specifics.

In any case, it appears that whatever other challenges Google faces this year, its core business won’t be one of them. Which is more than most large ad-supported businesses (that is, traditional media) can say.

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Google’s Nexus One: It’s Not About the Phone, Really

There’s really not much else to say about Google’s just-announced Nexus One cell phone. You can read more than you want to read about it on Techmeme, plus reviews by Walt Mossberg, Mike Arrington, Tim O’Reilly, Joshua Topolsky at Engadget, and others. The gist: It looks like a very nice but not revolutionary alternative to Apple’s iPhone, with a couple of big advantages (the ability to run multiple applications at once, a more open business model) and a few disadvantages (only T-Mobile in the U.S. for now, no multitouch, a less elegant user interface, limited battery life).

But it seems to me that the phone isn’t really the point here–as even Android creator Andy Rubin seemed to acknowledge at the press conference. “This superphone is just a great way to access the Internet,” he said. “This is just the next front of our core business”: advertising.

So why a Google phone? Because, like so many other non-search products Google has introduced, it’s a way to push everyone else to step up their own products to make the Internet easier and faster to use–which inevitably helps Google’s ad business. Apps, the Chrome browser, the Chrome operating system, the Android OS, even its bid for wireless spectrum–all of them seem like corporate jiu jitsu, aimed at forcing incumbent leaders in respective industries, from Microsoft to Verizon, to follow Google’s lead in making the Net more accessible, more useful, more universally available.

With the Nexus One, it’s carriers (and to a lesser extent cell phone makers) that Google aims to shove into the more open world of the Internet. Will it work? Maybe not in the short term, since carriers still control their own networks.

But by virtue of its power, its brand, its appealing products, and now a reversal of the usual way of selling cell phones–through its own store instead of the carriers’–Google may well have sparked a fundamental shift in the wireless business model. Eventually–meaning this could take awhile, even assuming various players go along–that means the device can evolve as fast as Moore’s Law allows, unencumbered by restrictions inherent in the carriers’ business models. And that means another big jump in the use of the Internet–which benefits Google more than anyone.

A lot of things have to come together to make that scenario come true, though–some that weren’t announced. Danny Sullivan, for example, asked why Google didn’t do the really revolutionary thing: subsidize the phone with advertising. I didn’t hear a coherent answer, but that’s the sort of thing that will be required to change the game for good.

What I’d Like to Happen in 2010 (But Probably Won’t)

I just foolishly offered some predictions on what will happen in tech and and on the Internet this year (and what won’t happen). Now, I’d like to offer a few things that I wish would happen:
* Cell phones provide decent call quality. I really don’t get folks who don’t have a landline, because cell call quality often sucks, and I simply refuse to inflict this on people I’m talking to if I don’t have to. I’m not the first to point out that cell phones have improved in every way except as phones, and I’m pretty sure I won’t be the last, especially as data-intensive apps hog more and more bandwidth.
* A cheap, fast, and simple way to get Internet video onto my TV. Yeah, I know there are many ways to do this, but somewhere along the line, they all seem to require some kluge to work. Sorry, life’s too short. Really, can it be so hard to come up with something that just works, like Tivo? (Come to think of it, maybe Tivo is it–just not the model I own today.)
* Apple gets the iPhone onto Verizon’s network. I know, unlikely at best. But I’d buy an iPhone right now if I didn’t have to deal with AT&T’s spotty network, at least in the Bay Area. Otherwise, I’ll stick with the Touch and cadge WiFi where I can get it.
* Someone figures out how to help individuals sift through the data deluge flooding us from Twitter, Facebook, news sites, YouTube videos, and who knows what-all. I sure wish, and whoever does this in a reasonably comprehensive way will have a heckuva business. But I’m not holding my breath.

What Won’t Happen on the Internet in 2010

Against my better judgment, I just posted a few predictions for the parts of tech and the Internet that I pay attention to. But maybe it’s just as important to note what won’t happen:
* Tablets won’t be the next big thing in client computing. Oh, Apple will create a lot of buzz over whatever it releases. But as my former colleague Steve Wildstrom notes, the key will be the user interface–specifically, user input. Like it or not, a keyboard is still key to doing (as opposed to watching) anything online. A virtual keyboard might work, and voice commands might work as a way to surf to the most-visited sites. But beyond typing 140 characters at a time, a real keyboard still seems mandatory. So does an easier way to upload video and communicate via voice and video in real-time. This is one reason the iPhone and other smartphones are so popular–you can take a photo or record video, send it, and then communicate about it all on the same device. I’m not sure how a tablet is going to do that elegantly–though if anyone can figure it out, it’s Apple.
* There won’t be as many tech IPOs as venture capitalists and startups are hoping. A lot of folks are predicting a significant number this year, and I don’t doubt there will be a noticeable improvement from the drought of recent years. But I’m skeptical that there will be enough to save the bacon of many startups and VCs. The economy’s too uncertain, and retail stock buyers don’t seem ready to step up for what they surely remember are very speculative investments. If I’m wrong about the number of IPO filings, it will be only because there will be too many offerings that people shouldn’t be buying anyway.
* In particular, Twitter won’t go public. Neither will Facebook (though I’m less sure about that). The thing is, both can afford to wait until the economy or the IPO outlook really turns around. There’s no reason for them to lead the way in an uncertain market and risk getting less than top dollar.
* Real-time won’t be a business, except for Ron Conway and betaworks. Oh, it’s important, but as I’ve said before, I think the appeal of most so-called real-time technologies and companies is the social aspect. In other words, the key thing is less real-time than real people.
* Online advertisers won’t escape a privacy backlash, because they’ve been careless about addressing people’s concerns. I think the real problem is poorly targeted advertising, since the right advertisement is likely to be overcome any sense of spookiness. If the ad scientists hadn’t gone all geeky and named targeting advertising “behavioral targeting,” and then often tried to hide what they’re doing, they would be in a much better position. “Personalized advertising,” fully disclosed, might have worked much better. But it’s probably too late for semantic tricks at this point–especially for lawmakers looking to make headlines. At the same time, this won’t tank online advertising, or even dent it much. Advertisers will find ways to get around any restrictions that are imposed, which will be so general as to be fairly meaningless.
* Google won’t get hit with a major antitrust lawsuit that so many have been predicting for years. It’s just tough to pin particularly egregious competitive behavior on the search giant–not yet, anyway. It also must have learned something from Justice’s slapdown on its aborted Yahoo deal. So while there will be some noise–perhaps around the Google Books agreement–Google may skate by. As it continues to vacuum up more online services, however, the US. or Europeans regulators will keep looking for a way to limit its power.

What Will Happen on the Internet in 2010

Predictions may be more useful for the writer than the reader. After all, if you’re as specific or as provocative as you should be, you’re going to be wrong at least half the time, and that’s not a very dependable percentage to prove your worthiness as a futurist. For me and other prognosticators, though, predictions are a useful way to ready ourselves for the coming year (OK, it’s already here)–to tell ourselves what to pay attention to and to provide a vantage point for assessing the many events and announcements to come.

So here’s my attempt to predict a bit of what’s going to happen in technology, mainly on the Internet–that is, the scattered parts of it I pay attention to. I’m also going to follow up with two separate but related posts: what won’t happen this year, and what I wish would happen but probably won’t.
* Merger mania will accelerate in technology. Valuations of private companies in particular seem low enough, but won’t be forever. And the industry’s leaders–Cisco, Google, Microsoft, HP, etc.–not only have the cash but have said they’re ready to spend it. Both sides know that cosmic convergence won’t last for long, so they’re ready to deal. I don’t know that multibillion-dollar deals will happen but I bet there will be many smaller deals.
* Branding will start to become more apparent in Internet advertising. That’s mostly because brands won’t be able to treat “digital,” as traditional ad types quaintly call it, as an add-on anymore. The Web is becoming the main event for too many consumers now. Plus, targeting technologies of all kinds, along with new ad formats, are starting to get good enough that brands can stomach using them. Not least, display ads, the chief vehicle for online brand advertising, will be a big focus for Google this year. While it’s not at all certain Google can master branded display ads, its efforts no doubt will move things forward.
* Google’s software efforts will finally establish it as more than a search company, making it apparent what this pony’s second trick is: Whether it’s because of Google Apps, Android, Chrome OS and the Chrome browser, or some new product, Google will be seen as the software company it really is. It will continue to be seen as a media company as well, but that’s only because software provided as a service on the Net is the new media. It’s just that few people realize this, least of all traditional media, to their everlasting detriment.
* Yahoo will surprise on the upside, thanks in part to that pickup in brand ad spending, which has always been Yahoo’s strength. Also, people may be underestimating CEO Carol Bartz’s ability to get Yahoo, which has more resources than its performance in recent years would indicate, back on track.
* Mobile applications will start to take off. Only start? For the masses, yes. I can assure you that even many of my tech-savvy friends in the Valley have no idea what Foursquare is. Plus, bandwidth limitations will only get worse, which could delay mass rollouts of data-intensive apps. But there’s a reason smartphones are exploding, and it’s not because they’re a computer in your pocket. They’re the Internet in your pocket.
* Twitter’s main business model will become more apparent–whatever it turns out to be. But it won’t knock everyone’s socks off–at least if it turns out to be mainly selling data feeds to other companies. I’m also not sure lead generation, e-commerce or even in-stream ads are killer businesses. None of that sounds like the next AdWords to me. I’m not privy to Twitter’s plans, but I have to think the ambitions of its founders and everyone around them require some new kind of advertising that’s just as fast and easy for advertisers as search ads.
* Facebook will keep growing, providing perhaps the first test of whether social media is a blockbuster business after all. Although I’ve been on Facebook a long time now, anecdotally it feels like my generation (let’s just say, not in our 20s and 30s, OK?) has just started embracing it bigtime. And that’s a lot of people. Eventually, and I think before long, Facebook’s scale could create fairly specific audiences that could rival the reach of television. That’s the Holy Grail. What I don’t know yet is if Facebook will be able to seize that opportunity.
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