Google It First

Alternative income streams: If the income stream model is one in a high-growth area of the market, it is much easier to make to money quickly via pure-play than it is via diversification of income streams. Conglomerates find that matching disparate income streams is hard work, and can often conflict with one another. As Pepsi has diversified, Coca-Cola has used the opportunity to market to Pepsi’s customers which the latter is in some cases competing directly against (Pizza Hut vs. other retail food chains); as the former Apple Computer entered the retail market, it found itself competing against alternative retail chains which shared in the company’s value chain.

The danger with the Google Phone, which makes sense as a model for increasing search habits by users (and hence generating income via enhanced self-designed advertising features), is that Google competes against its own customers similarly. It will have to choose a network provider – already At&T. Verizone Wireless and other carriers are Google customers. It is manufacturing a handset device, competing against customers like Motorola, Sony, Ericsson and Nokia. Furthermore, Google has only proved that it can sustain its current growth trajectory via pure-play: any alteration in that plan is untested and hence risky.

If developing alternative income streams produces the loss of big name clients, this will not appeal to Wall Street and hence directly affect the value of any options at today's price.

Emerging Market income streams: Access to global capital via multiple listings and ADRs has given regional actors the advantage of operating in their own domestic markets while accessing the same capital supply as U.S. and overseas competitors. The advantage that Google may have once had in being able to access a capital supply to outspend the local competitor in competing for foreign market share is now diminished, and makes market penetration in ex-U.S. more uncertain.

Emerging market share in web advertising is arguably a key component to Google’s continued earnings growth trajectory, where internet penetration is still low but growing.