Google's Growing Pains

Google Inc. started the new year the same way it ended the old one -- trying to expand its business to lessen its dependence on its lucrative search offering.

This month's unveiling of the Google-branded and -designed Nexus One mobile phone, last summer's disclosure that the company is developing an operating system, and last September's release of the Google Wave collaboration tools pushed the company pretty far afield from its

phenomenally successful search roots.

Analysts agree that Google must find new markets to at least maintain its growth rate, but they note that any path it takes is fraught with risk.

"The phone is a potentially a brilliant move," said Rob Enderle, principal analyst at Enderle Group. "You've got to credit them with the guts to try this."

However, he added that Google must beware of losing its focus. "There is a risk here of Google losing its way, [but] there's risk with regard to everything," Enderle said. "If all of us avoided risk, we wouldn't get out of bed in the morning."

Those risks became evident after the Jan. 5 launch of Google's smartphone, when angry users flooded message boards with complaints about confusing support options.

"Customer support is a huge effort even for a company of Google's size, because they have never really had hardware support inside Google," said Ken Dulaney, an analyst at Gartner Inc. Added Will Stofega, an analyst at IDC, "It's almost inconceivable these problems weren't anticipated."

Stofega predicted that Google will overcome its Nexus One difficulties, which he said should serve as a lesson for company executives.

Enters Second Decade

Just over 11 years ago, Google was launched as a search engine business and used its single offering to quickly grow into an online behemoth -- one of the great Internet success stories. Today, Google owns the search market, with a 64% share.

Three or four years ago, Google focused its first expansion efforts on adding popular features like Google Maps and Google Earth to its search tool. Then it brought out the hosted Google Apps cloud computing suite and the Android mobile operating system.

In recent months, Google has disclosed that it is developing a Linux-based online operating system and a browser that will challenge Microsoft Corp.'s Windows and Internet Explorer. The Nexus One targets popular devices like Apple Inc.'s iPhone and Research In Motion Ltd.'s BlackBerry.

"Underneath it all, Google doesn't think of itself as a search company, even though that's been their big success," said Enderle. "Ultimately, search isn't sustainable. Google search could become irrelevant. The market has a tendency to move, and one-trick ponies have a history of not surviving."

Analysts also said that taking on the top industry players' strongest businesses is risky, noting that Microsoft moved quickly to counter Google's attacks.

"These two companies really squared off this year," said Jim McGregor, an analyst at In-Stat. "For Google, it's about expanding, and for Microsoft, it's about a life-or-death challenge. This is going to be a prolonged activity."

Analysts wouldn't predict whether Google's moves into new businesses will succeed.

But Dan Olds, an analyst at Gabriel Consulting Group Inc., gave Google credit for trying to expand.

"In general, I think Google is pursuing the right strategies," said Olds. "However, at some point, these new lines of business will need to earn their own way. Right now, virtually every Google initiative is supported by the cash cow -- the search business and its advertising. The other businesses need, at some point, to earn their keep."

Nancy Gohring of the IDG News Service contributed to this story.

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