Google: Beware the eBay Curse

Here are five things the Web search giant should do to avoid the fate that befell eBay after the last recession

By Sarah Lacy

There's a reason why cocky Silicon Valley startups fancy themselves the "The Next Google." The search giant embodies Silicon Valley at its best: product developed by nerds in a Stanford dorm room; humbled venture capitalists who turned down the chance to invest, declaring Web search "done;" now-defunct companies such as Excite that refused to buy Google (GOOG) for peanuts when they had the chance; and of course, a storied initial public offering, stellar balance sheet, market dominance, and entrenched, multiyear position as the tech stock darling. In a downturn that's ravaged every industry and most companies, Google is holding up quite well.

Turn back the clock to the last recession, and you could have said almost all of those things about another company: eBay (EBAY). But I bet in a few years Google doesn't want to look anything like eBay does now: a company with a solid core business whose growth is nonetheless slowing rapidly and has little to pick up the slack, despite billions of dollars spent on acquisitions. I'd also wager Google's shareholders don't want their stock to drop more than 80%, suffering the same fate as eBay investors in the years since that stock peaked in December 2004.

No one says Google is headed for a rapid descent any time soon. It commands 63.5% of Web search and none of its rivals has been able to mount a credible threat for years. Yet this do-no-wrong tech darling can't afford complacency, especially when some of its best and brightest are heading for the exits. As venture capitalist Peter Thiel explains, the further a startup gets from its initial share sale, the more quickly it loses star employees—one of the main reasons even the best newcomers don't stay on top for long.

In the interest of avoiding eBay's fate, let me humbly suggest five ways Google might retain its edge.

1. Buy Twitter. Google CEO Eric Schmidt earlier this month likened Twitter to "poor man's e-mail." At best, the remark was an attempt to negotiate publicly; trash the asset so you don't want to appear to need. At worst, the analogy signals Schmidt isn't aware the new battlefield online is not organizing information, but organizing people, and Twitter is quickly demonstrating prowess in that regard.

In fact, Twitter may end up becoming the first company to crack so-called natural-language search, where the user types in a question using common language. Interactive Corp.'s (IACI) Ask.com tried it with scant success. But with Twitter, I can type in exactly what I seek—and real people actually respond. I recently bought an Amazon (AMZN) Kindle 2 and wanted to get recommendations for a carrying case. So I Twittered, "Taking the plunge and getting a Kindle 2. What do you guys think about cases?" I got a flood of real-time, digestible 140-word reviews from people I know who'd bought a Kindle cover already. In fairness, I have quite a few followers on Twitter, but others who have fewer followers say they experience comparable responsiveness. What took about 10 minutes on Twitter would have taken substantially longer on Google, and I still wouldn't have had as good an answer.

The marketing capabilities are clear as well. A savvy company monitoring Twitter might have taken the opportunity to push a review of their product or offer me a coupon the way keyword ads operate on Google.

Obviously, Twitter is still a youngster. That's precisely why Google should do what Yahoo didn't have the guts to do in 2001. Yahoo's then-CEO, Terry Semel, met with Google founders Sergey Brin and Larry Page, asked what it would take to buy the company, and balked at their $3 billion asking price. Mr. Schmidt, no one wants to be a Terry Semel. Make an outlandishly large offer to buy Twitter before someone else does. It's a startup with no revenue; it has to listen.