Google: Beware the eBay Curse

(page 2 of 2)

2. Get better at acquisitions. Like eBay, Google is great at spotting promising companies. And like eBay, it's bad at getting the most out of them. Google recognized the potential of Blogger early on but has failed to make the most of the purchase. If it had, competitor WordPress wouldn't have had the chance to get as big as it is. And Blogger is a success story compared with smaller acquisitions like DodgeBall and Jaiku, which Google has already shuttered.

Google has wisely let YouTube run mostly independently. But while YouTube is growing, it still hasn't solved its two greatest challenges: copyright issues and making money. Meanwhile, NBC-owned Hulu has come out of the gate with permissions to show copyrighted content, a better video search engine, and soaring U.S. traffic. It's still Google's market to lose, but it'll be a huge embarrassment if they do after spending $1.65 billion on YouTube.

3. Step it up in mobile. When the rumors first started flying about a Google phone, many tech watchers predicted a battle royale between the two hottest companies in Silicon Valley: Google, backer of Android, a new open-source smartphone operating system, and Apple (AAPL), maker of the iPhone.

But so far, the first device featuring Android has failed to dazzle. Carrier T-Mobile USA has gotten nowhere near the sales bump Apple partner AT&T (T) is getting from the iPhone.

The most surprising part of this is that Google executives continue to talk up how important mobile is to the future of their business. Perhaps there's more to the Android than we've seen so far. Investors should hope so.

4. Don't neglect your good in-house products. Google famously throws dozens of test projects at the wall, giving little idea which ones it really backs. Google has shuttered several, but there are some real gems there.

One is e-mail. Despite all the talk that young people don't even use e-mail, it's still the No. 1 application on the Web by several measures. And what's more, Gmail is a shining example of what Google does best. As with search, Google took a category of the Web that everyone considered "done" and reinvented it with massive memory and threaded conversations. Gmail has actually outranked YouTube as the 10th most trafficked site on the Web, according to Hitwise.

But Google can't get complacent in e-mail. Yahoo is having its own success in that area; newly hired CEO Carol Bartz has said e-mail is a core part of the company's strategy. Thanks in large part to Yahoo's $350 million acquisition of Zimbra in 2007, Yahoo's Web mailboxes make up more than one-third of Yahoo's gargantuan traffic and more than 50% of all U.S. Web e-mail traffic. And remember that Zimbra's 40 million customers are paying. Google's 30 million are not.

5. Keep innovating in search. From early on, Google raced ahead of search engines that came before it. It's still better than any on the market today. But it's still not very easy to find what you're looking for online, especially if it's buried in the so-called deep Web that's mostly hidden from Web crawlers.

It may not be any of the incumbents like Yahoo or Microsoft (MSFT) that gives us better search. And it may not even be any of the search startups like the ill-fated Cuil. But some company will—because there's too big a need.

Again, look at eBay. The company got complacent with its core auction business, the one former CEO Meg Whitman said a monkey could run. It charged users more, but didn't deliver any more value. And while it's still the largest auction site, eBay faces very real threats as small businesses defect for Amazon or build their own sites.

Nearly every technology has started out with a great, groundbreaking service people loved. But technology and users don't stand still, and companies that want to profit from that relentless appetite for innovation can't either.

Lacy has been a business reporter for 10 years, most recently coverhas been a business reporter for 10 years and is currently writing a book on global entrepreneurship. Her first book, Once You're Lucky, Twice You're Good: The Rebirth of Silicon Valley and the Rise of Web 2.0, was published by Gotham Books in May 2008. She also blogs for TechCrunch.