Thursday, February 10, 2005

Overoptimism on GOOG

David Forrest writes up a steaming pile of you-know-what on Google, forecasting a market cap of $1 trillion, eventually. His cheerleading commentary rests on the questionable-at-best assumption that the pay-per-click model is fundamentally sound. It also represents the worst of the dot-com era hypemachine, spitting out impressive irrelevancies that make the pop investor all googly eyed (excuse the pun).

Forrest makes all sorts of unsupported short-term to long-term extrapolations like "Google creates value for so many people that failure simply isn't an option." Yes, Google creates value now, but unless it can use that value to diversify its business, it has some major problems. Google's success ultimately rests on its ability to use its current dominant position to turn itself into a diversified portal that kicks the living daylights out of MSN and Yahoo. Anything short of that and it will get eaten alive. Don't buy the hype.