Google, Look Out Behind You!

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Editor’s note: Guest author Keith Teare is General Partner at his incubator Archimedes Labs and CEO of newly funded just.me. He was a co-founder of TechCrunch.

Google has been fighting the threat of Facebook for some time. It is now fighting for its life on two fronts! Facebook and now Apple loom large as it attempts to chart the future.

The past two weeks have seen some astounding changes in the software landscape. The current earnings season gives some clues and confirms some of the mega-trends that are leading to the need for change for Google in particular. As I wrote some months ago in Smart Mobile and the Thin Cloud.

The next 10 years are going to be wonderfully interesting. And the thanks goes to . . . Apple and Steve Jobs. Think different is no longer a choice.

Earnings hit and miss!

Google missed the streets numbers for its Q1 earnings last week and has seen its stock decline from $670.25 to yesterday’s close of $569.49. Apple, by comparison, has just beaten, no annihilated, the Street’s predictions and its stock has gone from a low of $363 to yesterday’s close of $446.66 in the same period.

It’s all about mobile!

The cause of Google’s relative failure (and it is only relative) is that it failed to hit the “Cost Per Click (CPC)” target expected by analysts. The reason for this seems to be connected to the rapid growth of mobile traffic and the subsequent decline in paid clicks on Google searches.

The same trend – the growth of mobile – that is driving Google to despair is responsible for Apples staggering growth. Rising iPhone, iPad and associated revenues such as the App Store, drove Apple’s profits for the quarter above $13 billion, a number larger than Google’s revenues for the quarter.

The growth of mobile is the key driver of almost everything happening in the software ecosystem today. Consumers and enterprises are turning their backs on the desktop and the laptop at an accelerating rate as they embrace tablets and smart phones. This trend is exponential and global.

Google’s reliance on search revenues derived from web searches in a browser, its former strength, is now not sufficient to guarantee growth.

Google’s focus on Android is a necessary but not sufficient part of confronting these trends. It gives the company a platform into mobile, but it does not do enough to offset the impact of the relative shift in traffic. This is compounded by Android’s essential nature. Originally conceived as a client distribution strategy, making Google apps and services available on a best in class mobile operating system, it lacks the app-store like ecosystem that Apple has created and the consumer-friendly experience that Apple’s approach embodies. A mobile web client to a cloud service just isn’t as fast, or as friendly, as a native app. And whilst third parties are producing native apps, Google is heavily invested in making its cloud based apps and services available on the Android and iOS devices and is paying the price for that.

Social – a threat for sure, but not the only threat, and not the main threat.

Google is also threatened by the inexorable rise of the social internet. Its admirable roll-out of Google Plus over the recent past is almost entirely related to that threat. And at now 90 million users and growing, Google Plus is definitely off to a good start. The decision to change Google Search into a “Search plus Your World” experience this week is probably a necessary part of the response to Facebook also. The controversy that led Larry Page to reportedly suggest that employees who are hanging onto the old Google to go and work elsewhere is a misplaced loyalty to a model that can no longer be sufficient to ensure Google remains relevant. However, by focusing on the strategic threat posed by Facebook almost exclusively, Google may have waited too long, and have the wrong strategy, to beat a more serious challenger – Apple.

Indeed Facebook itself may be a victim of the growth of Mobile, and thereby a victim of Apple’s success. Yesterday, it was reported that Facebook would file its IPO before April 1st in order to comply with US Securities laws requiring companies with more than 500 shareholders to report their financials. Its shares traded for $34 on the secondary markets, implying a market capitalization of $80 billion, down from $55 per share at the peak about 12 months ago (see Sharespost.com for details).

Apple has a platform that will soon be numbered in the hundreds of millions. Every device has communications built-in, personalization built-in, media capture built-in. And with iCloud, there is now a place to store the output of each device. How relevant is the Facebook hosted social graph in that world? How relevant is the web ecosystem that Facebook connect has helped penetrate? It seems likely that Facebook will have many of the same challenges as Google as it contemplates the rise of Apple, and the rise of mobile.

Only one winner this week.

So, as the earnings calls recede into memory, the fact of Apple;s growth and the moment for Google and Facebook to think through their response is now! The results of the past few days paint a clear picture of the future. Pivot may no longer be a word reserved for young startups. The big guys, who are more than capable of understanding the trends, need to step up right away. Failure will mean that Apple – the worlds most valuable company – will be many times bigger 5 years from now. Product thinking needs to be at the center of this reflection. What does mobile mean for us? That needs to be the only question on the table.