When a company has a monopoly on an extremely valuable franchise that is growing rocket fast, all sorts of unreasonable things happen. That company levitates. Almost no amount of spending can bring it down to Earth. Until, that is, the growth begins to slow. At that point the anti-gravity ray starts to fade. What usually happens first is a profitability crisis. Often the company’s revenues are still growing impressively, but they’re not blowing away analyst’s estimates. When that happens, attention focuses on profitabililty instead of unbridled growth.
They hit the revenue growth number but missed the profitability number by quite a bit. The market will punish them severely for it. Google, for it’s part, will now have to live in a world without anti-gravity. It wil have to manage itself more efficiently by the numbers, in other words.
The company is legendary for continuous hiring, giving people 20% of their time to work on projects of their choosing, and projects that get built at considerable cost but do not see the light of day or produce meaningful revenue. All courtesy of the anti-gravity ray. Unless they can restore its effectiveness, all of that largesse must inevitably slow to a halt. After all, when a company makes its revenue numbers, but misses its profit numbers, its because expenses are too high. Fiscal conservatism will have to be put in place.
It will be interesting to see how the innovator’s culture deals with this new challenge. A crack down on expenses usually doesn’t happen all at once. Google strikes me as a place that will consider its options carefully before doing anything precipitous.
Om Malik says its a sign Silicon Valley should be worried. Indeed, an awful lot of the Valley’s economy is associated with ad revenue in some form or fashion. But there are vital other areas. SaaS businesses, for example, seem to be doing pretty well from what I gather asking around. They’re raising money quite successfully and the smaller SaaS players are growing like weeds.
Overseas spending is also an important area that is bucking the trend. In this day and age, having an effective global strategy is crucial.
If you don’t have an anti-gravity ray, try selling service (Software as a Service or the old fashioned kind–IBM did well on services this quarter) and make sure you’ve got overseas exposure.
If this article resonated and you'd like more just like it, sign up for our Entrepreneur's Newsletter. You'll receive a free mini-course Work Smarter and Get Things Done. It teaches you how to maximize your productivity so you can get everything you need to do for your business done. It even includes our free productivity software to get you organized, focused, and productive.