Google shares fall to six-month low


Google: perceived by some as 'the next Microsoft' because of its monopoly of the search market. Photograph: AP
Google's share price has dropped below $500 (£254) for the first time in six months as investors grow concerned about increased competition from Microsoft's potential merger with Yahoo.
The hostile bid overshadowed Google's earnings statement last week, with investors focusing on profits that fell short of expectations despite a year-on-year rise of 40% for 2007 to $4.2bn.
Wider concerns about the US economy and a slowdown in advertising - which accounts for 99% of Google's revenue - had pushed the firm's share price down to $495 by the close of business in New York last night.
But the Gartner research vice-president, Andrew Frank, predicted that Google would remain market leader even if the Microsoft takeover of Yahoo - which would create a mass of online services known as a megacloud - went through.
"Microsoft views the megacloud business as part of its top-level strategic goals, but also likely realises that it is unlikely to ever top Google in advertising and search," Frank said.
"However, advertising and search are excellent potential cash flow generators. Microsoft must stay engaged in this area to diversify its revenue and limit Google's expansion.
"Microsoft must 'take the fight to Google's neighbourhood' while limiting the drain on Microsoft management," he added.
Google shares peaked at $741 in November and some analysts had speculated that the search engine giant was well on the way to eventually reaching $2,000 a share within 15 years.
Back in October, Henry Blodget on the Silicon Alley Insider blog said the company's growth would be strong as long as it "continues to eat the lunch of not only every major media company on earth but also the lunch of many technology companies".
Writing yesterday, Blodget said Google was perceived by some as "the next Microsoft" because of its monopoly of the search market.
"Google may not intentionally be exterminating competition with the same zeal that Microsoft once did, but it turns out that search is a natural monopoly.
"And Google's lifeline to Yahoo (in the form of an Eric Schmidt call to Jerry Yang) resembled not so much a gesture of Valley solidarity as a heavyweight wrestler momentarily taking his foot off a prostrate rival's throat."
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