Former Google (Nasdaq: GOOG) CEO Eric Schmidt admitted he “screwed up” during his tenure at the company by first failing to take social media seriously and then failing to establish a viable social media product.
Now, Google may suffer the fate of Yahoo (Nasdaq: YHOO)
Recall that Yahoo was the best web portal on the Internet. Today, it still is. Moreover, it parlayed its dominance to many other useful and leading products like Yahoo Finance.
However, Yahoo shares are currently trading at the same price they were in 1998. Yahoo was once the king of the internet. Now, it’s a laggard with mediocre prospects.
Google may be in the same situation. Like Yahoo, Google has done well at its core business of search and will likely maintain its dominance for the foreseeable future. Even more impressive, it successfully developed products like the Android OS.
However, Schmidt’s Google failed to see the importance of social media, failed to acquire a viable social media company, and failed to develop something on its own.
A few years from now, it’s possible that Facebook may dethrone Google as the king of the internet. However, the management of Google and Yahoo shouldn’t be blamed for “screwing up.”
Hundreds of years of capitalism have shown that it’s a good idea for companies to stick to their core business and dominate that space, which is exactly what Google and Yahoo have done.
In some cases, this strategy can ensure enduring success. Many ‘Warren Buffet companies’ like Coca-Cola (NYSE: KO), for example, dominated their market for more than a century.
In the technology world, however, products only seem to dominate a market for at most a decade in the majority of cases. Prominent victims of shifting technological paradigms include Yahoo, Xerox, and Polaroid.
Should a tech company's management then be held responsible for not anticipating every paradigm shift and failing to dominate the tech world indefinitely?
The answer is “no.”
New technologies will always emerge and established tech companies simply can’t acquire them all. Their dominance will therefore be inevitably supplanted sooner or later.
Still, it might not be such a bad thing to be a dethroned technology company. Yahoo, for example, is still a multi-billion dollar company that owns the fourth most visited US website. Google, even if it eventually loses its internet dominance to Facebook, will still prosper with its search engine and Android OS.