Google Again

by

Ross M. Miller
Miller Risk Advisors
www.millerrisk.com
October 24, 2005

For the second year running I am asking/forcing my MBA students to predict the price over a suitable short period of time. Last year it was for the month of November. This year's calendar is running a bit later, so I am doing the four-week period following Veteran's Day. They also have to construct a portfolio that includes 10,000 share of Google to try to perform the best relative to a suitably realistically insane performance evaluation measure. (My introductory students have to minimize daily returns variance, while the advanced ones get to be like real hedge fund managers and generate the highest Sharpe ratios.) As I did last year, three-quarters of the grade comes from the written explanation and not the performance—something that my faithful readers applauded as a realistic approximation of how research analysts are rewarded. (It is better to be clever and wrong, than dull and right.)

Last year, all the people like me who thought the best prediction was to have Google move up smartly were outpredicted by those who went by the textbook, used the Capital Asset Pricing Model (after a fashion), and computed some miniscule gain for the month. The students who thought Google would plummet when a big lock-up of shares was lifted in November, suffered as well as they deserved to. Of course, those of us who believed in Google and the innate irrationality of investors, were ultimately vindicated. Now it's time to roll the dice again.

Google had a good year. Its forward-looking P/E ratio dropped from stratospheric to a mere 41. Every week, it's a new product or a new strategic alliance for them. Google is teaming up with Sun Microsystems. Happy happy joy joy. (You don't hear people say that much these days, do you?) I am surprised that the pop star who just had the baby and whose name I refuse to include in my commentaries because it generates massive spurious hits from GOOGLE didn't name her child "Google." Just wait, Google Magazine, should be out any day now. Now that Martha is bombing out of "The Apprentice," maybe we will have Google Apprentice.

But I have not come here to praise Google, but to offer them useful advice that they will ignore. Like most other computer geeks, my favorite Google product is the award-winning Google Earth. If you have not already done so, you must absolutely run the program on a large (30" or bigger), hi-res (WXGA or better) monitor. A scroll mouse also helps tremendously. Impressive is not the half of it.

I had used Microsoft's Terraserver occasionally, but it was slow and hard to move around. Google's big innovation is to get the maps to you fast (assuming you have a broadband connection) and let you move around them even faster. Google Earth is great, but it can be even greater and ultimately Google's fate will rest not on getting up on stage with Scott McNealy (he's soooo yesterday), but on taking things to the next level.

Mindblowing as it is, Google Earth is still in beta and it shows. Google's core product, the search engine, has as its primary virtue a minimal user interface. Google Earth, on the other hand, has a clumsy user interface. The left-hand side of the screen has all sorts of nested check boxes and searching for places in the standard Googlebox interface can lead to weird and frustrating results. Equally disturbing is that the maps have an inexplicable lack of uniformity.

For example, with the Flintstonian hurricane bearing down on Florida, I thought I would pay a visit to the Keys. Sadly, they are blurred out. Ditto for large chunks of Greenwich, Connecticut and many other exciting places. Have rich people bribed Google not to let voyeuristic computer geeks zoom down into their private tennis courts? Are hedge fund managers harboring nuclear missile silos among their poolside cabanas?

Boston, however, is a different story. I can see the skylights on the townhouses of Louisberg Square and the perennial protesters outside the Massachusetts State House a few blocks away. (The special military black-ops version of Google Earth is required to see what the signs that they are carrying say.) Maybe rich Democrats, like the ketchup people, are not afforded the same privacy as rich Republicans and Libertarians.

Google's challenge can be summed up in a single word. My more senior readers may remember that in the movie "The Graduate," the title character played by Dustin Hoffman was told that "plastics" was the magic word. Today, that word would be "semantics."

The problem with Google Earth is that it does not tell you the meaning of what you are seeing ("semantics" means "meaning") and especially not what it means specifically to you. It does not even provide the objective knowledge required to begin to derive that meaning. In Boston, it does not know about the protestors in front of the State House, or the swan boats in the Public Garden Lagoon, or that Community Boating owns many of the sailboats that you see in the harbor. Its "local knowledge" is rather limited and it volunteers nothing. If you don't enter the right query in the Googlebox or check the right boxes, you won't learn anything. And you can forget about it ever telling you if a certain area is safe to walk around at night.

(Here is an entire parenthetic paragraph on a frightening thought that I had the first time I saw Google Earth. I was not frightened by the privacy implications, because that black-ops comment I made earlier was no joke. While the exact capabilities of military eyes-in-the-sky are highly classified info, a reasonable guess is that they have ten times the resolution of the best that Google Earth has to offer. If you don't wash your car, they will know. What is really frightening, however, is that people are going to start advertising on the tops of buildings in a big way now that everyone can see them over the Internet. Boston may still look quaint and delightful from the air now, but in a few years it will be one big Citgo sign. Incidentally, you can see the back of the current Citgo sign if you know what you are looking for, but not the front, on Google Earth. Of course, the casual cybervisitor from Iceland will have no idea that that is what he is looking at.)

While syntax is easy to program into computers, semantics is not. But with sufficiently powerful hardware, semantics can be faked. For example, technicians in far-away lands who know little of how things work here in the U.S. except for what they see on "The Simpsons" and "Desperate Housewives" and in the first-run movies that they get to see before we do, are essentially faking understanding what irate and often clueless customers are asking them. We are not that many years away from the time when computers can do a much better job of faking it.

Anyone who has ever visiting a friend in a place where they have never been before knows that the better the friend knows them, the better will be his or her suggestions as to what to visit and what to do. Furthermore, because friends presumably have shared experiences, the meaning of the local geography is molded by those experiences.

The real issue with Google the corporation is: "Are they faking it?" Are they just a bunch of guys with Asperger's syndrome to whom real life is as devoid of meaning as the results of a Google search, or are they capable of not just endowing the world with meaning, but grokking it as well? We already know the answer for Microsoft, whose dictionary literally does not include the word "grok." Time will tell if Googlers can climb out of their box and not only develop technology that helps us see the world, but also does something to change it for the better.

Copyright 2005 by Miller Risk Advisors. Permission granted to forward by electronic means and to excerpt or broadcast 250 words or less provided a citation is made to www.millerrisk.com.