Profits were $1.28 billion in its latest quarter. Just bear in mind that when Google was floated in 2004, it was valued at $23 billion. At the time, many said that valuation was just plain absurd, proof positive that a new dotcom bubble was underway. Some may make a similar claim this morning because the profits at Google were down on the same quarter a year ago.

But for a company making $1.28 billion in just one quarter, that 2004 valuation doesn’t seem quite so high. The truth is that one can look back on the IPO price, and with the benefit of hindsight say that it was cheap.

Then again, Google adwords is perhaps the greatest advertising medium ever invented.  So no wonder the company has grown and grown since 2004.

But today, things are different: smart phones have changed the rules. The screens are so small, that even if the ads are there, can you see them?

Yesterday, analysts had two reasons to fret about Google. Reason one: the results were released by mistake or at least a few hours ahead of schedule. So there was the news that profits were down 20 per cent, and yet there was no reassuring statement from Google saying don’t worry, relax, the underlying story is good.  Down went shares, losing 9 per cent, before the stock was temporarily suspended.

But fretting about mistakes made by printers is one thing; others felt they had a far more serious reason to worry. They asked: has the irresistible force that is Google become resistible?

Maybe it has. Just bear in mind however, that the shift towards internet from desk tops to smart phones does not mean the end of internet advertising; far from it, it means new opportunities. Google ads on smart phones will be even more targeted as local advertising on the internet takes off. (Remember, your local newspaper charges higher ad rates per reader than a national paper.)

It is too early to tell whether Google can capitalise on this new opportunity, but it will be a brave person who bets against it.

The truth is that the markets are underestimating a change that is occurring right now. Internet advertising, internet shopping and traditional shopping are becoming the same thing. Google doesn’t just take money from advertising budgets. It takes money from budgets once set aside for rent too, as retailers find having a prime position on Google is more important than a prime position on the High Street.

The big high techs seem to be going in one of two ways. You have Apple and Microsoft trying to make money from selling their actual products. That’s hardware and software, and by the way, it is increasingly looking as though Microsoft will try to make money from hardware too. The other way, is to make money by grabbing a slice of that huge High Street in the ether.

Right now the companies to watch seem to be Google, Amazon and Facebook. Will all three make it through, and enjoy a turnover greatly in excess of their current turnover in ten years’ time? Perhaps not. But here is a prediction. In ten years’ time, look at the profits generated by these three companies together and compare them with current collective profits. If there isn’t at least one zero difference in size, it will be a big surprise.

 ©2012 Investment and Business News.

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