Tuesday, January 31, 2006

How Hungry is Google?

Internet search leviathan Google (GOOG) hit the maturity part of its cycle too quickly.

The company Microsoft (MSFT) swore it'd kill is now ready to swallow Napster (NAPS), according to sources quoted in today's NYPost.

The deal's a lay up. Google can build its own online music store, or simply acquire one. Since Google has too much on its radar to pursue a full scale project from scratch -- and it's balance sheet is highly liquid -- Google should buy.

Buying companies, of course, is nothing new for Google.

Google, like Yahoo (YHOO), made a series of acquisitions/stake purchases in 2005 as its tried to compete with the Redmond giant. Last week, Microsoft unveiled a plan to create its own iPod.

Napster's story is seamlessly woven into the Internet Boom tapestry, of course.

The fledgling company that was never supposed to be a company was born in '99 after college bum Shawn Fanning began providing illegal music downloads on the then nascent Web. The company was crushed by scandal, quickly re-made, and then floated on the market.

It has yet to hit the black.

With Google head to head with the digital media might of Apple (AAPL), the deal makes a ton of sense as it will enable Google to penetrate a fast growing category and ultimately leverage its own brand equity to "make the deal work."

That said, we're not looking at Napster as much as we are specialty search engine Answers.com (ANSW). If Google doesn't buy them, Interactive Corp (IACI, which bought Ask Jeeves in 05) will.

Answers.com provides integrated, editorially-culled information on more than 1.5 million topics -- we use the site probably 10 times a day and find the site to be an integrated, well-branded experience.

According to its CEO, Answers.com is an exercise in "instant gratification."

Google's between a rock and a hard place -- it grew up too fast and now has to compete with playground bullies that want to pile drive it.

It's either acquisition or bust.

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