at the risk of sounding like the economist that has predicted the 7 of the last 2 recessions, here is my analysis

An often debated topic is this: will Google continue to rise forever or will it eventually bust?

At least from the stock market point of view, let's do the math. It looks like Google will end 2006 with $10.30 earnings per share. If the company were valued like Proctor & Gamble (which is a richer PE ratio than many), then Google would be trading at $250 per share - almost half its present $475 price!

But Google is growing faster than Proctor, so it should get a growth premium and trade higher. Googlephiles point to a growth rate that is in excess of 30% and say YES, it is worth up to $600 per share right now and more in the future! And I will say that if the 30+ percent is sustainable for many years, then yes they are right. But is it?

Everyone acknowledges that Google is the clear leader in search advertising and no competitor will dislodge them anytime soon. But Google's hyper-growth valuation depends on the company expanding beyond search into other realms -radio, television, broadband video, and others.

So a better question is this: even if Google buys its way finds ways into other advertising sectors, will it succeed? I think the answer to this question is NO. And here is why: when Madison Avenue purchases search advertising from Google, they do so only because they have to, not because they like its way of transacting business.

What I mean by this is that if you want to purchase lots of high-quality search advertising, then you have to buy Google. But, the much flaunted Google infrastructure is neither transparent nor friendly to media buyers or publishers.

Instead of concentrating on a laundry list of what is wrong, I will simply point out that almost every discussion I have with television advertising professionals adds up to this: stations would not turn their inventory over to Google and Madison Avenue buyers would not accept such a backward move in their ability to buy television.

For example, in search, Google tells you what you might want to bid for 'keywords' and then mysteriously inserts it with a proprietary algorithm where it deems fit. No inventory control is given to the buyer nor is their any way to manage budgets the way media planners do today (no buyer or planner wants unspent money). Eventually, a bill is produced that is non-reconcilable to any third party verification and you have to pay for it. That idea (and anything similar to it) will never fly in television and most other media.

I am will watch with interest how Google monetizes YouTube. Of most interest to me will be whether Google changes its stripes in order to appeal to major media buyers or whether it will remain arrogant and say that its proprietary way is the best way. When Google experimented earlier this year with print ads, no one was impressed and I notice that Google never came back with a better idea.

Oh, and if you ask why Google shareholders should care about this topic, here is why. Google's lead in search advertising garners over $2.6 Billion a year. Television advertising is a $60 Billion market in the U.S. alone. Tap into the needs of that market and you keep growing exponentially. Ignore those needs and you just might find you will eventually hit a glass ceiling.

Need more proof? Consider BusinessWeek's July 2006 assessment of the lifecycle of Google's non-search offerings. "After sparking substantial buzz, most of Google's nonsearch offerings quickly fade from view. People give Google the victory in the beginning and don't show up later to notice that things didn't go anywhere."

Google's stock price has potential for rewards, but it carries a much larger risk scenario than most people realize.