Google: The Utility, The Conglomerate

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Google (GOOG) got approved by US regulators to sell electricity, allow it to buy and sell power like a power company. The Federal Energy Regulatory Commission greenlighted the search firm’s application yesterday.

Google will not discuss its plans now that it has the approval, but analysts speculate that it wants to have direct access to electricity to run its huge server farms. Google has also moved into the green energy development business, but it is hard to see the relationship between that and its successful application to the FERC.Skeptics may see  Google’s action as another unfocused move into a business other than internet search. The energy play would certainly be one in a long line of initiatives that include building a financial news site on which there has been almost no development and a cell phone, the Nexus One, which has a reputation for poor customer service.

Google’s strategy may be to make a foray into as many business that are tangentially related to its core operations as it can. That leaves the company a number of options as the growth in its search business slows. Google may believe that it can become the GE (GE) of the 21st Century with online, wireless, energy, PC software applications, e-commerce, and video entertainment businesses. If so, it is likely to find out, as GE has, that the perceived advantages of being a conglomerate, which is to have a number of businesses which  keep earnings from relying too heavily on any one of them, are nonexistent.

Douglas A. McIntyre