Written by Sramana Mitra

Does Google not, like everyone else, have an Achilles heel?

Before I attempt to answer that question, let me just say right up front that when it comes to this topic, I am highly biased. I want Google to have competition.

Biased or not, however, I have found a few vulnerabilities in Google’s relentless march to success. The most significant of those is the increasing verticalization of the web. Or more specifically, in the rise of vertical search engines.

Here’s an example.

You are looking for a software engineer job in Palo Alto, Calif. If you insert this query into Google, you will mostly turn up offers to take you to job boards and job search engines like SimplyHired, Dice, and others that are matched based on keywords.

Google, however, doesn’t know that you would consider jobs within a 25-mile radius — that nearby Menlo Park, Redwood City and Mountain View fall within your realm of possibilities as well.

Now try this query on Indeed.com, a job search engine that collects listings from all over the web. You can specify the radius of your search. The engine would offer to filter by company, city, job type, etc. making your job search experience richer, more precise.

Similar dynamics exist in other major verticals — travel, real estate, auto, health, etc.

Google has so far stayed focused on horizontal, generic search with a simple, one-bar user interface. And it has brought them a remarkably long way.

However, as users get more sophisticated, they are discovering brands that offer richer user experiences customized to the dynamics of the vertical.

Investors have poured a lot of money into these vertical search engines. Within the “jobs” category alone, more than $70 million has been funneled into Indeed ($5 million from Union Square Ventures & NYT), SimpyHired ($17.7 million from Foundation Capital and News Corp.), and Jobster ($48 million from Trinity, Mayfield, Ignition, Reed Elsevier). And the “online jobs” market is expected to be worth $10 billion by 2011, which explains why so much money is chasing it.

Indeed.com has over five million unique users, indicating that the dynamics of the entry point to the web are changing. A recent roll-up deal led by Kayak in the travel vertical, which I discussed in my Forbes column, highlights the ambitions of newer players to build independent large companies. Kayak acquired SideStep, bringing together over 12 million unique visitors and $85 million in revenues.

So what is likely to be Google’s response? Build? Buy? Abstain?

According to VC Gus Tai over at Trinity Ventures, “Google will fail if they try to do separate vertical brands,” he said. “It’s like Wal-Mart vs. Tiffany. It’s about a deeper brand experience that Google can never offer.” Gus knows. He was on the board of Blue Nile, an online diamond jewelry brand that took on Amazon and eBay and built a business worth more than $300 million a year.

Conceivably, the verticalization we saw in e-commerce will now get repeated in search. Google will, of course, remain a very large search engine company with a huge market cap. But other $500 million-$1 billion businesses will get built in each of the large verticals and will, within just five to seven years, give Google a run for its money.

I explored the “deeper” brand experience with Gautam Godhwani, CEO of SimplyHired. “We are focused on enriching the entire lifecycle of the user experience,” Godhwani said. “We not only want to help candidates search for jobs, but do an outstanding job in understanding the content of the resume and be able to match it with the right opportunities.”

Imagine a day when you have your resume posted on SimplyHired, and even when you are not looking for a job, highly relevant opportunities are presented to you by your Careerbot. “We are only 10-to-15 percent along the way to our vision,” Godhwani said. SimplyHired powers job search for over 3,000 sites, including MySpace and GigaOM.

Indeed’s CEO Paul Forster likes the idea of a roll-up in the jobs category, but said no concrete discussions have yet taken place. I offered both Gautam and Forster the idea of LinkedIn as an interesting possibility around which to roll up the category. (LinkedIn has already built critical mass with a 2008 projected annual revenue of $100 million.)

At the back of my mind is a vision that is much bigger than vertical search. It is Web 3.0, a summation of context, community, commerce, content, vertical search and personalization.

In the end, new brands able to build deep, rich, highly personalized Web 3.0 user experiences would become Google’s real competition.

I am eagerly waiting for these brands to emerge.

MySpace’s growth may have peaked. Annual page views for the social network fell 7 percent from December of 2006 to the same month in 2007, according to the latest site rankings from comScore — the first time the site’s page views have declined year-over-year. And MySpace saw a 9 percent decline in page views from November to December as well. Facebook’s star, on the other hand, appears to still be rising as its year-over-year growth came in at 43 percent, despite a 12 percent decline from the prior month.

In terms of the number of unique visitors to each social network, however, MySpace is still in the lead, with almost twice the unique visitors as Facebook in December, but only a 12 percent year-over-year rise. Facebook didn’t make the top 10 sites when measured by unique visitors, but comScore data shows that the number of unique visitors to Facebook grew 81 percent from the same month last year.

While page views were down overall by 2.8 percent from the month prior, some sites, such as Google and Craigslist, experienced year-over-year gains that blew those of other top sites out of the water. Google’s page views were up 76 percent while Craiglist’s soared 119 percent over the year before. Google’s notable annual growth in page views is more proof of the search giant’s impressive 2007.

Remote computer access service provider LogMeIn has filed to raise up to $86.3 million through an initial public offering, according to a filing late last week with the SEC. The Woburn, Mass.-based company reported a loss of $6.5 million on sales of a mere $18.1 million for the nine months ending Sept. 2007, but its growth is strong, with sales increasing 151 percent in the same time period.

As it uses a peer-to-peer data transfer model after it makes the connection between the home computer and the remote user, LogMeIn faces less of an infrastructure burden as it grows. It has filed to trade on the Nasdaq under the symbol LOGM.

The company sells primarily to enterprises, so the IPO may also be an effort to gain some credibility with corporate buyers. Some of that credibility may also come from a deal LogMeIn signed with Intel in December. The previously undisclosed deal involves Intel investing $10 million in LogMeIn and an agreement to tightly integrate LogMeIn’s services with Intel hardware. The chipmaker will also market and sell LogMeIn’s service to its customers and share that revenue with LogMeIn. Polaris Venture Partners, Prism Venture Partners, Integral Capital Partners and Intel Capital are backing the five-year-old company.

Coskata, a startup that says it can produce commercial-scale ethanol for under $1 per gallon made from either biomass, municipal solid waste or other recycled materials, has unveiled a partnership with General Motors, along with investments from GM, Khosla Ventures, Advanced Technology Ventures and Great Point Ventures. Earth2Tech editor Katie Fehrenbacher visited the company at their Illinois headquarters and brings us this report.

Social networking site MySpace is continuing its push into the gaming space with plans to launch a game portal. Casual gaming is a popular activity, with tons of competition. There are independents with their own web sites, those creating games such as Scrabulous for social networks, while large portals such as Yahoo have the basics, among them poker and sudoku. The games can also be a channel for advertising or transaction revenue, though no one has yet settled on a compelling revenue model. But given the number of casual games out there and the fact that big guys like NBC Universal and Microsoft are buying into or investing in the market, MySpace likely smells a revenue stream.

Years ago, Stephen Dukker helped to disrupt the personal computing industry when the company he founded, eMachines, started selling PCs for $400 each, effectively broadening the number of consumers who were able to buy computers. And now he’s trying to do it again, as CEO of Redwood City, Calif.-based virtualization startup NComputing, which just raised $28 million in a second round of funding.

NComputing makes terminals bundled with a keyboard, mouse and monitor that can be hooked up to a PC (given the processing power available in today’s computers compared with what’s needed for most applications, multiple terminal kits can be connected to a single PC.) After selling some 600,000 kits primarily to educational users over the past year-and-a-half, NComputing will take the $28 million it just raised (at a more than $100 million valuation) and use to target the enterprise market.

I spoke with Dukker about the importance of opening up new markets for PCs, and how that can be done using software. We also talked about NComputing’s push into the enterprise market, even as it continues to find success in education and the developing world. Currently the company sells 80 percent of its terminals to educational buyers, with 50 percent of its sales occurring in the U.S.

Q: Why would someone want to get into the PC industry today?

A: At eMachines we proved there is no low-cost PC that allows their suppliers to be profitable. Since the industry has not been able to bring prices down further, we have not been able to open up new markets. So all a PC maker can do to gain market share is to sell at low margins and steal share from other people.

Q: So why did you come back to the PC world?

A: After eMachines, I thought I was through with PCs, and then I got a call from my No. 2 guy at eMachines who was in Germany working with these guys who said they could lower the cost of PC ownership with software. I told him if you can do this, you can potentially change the world. The cost of the PC basically goes away. The chip costs $2 to produce, but the software is hard to do. It’s exactly what companies like VMware, Citrix and Microsoft are doing with desktop virtualization.

Q: What made the software so compelling?

A: With the PC what we have is a classic situation of the exhaustion of an architecture. PCs are becoming supercomputers and the applications are not keeping up. Unless you are doing some super science or are a hard-core gamer, you don’t need the processing power. With our software and hardware you can run a couple of terminals on one computer for about $70 per kit. It costs us about $11 to make the kit. This allows us to charge the customer less and make more at the same time, which is the hallmark of a disruptive technology.

Q: Why go after emerging markets first?

A: We gain credibility. By engaging enterprise customers later we will have more than 1 million people using our machines around the world. I want to further emphasize that this technology was not designed for emerging markets and education. It was originally designed to be a Citrix killer — the most efficient and cost-effective server-based computing solution for the enterprise. The reason we’re seeing the huge response in the education and emerging market is because their needs are immediate, whereas we know the enterprise markets are fairly slow.

Q: Where will you take this next?

A: We accepted the money to pick up the pace on the enterprise side without losing focus on our current markets. We are in trials in many large enterprise environments, and will make a meaningful impact on the Citrix and VMwares of the world in the back half of this year. We are also going to introduce a new product for broadband providers where you could have our chip inside a set-top box. It will be a desktop that’s being served to you for a couple bucks a month over your television by a broadband provider.

Cynthia Brumfield is a long-time communications, broadband and media analyst at Emerging Media Dynamics, and a blogger at IP Democracy.

AT&T CEO Randall Stephenson triggered a mini-free fall in the shares of phone companies last week when he told investors at a Citibank conference that non-pay disconnects are “happening all across consumer products lines,” with the possible exception of wireless voice accounts. In other words, a larger-than-expected chunk of customers aren’t paying their bills. And AT&T is pulling the plug on them.

This bit of concrete evidence that a recession is indeed underway spooked an already jittery stock market, dragging down non-telecommunications shares in the process. Hardest hit, though, were the leading telecom and cable companies, which managed to recovered slightly but continue to labor under a cloud of investor suspicion.

Comcast CFO Michael J. Angelakis echoed Stephenson’s claim. Speaking at the same Citibank conference, Angelakis said that during the second half of 2007 “we clearly saw bad debts increase, and we clearly saw a pickup in churn.” Translation: A growing number of cable customers aren’t paying their bills, either.

Against this backdrop, earnings season is about to get underway, meaning we’ll soon get a look at some hard fourth-quarter 2007 numbers from the top telecom and cable companies. If Stephenson and Angelakis are any indication, we’re in for disappointing results from the country’s top broadband, voice and video providers.

But a recession-driven slowdown for either cable or phone companies would be a new thing. Historically, cable has prided itself on being recession-proof. During the recession of the early 1990s and the downturn in 2001 and 2002, cable companies didn’t lose customers. In fact, in 2001 and 2002, cable was in the midst of digital TV and high-speed Internet rollouts, which cranked up growth (although the telecom and dot.com meltdowns, not to mention the accounting scandal that brought down WorldCom, made cable seem like it, too, was in the doldrums).

Phone companies have also held up well during economic downturns. Even though the big incumbent companies that now make up AT&T, Verizon and Qwest started losing access lines in 2000, those losses were mostly restricted to the commercial sector and were due to the rapid late-90s rise of competitive local exchange carriers. Consumer spending cutbacks typical of a recession didn’t come into play.

Things could be different this time around, because unlike in the past, cable and phone companies now sell a lot of services that consumers feel are discretionary. During past downturns, customers clung to their voice and pay-TV services because the telephone was considered essential and subscription TV was a bargain service, relative to other entertainment options.

However, that held true before the days of triple-play or quadruple-play bundles, before multiple digital service tiers and HD packages came along and before broadband either existed or was widely adopted. The thing to watch out for now is the possibility that the proverbial bundles of voice, video and data services might unravel.

For example, homes that buy both mobile and landline voice services could feel free to simply cut off the wired voice connection. During his Citibank talk, Stephenson cited this cost-savings measure as one cause of what will in all likelihood be stepped-up line losses for the company in the fourth quarter. Not that wireless substitution hasn’t been going on for a while, but tight household budgets could no doubt accelerate this trend.

Contrary to what I would normally expect, broadband service might turn out be a dispensable expense during a recession. “It’s non-pay disconnect that is driving the disconnect on access lines and on broadband as well,” Stephenson said during his Citigroup talk, reiterating several times that residential broadband growth has suffered some kind of a setback.

Cable companies, which posted very disappointing growth rates across the service board for the third quarter of ‘07 — before the economic slowdown truly took hold — have already started drawing up lower-cost service options and are about to market “double-play” packages of voice and high-speed services.

So what will we hear from cable operators and phone companies in the upcoming quarterly reporting season? Comcast officially confirmed back in December that it won’t make its fiscal 2007 guidance, citing weaker-than-expected subscriber gains. Based on the sounds Stephenson made, AT&T is managing expectations in advance of a weak fourth-quarter report as well.

Most of the other cable and phone companies will probably not have much better news, with the possible exception of Verizon, whose CFO, Denny Strigl, told the same Citigroup investors that the weak economy had “minimal” impact on his company. Moreover, in contrast to its peers, Verizon issued relatively robust third-quarter numbers last fall.

But compared to a lot of other industries, and despite any short-term hit that cable and phone companies may take, the communications network business — be it cable, telco or wireless — is a relatively sure bet in the long term. Both AT&T’s Stephenson and Comcast’s Angelakis, while acknowledging the challenges of increased competition and a weak economy, stressed this fact. “We are in the middle of a growth industry,” Stephenson said.

Chetan Sharma is co-author of upcoming “Mobile Advertising” (John Wiley) and “Mobile Broadband” (IEEE Press). He is an adviser to several operators and media brands around the world.

Over the last three months, there has been significant discussion around the notion of “open access,” with Apple promising to release its developer kit for the iPhone; Sprint Nextel launching its WiMAX business, XOHM; Verizon Wireless saying it will open up its network and platform; Google’s efforts around Android and a possible gPhone; and the 700 MHz auction. The two massive industries of communications and media/online are clearly at loggerheads. How this battle shapes up over the course of the next few months will define how you and I will consume media, entertainment and information.

Media companies and mobile operators think about customers differently. Operators are focused on subscriber acquisitions, while media companies are fanatic about audience acquisitions. Operators think in terms of adding a few hundred thousand subscribers a month — media companies, of millions. In the Telco 2.0 world, where service providers aspire to become media and entertainment brands, shouldn’t operators be thinking like media companies? Shouldn’t they be more focused on audience acquisition strategies — selling their goods beyond the confines of today’s existing barriers?

If we look at the strategic canvas of the mobile data industry, it’s clear that operators currently have a huge advantage over media brands. Mobile operators’ advantage in the current landscape comes from their superior reach, as well as the capability they have to segment and profile users. Their current influence over the ecosystem is a magnitude ahead of media brands. However, in other areas, such as user experience, content, and the ability to be quick to market — media brands have a stronger strategic footing, and they will use it to close the gap in the other areas.

Too much ink has been wasted on the equation of being a dumb pipe. Dumb does not imply little or no value. For operators, nothing is more troubling than the insinuation that they will be reduced to bit pipes, becoming utilitarians tasked with keeping the streets clean while the media companies zoom past them in their Ferraris. Yet operators need to realize their unique value propositions, come to terms with both what they are great at and not, and structure their monetization strategies accordingly. The growth of the nascent mobile advertising industry is largely dependent on it.

While it is conceivable that some operators can become content and mobile advertising powerhouses, the evidence points us elsewhere. Operators and media companies sit at the exact opposite ends of the spectrum in terms of cultural and media savviness. Mobile operators are very engineering focused and extremely conservative in their approach to the critical operational aspects of running a cellular network. Media companies, on the other hand, come up with the most creative ways to express a brand message in a landscape that would burst the brains of the very brightest network operators with all of its consumer nuances and related myriad creative intricacies.

To be successful over the long term, operators need to focus on the unique elements that only they can provide — such as location, presence, user profiles and platforms for applications; as well as device and network APIs — and build business models around abstracting this information so that the ecosystem can utilize them to enhance user experience and usage. Such an approach will enhance their competitiveness in the media ecosystem, keep the usage and ARPU levels up, and get more entrepreneurs and users involved in moving the industry to its next milestone.

Such an ecosystem will also empower entrepreneurs to keep pushing the boundaries of technical and business innovations to make mobile media and advertising a sustainable, vibrant and scalable industry at a much faster pace — and will help deliver on the promise of “open access” better than any rules in the 700 MHz auction. This shift in mindset (and subsequent execution of the resulting strategy) will have a direct impact on any viable mobile content and advertising strategy. Advertisers look for an audience, precise targeting, and measurement. If operators can help deilver that, then their media strategy will flourish, but if three years down the road, media brands have five times the audience…well you know what happens next.