Carol Bartz Is Right: Google Does Need to Diversify

Plenty of people have been having fun with some comments that Yahoo (s yhoo) CEO Carol Bartz’s made in a BBC interview about the company’s competitive position vis-à-vis Google. The notoriously outspoken Bartz, who took over as CEO from co-founder Jerry Yang in 2009, told the British news service that Google (s goog) was going to have “a problem” if it didn’t diversify its business, and that it was going to have to find a way to do “a lot more than search.” Mike Arrington at TechCrunch suggested that Bartz must have been smoking something in order to come to this conclusion, while Kara Swisher at All Things Digital said that the Yahoo CEO was “trash talking” its larger rival.

Let’s face it, it’s pretty easy to make fun of Yahoo — in fact, in some ways, it’s like shooting fish in a barrel. For at least the last several years, it has been a perennial also-ran in virtually every category that matters online, whether it’s social networking or search or keyword advertising or content. After trying and failing to beat (or even match) Google at its own game, Yahoo was finally forced to accept a deal with Microsoft (s msft), which was also failing to have much success on its own. The two companies are now propping each other up and trying to do together what they couldn’t do separately, but are still so far from setting the industry on fire they might as well be in a different game.

But you know what? Carol Bartz, who has gained a reputation for calling a spade a shovel, also happens to be right. Yes, Yahoo is sucking wind in most departments, as most people writing about her comments have pointed out, and so the company is hardly in a position to tell Google what to do — especially when Google reported revenue growth of 23 percent in the last quarter, something Yahoo would kill to do. But she is still right: After years of trying to broaden its business, Google is still 99.9 percent search (OK, 95 percent).

Obviously, that business is doing just fine, and Google is expanding it through acquisitions such as AdMob, which does mobile advertising. And the company continues to come closer to generating meaningful revenues from YouTube and other properties. But the reality is that virtually all the company’s revenues still come from search-related keyword advertising. That may be a great business right now, but what if it stops being so great? What if social search and social advertising becomes a bigger threat to that business, as Liz argued in a recent GigaOM Pro report (sub req’d)?

Some analysts are becoming concerned about Google’s lack of ability to broaden its business even a tiny bit. After the latest earnings report, Barclays Capital analyst Douglas Anmuth dropped his price target for the stock to $650, citing a lack of growth momentum beyond search and advertising. “A significant revenue driver beyond core search has not materialized and it’s becoming tougher for the company to beat numbers,” Anmuth said in a research note.

Chris Baggini, an investment manager with Aberdeen Asset Management, also wants to start seeing some other revenue sources. “Google continues to gain share, but I’d be very disappointed if four years from now they were not getting revenue from other sources,” he said. And the way the company has rolled out new products such as Buzz and Wave and the Chrome OS, without any clear model for how they are going to contribute to the business, has some concerned as well. “Google has the problem of too much money and not enough control over what to do with it,” Rob Enderle, an analyst at Enderle Group, said recently. “As a result, they are building complexity at an alarming rate, and that complexity should eventually choke them, much as it did Microsoft.”

Is Google in danger of imploding — or even slowing down substantially — any time soon? Hardly. But that doesn’t mean Carol Bartz is wrong, and we shouldn’t let ourselves be blinded to that just because her company isn’t doing very well.

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Post and thumbnail photos courtesy of Flickr user Yodel Anecdotal