Google’s conquered search – but can it sort out social?

A strong Christmas shopping season will help Google beat Wall Street’s quarterly targets again this week, but investors may need more convincing to buy into the internet giant’s longer-term future.

Google, whose shares underperformed the market in 2010, will need to overcome past failures to get onto the social web and local advertising – twin areas that threaten to siphon off internet traffic and advertising dollars.

Now, the world’s top internet company is recruiting and driving an acquisitions spree, aiming to ensure its online products remain popular as surfers turn to services like Facebook – now the most heavily trafficked site – and wireless gadgets.

Facebook’s the long-term competitor to Google, not Bing

It tried to buy fast-growing online local-shopping service Groupon for $6 billion but was rebuffed, Chicago Breaking Business and other news outlets reported.

“The key opportunity for Google in 2011 is to prove that the transition to mobile, social and local is a graceful one,” said Stifel Nicolaus & Company analyst Jordan Rohan. “Google cannot be perceived to be run over by Amazon.com, Apple, or Facebook.”

Google has launched a flurry of new services in recent months, including an electronic bookstore that competes with Amazon, and a web TV service which, despite receiving lacklustre initial reviews, could eventually open the door to important advertising opportunities.

Android, Google’s two-year-old smartphone operating system, has emerged as one of its strongest initiatives. More than 300,000 Android phones are sold every day, and Android ranked as the second most popular smartphone operating system in the third quarter, ahead of Apple’s iOS software, according to industry research firm Gartner.

Socially inept

But Google has shown itself less adept when it comes to internet social networking, where Facebook dominates. “Facebook’s the long-term competitor, not [Microsoft] Bing,” said Walter Price of RCM Capital Management, which owns Google and Microsoft shares.

In 2010, Facebook displaced Google to become the most visited website in the US, according to Experian Hitwise. And advertisers are increasingly warming to the service: according to a Goldman Sachs document, Facebook generated $1.2 billion in revenue in the first nine months of 2010.

No wonder some say Google runs the risk of becoming another Microsoft — dominant in one area but abruptly and rapidly eclipsed in fast-growing new markets by up-and-coming rivals.

“Google needs to step up in social or it runs the same risk that Microsoft does of having the [stock’s price-earnings] multiple degrade,” said RCM Capital’s Price.