Google keeps winning, GOOG keeps climbing

Google Inc.'s (NASDAQ: GOOG) stock will keep rising as long as it keeps winning the three-front war of ideas. And I think it's got an edge that will last for years.

What are the three fronts in this war and why is Google winning?

• Stock market. Google is winning on the beat and raise front in the stock market. The reason Google's stock keeps rising is that it keeps growing faster than investors expect. According to the New York Times [subscription required], there are more investors like American Technology Research's Mark Mahaney who sold too early -- at $137 -- and now have a $600 price target on Google's shares, than there are Fred Hickeys who shorted 50 Google shares because its sequential revenue growth slowed down -- to 11% from the second quarter to the third quarter -- below the 18% pace the year before.
• Technology. Google trounces its competitors in using technology to make money. While Google has many products that lag its competitors' -- such as its chat software -- it leads in squeezing more advertising revenue out of its customers than anyone else in its industry. Specifically, Google gets 11 cents per customer search -- compared to four cents a search Yahoo Inc. (NASDAQ: YHOO) gets. Google's goal is to discover and enhance technologies that win in the battle for profit.
• People. Google wins on the stock market and technology front because it can hire and motivate the best people. It famously won the battle to hire Microsoft Corp's (NASDAQ: MSFT) head of research in Beijing. It has quadrupled its staff, to 9,000 employees - many with doctorates from leading universities - and it's hiring 100 people a week. Along with a rising stock price, Google attracts and motivates these people in part by encouraging them to spend 20% of their time on projects of their own choosing. While the resulting 83 new services have generated negligible revenues, the motivational power of this intellectual freedom helps Google win the war for talent.

As long as Google can keep growing faster than the market expects, its stock will keep going up and it will continue to win the war for talent and profit-producing technology. But on the inevitable day Hickey envisions -- when Google's growth disappoints -- look out below.

Peter Cohan is President of Peter S. Cohan & Associates, a management consulting and venture capital firm, and a Professor of Management at Babson College. He has no financial interest in Google, Microsoft, or Yahoo.