I'm really not that familiar with Google's financials and I'm certainly not an expert on their technology. What I'm reacting to is what I view as overly optomistic assumptions by analysts. I have been using/loved Google's search engine since the late 90s. It's by far the best for finding what I want. Their mapping and video features are interesting, but I'm not sure it's worth anything to me/most people.
As an advertisingly platform, the accountant in me thinks analyst projections are too generous. It's difficult to envision internet advertising becoming such a big cash cow without fundamental changes in how it occurs. Allow me to explain. Radio advertising works because people like music or talk radio. In between programming they want to hear, they're a captive audience for commericials. Regardless of how "successful" the ad is in terms of turning airtime into sales, the radio audience is at least made aware of the product. The same with television, billboard, magazine, etc ads.
Internet advertising doesn't have quite the same effect. For example, every day I read InvestorsHub, there's a banner ad at the top of the page. I don't read it. In fact, half the time I forget it's even there. Not only is that ad unsuccessful in turning airtime into sales, it wasn't even successful in making me aware of their product. I simply didn't notice it.
You can try things like pop-up ads or ads with sound effects, but people have pop up blockers and mute the sound on their computers. Now let's talk about search engine results. These are a little more effective in the sense that the customer is actively searching for a product he/she is interested in and whichever vendor is at the top page is the most likely to be viewed. The problem from an advertising perspective is: why is the person searching?
Let's use the example of an MP3 player. Are they interested in buying ANY MP3 player? In that case, any vendor would want that customer because they can sell them on Apple, Sony, etc and book a sale. Are they just interested in one brand of MP3 player, like Apple's iPod? If that's the case, it's likely to be a price comparison search in which the cheapest source wins. Not good. What if they're just "window shopping"? You see where I'm going?
I use searches all the time. They're most effective when I already know what I'm looking for. I seldom learn about new products from anything I see on the internet. I learn about new products from other forms of advertising. As a result, other forms of advertising are more likely to peak my interest in purchasing a product while the internet is where I shop for bargains. Therefore, manufactures would prefer spending money on radio, television, magazine, etc. The only question mark in my mind is what retailers would prefer. My gut says they have the same preferences with a slightly more favorable view of internet since they could pick up incremental sales.
As far as how long can Google exploit its technology advantage, I recall reading each technology change in the last two hundred years has taken place in half the time as the previous one. Basically, if change #2 occured 100 years after #1, then #3 would occur 50 years after #2 and #4 would occur 25 years after #3. The implication is that product life cycles/incubation-to-harvest periods will be cut in half as well. If I had to guess about Google, I would say their advantage would last less than 3 years. I'm not saying that they would nosedive into oblivion three years later. Just that they would have fierce competition from competitors and their margins would slip.
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