Jeremy Warner's Outlook: Google; Can changing the world really be worth as much as £44bn? Well, maybe

Road pricing: Big Brother is watching;

Eat your heart out, Rupert Murdoch. After a lifetime of toil and empire building at the coal face of one of the world's most dynamic industries, the media, along comes a couple of upstarts from Stanford University, and within eight years they've created a company which eclipses News Corporation and all else around them in terms of stock market value.

This week, Google became the most highly valued media company on the planet, surpassing even the mighty Time Warner, which lest we forget still includes the internet wonder stock of a bygone age, AOL. If history were to repeat itself, Time Warner would today be instructing its bankers to arrange a merger with Google, but presumably even the old media dinosaurs of Time Warner heave learned not to make the same mistake twice.

Google, now the world's leading internet search engine, is quite the most astonishing corporate phenomenon to have come out of the United States since the all-powerful Microsoft. The founders, Larry Page and Sergey Brin, have created an internet brand and business model of seemingly limitless and unique potential. Yet while we can all marvel at the inventiveness, drive and ambition of this company, can it really be worth as much as £44bn, the stock market value it achieved this week? For those interested in the ratios of share price valuations, that's more than 40 times last year's sales and nearly 100 times earnings. BP's market capitalisation is just 1.5 times sales and less than 13 times earnings.

In Britain, Google's soaraway share price is roundly dismissed as just another, crazy, American internet bubble, but in America there's not a sell note to be seen, despite the fact that this year alone, the shares have risen by more than half. I have to admit to having been sceptical about the valuation even when the company was floated a year ago. Today, the shares are more than three times higher than they were then, so if I were to change my mind now, it would be as clear a sell signal as they come.

Even so, there's no doubting the potential, as well as the vulnerabilities, of this company, and for investors with an appetite for exceptionally high risk, the valuation may indeed be justified. In the eight short years it has been around, Google has quite literally changed the world, infinitely increasing its transparency and changing in myriad different ways the way we work, play, shop, organise our lives and even procreate. That in itself has to be worth something.

On a more mundane level, Google has so far exceeded even the most optimistic of Wall Street forecasts for its performance. It has also confounded the sceptics by further increasing its share of the search-engine market to more than 60 per cent despite the launch by Microsoft of a direct competitor. Thus far, there's little sign of Bill Gates meeting his promise to catch and overtake Google. To the contrary, Google is advancing its lead with a series of new product launches which, to use the jargon, should improve "user stickiness".

These include personalised homepages, giving Google the opportunity better to monetarise its users, My Search History, Google Maps, and of course G-Mail, which is in some respects an advance on MSN's hotmail.

Yet Google has to be more than just a social service if it is to prosper commercially. Nearly all its revenues come from advertising, with advertisers competing in electronic auctions to have their sites prominently displayed in any given search. Google's continued growth depends crucially on its ability to make further substantial inroads into more traditional forms of advertising.

WPP, one of the world's largest advertising groups, estimates the total size of the global advertising market at about $370bn (£204bn) annually. Google will need to take quite a chunk of that revenue to justify its valuation, and though the company's ability to drill down into previously untapped and tightly held forms of local advertising is undoubted, it's nonetheless a big ask.

Eventually there will be other revenue streams too. Already most people's entry point to the internet, Google's commercial potential should soon stretch way beyond the global advertising market. It is to those new markets that American investors are looking when they buy in at these rarefied heights. High risk, but potentially high reward too.

Road pricing: Big Brother is watching

The prospect of road pricing, a policy idea aired again by the Transport Secretary Alistair Darling this week when he suggested a 2014 target date for the introduction of a national system, has received a surprisingly warm welcome. Civil liberties campaigners and motoring organisations have expressed their opposition, but the theoretical appeal is obvious and most commentators have chosen to support the endeavour.

Britain is one of the most densely populated countries in the world, particularly in the economically prosperous South-east. That makes its roads also the most congested. Only the big coastal cities of America and Japan have a bigger congestion problem than we do. This is despite the fact that we tax our motoring more highly than elsewhere. The amount the Government spends on roads is dwarfed by the amount it raises in vehicle excise duty and fuel taxes.

Experience of congestion charging in London has shown it can be highly effective in reducing traffic levels, thereby increasing driving speeds and lowering journey times. The evidence is ambiguous, but this seems to have been achieved at little net cost to business. There are clear environmental benefits from reduced congestion too.

The main counter argument is that road charging only removes traffic from the congested road and shifts it on to minor, previously less busy roads, creating a network of rat runs. Yet the Government envisages something much more ingenious than a simple road-tolling system. Instead, car journeys would be tracked via "spy in the sky" satellites linked to sensors in the motorist's vehicle.

In this way, pricing could be matched almost perfectly to demand. Prices of between 2p and £1.39 per mile, depending on time of travel and density of road usage, have been suggested. Tracking technology on the scale necessary to do this is not yet available, but the Government is probably right to believe it will be by the target date of 2014.

Mr Darling hopes to defuse motoring opposition by promising that other forms of motoring tax will be reduced to match the amounts raised from road pricing. We'll believe that when we see it, but assuming he's as good as his word, then road pricing might be sold as a relatively progressive form of motoring tax. As things stand, everyone pays the same. With road pricing, the heaviest road users pay proportionately more.

Yet there are drawbacks. Road pricing also seems socially inequitable, increasing the quality of motoring and life for those for whom the charges are a marginal cost, but forcing lower income groups on to circuitous routes at inconvenient times. The Big Brother attributes of a system that allows some autocratic "roads authority" to know your every move are also bound to be a source of key concern.

But the biggest drawback is that it would be a logistical nightmare. There would have to be signposts everywhere, alerting the motorist to the charges he is about to incur. For demand management to work effectively, the pricing has to be varied according to density of traffic. By what mechanism would the authorities let the motorist know that the charge is, for instance, about to double so as to reduce demand?

Traffic congestion is, in truth, a quite effective self-regulating mechanism. If a road becomes too congested, people will eventually stop using it, find another route, or turn to public transport instead. The danger of road pricing is that it becomes just another way of controlling our lives and charging us more, without noticeably improving the quality of our motoring. Personally, I still need convincing.

j.warner@independent.co.uk

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