Damned if they do, damned if they don't: the love-in is over for hi-tech's hippies

Google is searching for growth, write Abigail Townsend and Ben Schneiders. Can it win over the markets as it loses friends?

Yet in the intervening time, there has been a subtle shift. While Microsoft got on with settling anti-trust suits and Bill Gates popped up at Live 8, in between donating billions to good causes, Messrs Page and Brin have been carrying on - whisper it - like capitalists.

They have made acquisitions and sought to bolster revenues by building an arsenal of products and services to sit beside the core search engine. These range from a project to put libraries online and a price-comparison site called Froogle, to an email service, a search tool for your PC and Google Talk, the latest addition. Announced last week, it takes on the might of telecoms giants such as BT by allowing users to talk to each other via their PCs, as well as instant messaging.

Google has also decided that its war chest, already stuffed with around $3bn, isn't quite full enough and has announced plans to raise a further $4bn. Management opted against saying why it wanted the money - a move that to some, compared with the love-in a year ago, seemed arrogant. Even the mathematical play on the amount of stock being issued (Google is to sell 14,159,265 shares: put a 3 and a decimal point in front and you get pi to eight decimal places) seems more nerd's in-joke than intellectual pun.

"Microsoft has been regarded as some sort of evil emperor that we have to do business with rather than choose to," says Mark Maine, a senior analyst at IT consultant Ovum. "Google felt different, but it seems it is starting to pervade everything you do now."

The company unveiled its free Gmail service earlier this year - its version of Hotmail - but commentators were swift to pick holes. "They reserve the right to screen your emails, pull out key words and learn things about you, and I don't have Gmail for that very reason," says Mr Maine. "People will be wary of that kind of thing. It's a bit Big Brother - they see everything you are doing."

Google has had little choice, though, but to make its presence felt beyond online searches. Advertising accounts for 99 per cent of its revenues but the nature of searching the web means users rarely hang around - and advertisers like to be seen by as many people as possible for as long as possible. "Google is a great offer and people love it but what do you do? You go to the site, do a quick search, find what you're after and move on," says Scott Kessler, an internet equity analyst at credit-rating agency Standard & Poor's.

Recent research showed Google had the third-largest number of visitors, below Yahoo! and Microsoft's MSN, and above AOL. But it lags woefully in terms of the time people spend at these sites. Mr Kessler says AOL leads the way, with users clocking up an average of six hours a month. Yahoo! is second with three hours, followed by MSN with just shy of two. But Google users average only 40 minutes.

So Google is trying to transform its search engine into a portal, complete with add-on services such as Froogle, Gmail and online maps. They won't provide stronger revenues in themselves, but they should provide a better platform for advertisers.

But the company still has a way to go in winning over the doubters. Mr Kessler's concerns are such that he has cut his recommendation from a "buy" to a "hold". "You would be hard pressed not to accept Google is good at what it does. But this is a company that seems to be based on lofty and broad aspirations. It has challenges in driving growth, revenue and profits outside its core business."

Based on Google's share performance, Wall Street should be happy. Since floating at $85, the stock has rocketed, hitting over $282 last week. That means the company's market value is now around $80bn, and the consensus is it will post a net profit of $1.5bn this year - a huge jump on last year's $399m.

But that brings worries of its own because Google is now one of the market's most expensive stocks, with a price-to-earnings ratio of nearly 60 times.

"Trees don't grow to the sky," says Ivan Feinseth, an analyst at financial services company Matrix USA. "The valuation has to come back down."

Mr Feinseth, who recommends selling the stock, adds that to justify the current share price, Google's net operating profit would have to grow at 50 per cent a year indefinitely.

Coupled with this, it is starting to face increased rivalry. "Yahoo! has upped its game, really poured resources into its offering," says Mr Kessler. "Google has to acknowledge that its juicy profit margins smell like red meat to its competitors."

Google seems stuck between the devil and the deep blue sea. Do nothing, and analysts will question your business model and fret over your valuation, while competitors move in. Do something, and customers will accuse you of abandoning your principled roots and invading your privacy.

"What I liked about Google initially was its search engine," says Leo Hindery, managing partner of investment manager InterMedia Advisors. "Now it's going into voice, it moves from unique and proprietary to common and competitive. Look what BT gets priced at. And they want to move into that?"

A Google spokeswoman said the launch of Google Talk represented "another step forward in [our] mission to organise the world's information to make it universally accessible and useful. As part of this mission, we're always developing new tools that make this faster and easier."

As for acquisitions, speculation is rife about what the war chest will be spent on. Skype, the London-based group that is Google Talk's biggest rival, has been touted as a takeover target, as has enterprise software specialist Autonomy. Both Google and Yahoo! have bought into Chinese rivals, and more overseas investments could be on the cards. Or it could simply launch more products. A music offering, a long-rumoured financial service and a move into the mobile phone arena have all been been topics of speculation.

Whichever rumours are closest to the mark, most observers agree that the cash will be used - and that Google is raising it now both because it can and because it knows it is over-valued. "It may indicate they don't think the shares will stay at this level," says Philip Remek, a media analyst at investment bank Guzman & Co. Google's senior directors have sold around $3bn of their holdings in recent months.

Google may have to move into different, competitive markets and, long term, this could be the making of the company. But it also means the honeymoon with customers and the market is coming to an end as it stops being Wall Street's resident intellectual hippie and attempts to transform into a global giant.