When Google filed to go public in 2005 jaws-dropped at just how great the search business was in size, in margins, in just about everything.

After a controversial IPO that raised a middle finger to bulge-bracket Wall Street institutions, the stock basically spent three years defying gravity, as search grew as a market and Google continued to own it. It quickly became obvious that that controversial IPO was staggeringly underpriced.

There was only thing the haters could say: Google is a one-trick pony. More than 90% of the business was search ads and the law of large numbers — huge, huge numbers– was going to create a growth problem at some point if Google didn’t find another horse.

Nearly seven years later, Google has finally found another horse. Only it’s not an innovative new online business like we’d hoped. It’s not the next paid search. It’s boring ol’ display advertising, the stomping ground of far lesser Internet giants like Yahoo and AOL.

Display advertising has become a $5 billion a year business, according to Google’s earnings call yesterday– doubling in size since October 2010. Google CEO Larry Page crowed about it on the earnings call. And from a business point of view it’s impressive.

But two things about it should be disappointing to long-time Google watchers.

The first is how much Google spent to get here. This wasn’t a home-grown business. A lot of this came from Google’s $1.65 billion YouTube purchase in 2006 and the $3.1 billion Doubleclick purchase in 2007. Now factor in all the other acquisitions that never yielded a big win. Google spent hundreds of millions investing in social stuff — most notably nearly $200 million for Max Levchin’s Slide– before scrapping most of it and going with Google+. Like most big Internet companies, Google has been an Internet graveyard where many good startups have gone to die.

But everyone expects a mixed acquisition track record. Kudos to Google for paying up and at least minting an army of Valley f-you money that can go invest in new startups. What’s more disappointing is that despite Google’s lock on some of the smartest people in the industry and near limitless resources, Google never came up with a good solid second revenue stream on its own.

Google tried hard: “20% time” and Google’s spaghetti-at-the-wall style of product development yielded a raft of projects. Everything from enterprise apps to Gmail to Google Images to mapping the bottom of the sea to self-driving cars to GoogleTV.

It’s not that all this innovation had no impact. A lot of if delighted users. We all spend disproportionately more time inside Google’s walled garden– a big change from the early days of Google that were all about sending you away. But Google has arguably succeeded more in destroying the revenue streams of other businesses by offering so many products for free than it has succeeded in coming up with another huge move-the-needle winner.

Could part of the problem be what’s always touted as one of Google’s core advantages: It’s ultra-cushy work environment? Can anyone really have the drive and hunger to innovate in that much comfort?

Whatever the reason, my guess is if Google didn’t figure out the next great business model of the Web in the last seven years, the company never will. They no longer have the lock on the best talent like they did just after going public. Hot younger companies like Zynga and Facebook have lead to an exodus of talent, as has the surplus of angel money to anyone who wants to start a company. It’s possible the next great Internet business model was thought of inside Google– only someone left to pursue it on their own.

And who could blame them? That’s the young-eating-the-old cycle of life that keeps the Valley strong but no single company on top for even a decade. That’s one law of gravity that even the mighty Google hasn’t been able to defy.

(Illustration by Brony2)