Many search commentators have connected the rapid drop in Google’s share-values with their recent tussle with the US Department of Justice over its refusal to share search-records with the Government. As far as I can tell, the only thing connecting the two is the coincidence of timing.

As anyone with even a remote interest in search knows, the legal drama unfolding between Google and the DOJ fell out from the closet and into the public realm early last week, nearly a year after the DOJ initial request was complied with by Google’s rivals, Yahoo, MSN and AOL. Of the four major search engines in the United States, Google was the only one to resist the US Governments demand for information on searches conducted by its users.

Within days of the story breaking, Google share prices began to fall, showing a sustained decline for the first time since the search firm went public in August 2004. The sudden drop sent search journalists scurrying to their keyboards to make the unsubstantiated connection between the court case and the value of Google stocks.

What these commentators are neglecting to mention is that investors are becoming wary of the search sector, seeing the bulk of revenues coming from the single source of paid search advertising. Although Google AdWords and Yahoo Search Marketing continue to shower shareholders with positive results, Yahoo’s most recent financial numbers, filed last week, just before the Google share drop started, came in one-cent below investor expectations.

The dust-up between Google and the US Department of Justice is very important and something all search engine users should pay very close attention to; however, it is not likely the root cause of the drop in investor confidence in the search sector. Perceived instability in the long-term business model is far more likely the reason investment management firms and the investors who rely on their advice appear bearish about Google this week.