Google becomes a platform company

  • Posted: 23 May 2010 10:34 AM

    I’ve had a few sunday lunchtime drinks, so maybe my judgement is off. But after writing the post below on the “thank you Google” thread, it occurred to me that what Google is doing is throwing away its business model, and announcing it is becoming an old fashioned platform company, like the early mainframe companies and DEC, Digital Research, Microsoft, Apple, Palm/HP, RIM. An incredible vote of no confidence in its current business model. And one that must draw regulatory action with its near-monopoly. Any views?

    Although we didn’t know it at the time, this story was probably indicative of Google’s plan to stop being platform neutral. Simplify was pulled from the app store.

    Simplify media will be part of Android’s exclusive feature list, apparently, even though there is no technical reason for that. So Google is almost definitely turning into a platform company.

    Does Google walk on water, or does it sink beneath the waves?

         
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    Posted: 23 May 2010 10:53 AM #1

    Google’s core markets are certainly a moving target these days.  Google Docs, Wave, Buzz, Admob, Android.

    I’ve never invested in GOOG because of the lack of transparency.

    [ Edited: 23 May 2010 10:55 AM by Tetrachloride ]      
  • Posted: 23 May 2010 12:08 PM #2

    They sure do not seem to have any respect for copyright or for the protection on intellectual property

    http://money.cnn.com/2010/05/21/technology/youtube_viacom_legal_battle/index.htm

    Whether or not that’s the case, YouTube employees’ e-mail conversations released by Viacom reveal the contempt some workers had for Viacom and other companies seeking to protect their copyrighted material.

    “I hope they die and rot in hell!” an employee at YouTube wrote in an internal e-mail Viacom released, calling the media companies demanding that their content be removed “copyright cop a**holes.”

    On Friday, Google and Viacom were not immediately available for additional comment.

         
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    Posted: 23 May 2010 12:44 PM #3

    More details about the story on Simplify Media.  Google bought Simplify Media.

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    Posted: 23 May 2010 02:02 PM #4

    Can anyone explain to me how this translates into revenue for Google?

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  • Posted: 23 May 2010 02:47 PM #5

    Google’s Apple collaboration was going to ensure an open mobile web. Anyone can play and ship an open (plus optional separate proprietary) platform device. Google’s ownership of data and search would guarantee the open part was where advertising related activities would occur.

    Both Google and Apple were astounded at the success of the proprietary app store, and next realised that Google’s search/ad monopoly wasn’t going to automatically extend there. The big prize wasn’t theirs.

    Instead of using the power of their software and services to keep user activities on the open web, they switched sides, and are working as fast as they can to extend and smother this new open platform with pseudo-open (but actually murky and controlled by Google and partners) extensions like Flash and VP8. They are going to control the internet the same way Microsoft tried to: with compelling services on a proprietary platform. And that way they hope to take control of mobile advertising. What they are saying about Android vs iPhone is just blatant lies.

    [ Edited: 23 May 2010 02:49 PM by sleepygeek ]      
  • Posted: 23 May 2010 02:49 PM #6

    relentlessFocus - 23 May 2010 05:02 PM

    Can anyone explain to me how this translates into revenue for Google?

    More eyeballs for more ads.

    Ads on your TV, served by Google.
    Ads on your websites, served by Google.
    Ads in your apps, served by Google.

    At the end of the day, the battle right now is over ad dollars. Google has commoditized the OS. Make it “good enough”, then give it away for free. Generate impressive charts wrt market share, hook the advertisers.

    A bit oversimplified but that’s the end game, imo.

         
  • Posted: 23 May 2010 03:15 PM #7

    pete - 23 May 2010 05:49 PM
    relentlessFocus - 23 May 2010 05:02 PM

    Can anyone explain to me how this translates into revenue for Google?

    More eyeballs for more ads.

    Ads on your TV, served by Google.
    Ads on your websites, served by Google.
    Ads in your apps, served by Google.

    At the end of the day, the battle right now is over ad dollars. Google has commoditized the OS. Make it “good enough”, then give it away for free. Generate impressive charts wrt market share, hook the advertisers.

    A bit oversimplified but that’s the end game, imo.

    I agree. I’ve been posting a similar views here recently. Google has a strategy that was not understood and therefore many thought they had no strategy. Because of the success of Android for smartphones, Google will likely succeed with tablets next and laptops and desktops later. Google wants to control all OS’s for all devices. This is their goal. They are using the old MSFT strategy of bundling. They will provide a free OS and browser to all 3rd party manufacturers and make money on the backend (advertising now and commerce later). This is essentially unstoppable and not actionable because the consumer benefits. I believe GOOG stock is a screaming long term buy (AAPL on the other hand is a screaming buy NOW). I actually believe GOOG’s long term potential is greater than AAPL’s and more sustainable as they have essentially no competition and the moat will be insurmountable after they supplement Microsoft in the OS and office application business.

    Disclosure: Long 5X more AAPL then GOOG

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    Posted: 23 May 2010 03:26 PM #8

    pete - 23 May 2010 05:49 PM
    relentlessFocus - 23 May 2010 05:02 PM

    Can anyone explain to me how this translates into revenue for Google?

    More eyeballs for more ads.

    Ads on your TV, served by Google.
    Ads on your websites, served by Google.
    Ads in your apps, served by Google.

    At the end of the day, the battle right now is over ad dollars. Google has commoditized the OS. Make it “good enough”, then give it away for free. Generate impressive charts wrt market share, hook the advertisers.

    A bit oversimplified but that’s the end game, imo.

    Thanks, I’m quite familiar with this set of answers above and have used the argument many times myself in the past. The argument of this thread is that Google is becoming a sort of semi-closed platform vendor and in fact its looking more and more like there will be a Google platform, an Apple platform, a Microsoft platform and potentially others like Blackberry and HP/Palm. If so, IMO this will reduce not increase the ultimate number of eyeballs available for google.

    In any case it’s clear that investors don’t find the above argument about eyeballs too compelling as Google’s share price is down over 20% for the year. Even on day 1 and day 2 of I/O with the announcements of Froyo, GoogleTV and the FTC approving the AdMob acquisition I’d have thought that investors would be somewhat encouraged but Google’s share price was down. And despite the pummelling that Apple took in the press these past few days not to mention the knock on from the Euro crises, its share price was up on Fri.

    Jim Goldman at CNBC refers to Google’s investment strategies as a throw things against the wall and see what sticks policy and he certainly isn’t ready to sign on yet though he’s just one other voice.

    It’s also clear that text ads like adWords are not going to work on TV and if iAd is well done, maybe not even on mobile phones. Eyeballs may not be the key to the high revenue advertising of the future. Additionally Facebook and Twitter are also getting wise to serving ads and they won’t need Google for that, preferring to grab the revenue themselves. On Twitter and on my iPhone I see a lot more ads from Fusion than I see from Google. The only place I see Google ads is when I’m searching on my desktop PC. I think its pretty well accepted that desktop ads are not a major growth area.

    So even though I would personally buy a GoogleTV and even though I think Android’s growth is impressive as an OS, I think that big revenue growth that Google investors have become used to remains questionable/murky when looking into the future.

    [ Edited: 23 May 2010 03:29 PM by relentlessFocus ]

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    Posted: 23 May 2010 03:56 PM #9

    jeffi - 23 May 2010 06:15 PM
    pete - 23 May 2010 05:49 PM
    relentlessFocus - 23 May 2010 05:02 PM

    Can anyone explain to me how this translates into revenue for Google?

    More eyeballs for more ads.

    Ads on your TV, served by Google.
    Ads on your websites, served by Google.
    Ads in your apps, served by Google.

    At the end of the day, the battle right now is over ad dollars. Google has commoditized the OS. Make it “good enough”, then give it away for free. Generate impressive charts wrt market share, hook the advertisers.

    A bit oversimplified but that’s the end game, imo.

    I agree. I’ve been posting a similar views here recently. Google has a strategy that was not understood and therefore many thought they had no strategy. Because of the success of Android for smartphones, Google will likely succeed with tablets next and laptops and desktops later. Google wants to control all OS’s for all devices. This is their goal. They are using the old MSFT strategy of bundling. They will provide a free OS and browser to all 3rd party manufacturers and make money on the backend (advertising now and commerce later). This is essentially unstoppable and not actionable because the consumer benefits. I believe GOOG stock is a screaming long term buy (AAPL on the other hand is a screaming buy NOW). I actually believe GOOG’s long term potential is greater than AAPL’s and more sustainable as they have essentially no competition and the moat will be insurmountable after they supplement Microsoft in the OS and office application business.

    Disclosure: Long 5X more AAPL then GOOG

    IMO when people say Google’s strategy is not understood they’re talking more about Google buying electrical generating plants and kitting out cities with Broadband, etc.than what they’re doing with Android and GoogleTV etc.

    I don’t understand what you mean by “Google wants to control all OS’s for all devices?” For example, how is Google trying to control Apple’s iPhone OS or Blackberry’s new touch platform or Windows 7 phone? And having attacked the financial basis of these other companies they’re hardly going to let Google play on a level playing field in their own areas of influence.

    Which I think was SleepyGeek’s point in starting this thread, that Google was giving up on this expand the web is good for Google to Google becoming “just” another semi-closed platform vendor joining the walled garden style platforms being developed by Apple and Microsoft.

    I’m also long AAPL 8x more than my significant Google holdings but I’m starting to wonder if Google has an actual revenue strategy. Eyeballs is not a revenue strategy, Yahoo proved that.  Would you really stop watching a tellie programme on your GoogleTV to click on an advert and be taken away from what you’re watching? Compare how much time people spend on Facebook compared to how much time they spend searching Google or looking at gmail or googleapps. Vast numbers of people “live’ on facebook. Serving ads on facebook through Facebook’s advertising arm is certainly competition for Google. Same with Twitter. Some people live on Twitter. I’ve never seen a Google advert on Twitter. Twitter know that they have a great platform to profit from advertising and they’re hardly giving that to Google. I’m not sure I accept your assertion that Google have no competition.

    Google has exactly one revenue stream, text advertising on search. It’s a monoculture and nature has a way of being very unkind to monocultures whether agricultural or financial. Since the AdMob deal went through they now have an entry into advertising but I’d wager that AdMob will mostly serve to Android phones. And Android may eventually control a chunk of mobile but as many of us point out elsewhere there are some significant long term fragmentation problems with Android and companies like LG, Sony, HTC, Motorola may well find it more advantageous to build their own walled garden than continue with a commodity OS like Android.

    So I go back to my statement above… what exactly is their new revenue strategy?

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  • Posted: 23 May 2010 09:07 PM #10

    relentlessFocus - 23 May 2010 06:56 PM
    jeffi - 23 May 2010 06:15 PM
    pete - 23 May 2010 05:49 PM
    relentlessFocus - 23 May 2010 05:02 PM

    Can anyone explain to me how this translates into revenue for Google?

    More eyeballs for more ads.

    Ads on your TV, served by Google.
    Ads on your websites, served by Google.
    Ads in your apps, served by Google.

    At the end of the day, the battle right now is over ad dollars. Google has commoditized the OS. Make it “good enough”, then give it away for free. Generate impressive charts wrt market share, hook the advertisers.

    A bit oversimplified but that’s the end game, imo.

    I agree. I’ve been posting a similar views here recently. Google has a strategy that was not understood and therefore many thought they had no strategy. Because of the success of Android for smartphones, Google will likely succeed with tablets next and laptops and desktops later. Google wants to control all OS’s for all devices. This is their goal. They are using the old MSFT strategy of bundling. They will provide a free OS and browser to all 3rd party manufacturers and make money on the backend (advertising now and commerce later). This is essentially unstoppable and not actionable because the consumer benefits. I believe GOOG stock is a screaming long term buy (AAPL on the other hand is a screaming buy NOW). I actually believe GOOG’s long term potential is greater than AAPL’s and more sustainable as they have essentially no competition and the moat will be insurmountable after they supplement Microsoft in the OS and office application business.

    Disclosure: Long 5X more AAPL then GOOG

    IMO when people say Google’s strategy is not understood they’re talking more about Google buying electrical generating plants and kitting out cities with Broadband, etc.than what they’re doing with Android and GoogleTV etc.

    I don’t understand what you mean by “Google wants to control all OS’s for all devices?” For example, how is Google trying to control Apple’s iPhone OS or Blackberry’s new touch platform or Windows 7 phone? And having attacked the financial basis of these other companies they’re hardly going to let Google play on a level playing field in their own areas of influence.

    Which I think was SleepyGeek’s point in starting this thread, that Google was giving up on this expand the web is good for Google to Google becoming “just” another semi-closed platform vendor joining the walled garden style platforms being developed by Apple and Microsoft.

    I’m also long AAPL 8x more than my significant Google holdings but I’m starting to wonder if Google has an actual revenue strategy. Eyeballs is not a revenue strategy, Yahoo proved that.  Would you really stop watching a tellie programme on your GoogleTV to click on an advert and be taken away from what you’re watching? Compare how much time people spend on Facebook compared to how much time they spend searching Google or looking at gmail or googleapps. Vast numbers of people “live’ on facebook. Serving ads on facebook through Facebook’s advertising arm is certainly competition for Google. Same with Twitter. Some people live on Twitter. I’ve never seen a Google advert on Twitter. Twitter know that they have a great platform to profit from advertising and they’re hardly giving that to Google. I’m not sure I accept your assertion that Google have no competition.

    Google has exactly one revenue stream, text advertising on search. It’s a monoculture and nature has a way of being very unkind to monocultures whether agricultural or financial. Since the AdMob deal went through they now have an entry into advertising but I’d wager that AdMob will mostly serve to Android phones. And Android may eventually control a chunk of mobile but as many of us point out elsewhere there are some significant long term fragmentation problems with Android and companies like LG, Sony, HTC, Motorola may well find it more advantageous to build their own walled garden than continue with a commodity OS like Android.

    So I go back to my statement above… what exactly is their new revenue strategy?

    Google is doing just fine. Google is down about 25% this year. Their earnings grew 35%+ YOY last quarter and have been growing steadily YOY with only a slowdown during the great recession. Most (maybe all) hyper growth companies whose stock has increased 10 fold or more have seen their stocks drop 30- 50% at some time during their ascent. Google and Apple are no different. The fact that Google’s stock is off is not indicative of anything more than when Apple was at $78 per share in 2008. Google’s trailing PE is under 20 with a forward PE under 15 (net of cash). This essentially values YouTube (currently showing 2 billion videos per day) at zero. If Google were to fail in all of their endeavors other than desktop search, they would still be a strong buy. There are two winds blowing in Google’s favor at this time. First, ad revenues are a trailing indicator and therefore grow later in a recovery. This one is no different. Every earnings report after Google from companies that generate revenue from advertising said the same thing… Advertising revenues are accelerating. Secondly and more importantly, advertising is still shifting to the web. This is the most important point. We are nowhere near the end of this dynamic. Therefore, I expect to see a steady and continued acceleration of growth and earnings exceeding 30% YOY for the foreseeable future. My next post will explain the huge upside potential that Google is creating. Gotta go. My wife wants me to watch a movie. Sorry…

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  • Posted: 23 May 2010 09:10 PM #11

    FYI: (columns off)

    5 Year Earnings History: GOOG
    Date/Time (ET)  Period   EPS Estimate   EPS Actual   Prev Year Actual  
    03/31/10   Q1 2010   $6.596   $6.76   $5.16  
    12/31/09   Q4 2009   $6.479   $6.79   $5.10  
    09/30/09   Q3 2009   $5.42   $5.89   $4.92  
    06/30/09   Q2 2009   $5.085   $5.36   $4.63  
    03/31/09   Q1 2009   $4.928   $5.16   $? 
    12/31/08   Q4 2008   $4.954   $5.10   $? 
    09/30/08   Q3 2008   $4.75   $4.92   $? 
    06/30/08   Q2 2008   $4.736   $4.63   $? 
    03/31/08   Q1 2008   $4.52   $4.84   $? 
    12/31/07   Q4 2007   $4.445   $4.43   $? 
    09/30/07   Q3 2007   $3.782   $3.91   $? 
    06/30/07   Q2 2007   $3.593   $3.56   $? 
    03/31/07   Q1 2007   $3.304   $3.68   $? 
    12/31/06   Q4 2006   $2.918   $3.18   $? 
    09/30/06   Q3 2006   $2.423   $2.62   $? 
    06/30/06   Q2 2006   $2.215   $2.49   $? 
    03/31/06   Q? ?  $1.974   $2.29   $? 
    12/31/05   Q? ?  $1.762   $1.54   $? 
    09/30/05   Q? ?  $1.359   $1.51   $? 
    06/30/05   Q? ?  $1.21179   $1.36   $?

    This does not look like a company that has lost it’s way to me. You?

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    Posted: 23 May 2010 09:58 PM #12

    jeffi - 24 May 2010 12:10 AM

    snip…This does not look like a company that has lost it’s way to me. You?

    Leaving aside your comment that they’re only down 25% or so on the year, you make a compelling statistical argument. It’s stood Google investors in good stead for a few years and I’m one of them.

    When I look at the non-statistical side of things I see several potential vulnerabilities including failure of their android and chrome strategies for reasons I’ve outlined elsewhere here and on my blog (commoditisation and fragmentation), new vectors entering the advertising field which renders Google weakened, new vectors entering the search game which leave them weakened,  government investigations into privacy and data compilation issues and making rules limiting Google’s data use options (and data compilation in vast troves is what drive the effectiveness of its advertising). And then there’s Facebook and Twitter and Chatroullette and god only knows what other new fadstituion coming up which may rob advertising from Google and destroy those growth curves in your compelling analysis Search may not be the compelling device for advertising eyeballs in the future so even if advertising spend continues to pick up there’s no guarantee that it will be on Google terrain. This corner of the IT world is changing so fast in ways which continue to surprise and amaze and hubris would be needed not to be wary of those iconically famous unknown unknowns. And because it only has this one revenue stream, IF it gets into problems, those problems will be amplified many times over as compared to firms with diversified revenue streams. just saying…

    [ Edited: 23 May 2010 10:10 PM by relentlessFocus ]

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    Posted: 23 May 2010 11:26 PM #13

    Continuing the OT to this thread:

    I didn’t follow Google’s financial performance that closely.  Looking from a TA perspective, please refer to this weekly chart and this Daily ichimoku chart of GOOG, I would avoid going long for the moment.  However, a long swing trade opportunity might present itself in a couple of weeks.

    Baidu is a roaring success in China and is spreading its wing in other parts of Asia-Pacific.  Is conceivable that Baidu would come to this part of the world competing with Google for the ads dollar i.e. desktop ads business may not be as lucrative as before.  I believe Baidu + maturing desktop ads business are holding GOOG share price down.


    Jeffi,

    Do you think Google is transiting from search/ads strategy to a platform (ads+eCommerce) strategy?
    A few years from now, how successful would Google in mobile ads scene?  Do eyeballs still count much in web ads?

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    Posted: 25 May 2010 05:24 AM #14

    relentlessFocus - 23 May 2010 05:02 PM

    Can anyone explain to me how this translates into revenue for Google?

    It doesn’t.  Google relies on search for more than 95% of its revenue.  No other current or foreseeable business they are engaged in is expected to generate any revenues.

    Least of all Android, which is probably their largest non-search expense item.

    Thoughts on the subject of Google vs. Android:
    http://blog.asymco.com/2010/03/03/android-vs-google-part-ii/
    http://blog.asymco.com/2010/02/10/android-vs-google/

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