Google’s Strategy: My Simplistic View

  • Posted: 25 May 2010 11:01 PM #16

    Tetrachloride - 25 May 2010 03:42 PM

    Google and Facebook have been too flippant with user’s privacy.  Sooner or later, I’ll say goodbye to those two.  Facebook is the easiest to replace.  If Bing were to somehow become useful or Apple were to enter the search arena, Google stock goes under the way Internet share for Internet Explorer went under.

    Google and Facebook provide the user with a service for free. In return, these business try to monetize their customers. If you don’t like that, then don’t use them. My intention was to create a discussion on the strength of Google’s business model and the present and future value of the stock.

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  • Posted: 25 May 2010 11:06 PM #17

    jeffi - 26 May 2010 12:52 AM
    Mercel - 25 May 2010 11:06 AM

    Frankly, I think search can be commoditized.  When was the last time you heard anybody remark about the quality of search?  Have you ever googled something and said “Wow, what a great search result!”  And if you ever did, was it in comparison with Bing?  People don’t generally make A-B comparisons between search engines, so where’s the “stick?”  Google has a toolbar and personal habit going for them, but I don’t think qualitative considerations w/regard to search really explain Google’s popularity.

    If Google’s search is a commodity, why do they have such a commanding position? In Europe, Google’s lead is much larger than in the US. Microsoft’s Explorer browser stills commands the most market share. Why is Microsoft’s search virtually invisible? How do you explain Google’s popularity?

    Marketing, toolbar, gmail loyalty and personal habit.  I don’t think it is because of its algorithms.  Google vs. Bing?  I prefer Bing myself.  And Bing is four letters instead of six.  But I have a bookmark, and I still prefer Bing.  grin

    I’ve never owned one share of GOOG and don’t plan to with its “everything free” business model.

    [ Edited: 25 May 2010 11:54 PM by ByeTMO ]      
  • Posted: 25 May 2010 11:45 PM #18

    DawnTreader - 25 May 2010 04:01 PM
    jeffi - 25 May 2010 05:26 AM

    Competition:
      Microsoft:
          -Losing over 1 billion per quarter in an attempt compete in search. MSFT does not have the scale to generate the quality search results that Google?s size enables. A critical disadvantage.
          -MSFT?s major revenue streams are threatened by Google?s free strategy (Smartphone, Desktop and Tablet OS and Office Suite). They will collapse as a competitor once Google?s free strategy starts eating into their revenues.
      Apple:
          -Apple can continue to generate massive profits and growth by producing the best combination of hardware and software at a premium price as well as leading in innovation. Apple has/ had successfully beaten MSFT, and all other companies in the smartphone space because of the application store. (Ironically, in the same way that Microsoft had previously beat Apple on the desktop). Unfortunately, Apple?s proprietary OS strategy cannot win market share against Android?s free OS without a clear advantage in applications. Unfortunately, Apple?s first mover advantage was not fast enough.

    I believe Microsoft is here to stay. Of the companies mentioned, Microsoft has the highest level of profitability, followed by Apple and Google pulling up the rear. Microsoft is here to stay and will be competing with Google on all fronts. There’s no way forward for Google that doesn’t require a huge investment and whether or not MSFT chooses to lose money on search in the short-term is irrelevant.

    Google has to deliver far more than a free Chrome OS. It needs to deliver margin to hardware OEMs and needs to deliver dollars back to developers to support its platform.

    I see Apple as the company that has commoditized software, not Google. Google needs to deliver sustainable revenue streams and profitability opportunities for partners.

    Of the three companies mentioned, Google is untested in the operating system market. Again, this is not an issue of market share. If market share were a determiner of success Dell, HP Acer and Toshiba would be far more profitable than Apple.  It’s not an issue of market share. It’s an issue of revenue share and Google will not only need to improve hardware margins as justification for adopting its OS, it needs to deliver revenue back to developers creating apps for its mobile handset OS.

    So far I’m not convinced Android will deliver more than headlines while Google figures out how to deliver Chrome.

    I do think GOOG is dramatically oversold. But I don’t think the company’s success in the handheld device market is guaranteed.

    I also think Microsoft is here to stay. I see their growth trailing off and then leveling before a gradual decline. I’m not suggesting that they are going to lose money anytime soon. I do believe that within the next year their stock will act more like a utility stock.

    Google has and will continue to deliver sustainable revenues and profit opportunities for their hardware licensees. This is already occurring in smart phones with Android and will likely follow in tablets, desktop and notebook computing and possibly in the living room (TV).

    Apple did Google the favor with Admob, not the other way around. I do not see what Google has done for Apple. Apple does not presently have antitrust risk as their market share is too low. We could argue about Adobe, but I’m not an attorney and I believe most on these boards see it the same way.

    Apple has not commoditized software. Apple does not give away their software. Apple does not even license it. Google provides a free software license to their hardware partners enabling them to reduce the selling price of their products which drives more sales and ultimately profits (to the best vendors). The current PC hardware vendors make billions on small margins paying a license fee to MSFT. They will make more profits via higher margins or more sales (or a combination) if they can lower their costs by eliminating the software licensing fee.

    DawnTreader states “this is not an issue of market share”. I see it differently. For Google, it’s all about market share. Commodity hardware manufacturers already compete on small margins. This will not change. Google wants the largest number of computing devices utilizing their OS so that they can control access to the customer as it relates to advertising sales. Google’s aspires to have MSFT’s OS dominance. Apple’s closed platform is designed to have healthy margins. They cannot have both healthy margins and market share. Therefore, Google’s free strategy wins by default. The only way to compete with free is to be better AND free. No company is in a position to do this. No company is even trying. Google has the lead and they are extending it. Google has the operating leverage to win this battle. The writing is on the wall. It’s theirs to lose.

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  • Posted: 25 May 2010 11:53 PM #19

    deasys - 25 May 2010 06:19 PM
    jeffi - 25 May 2010 11:46 AM

    Google came after Yahoo and won for this reason. Google’s results are better.

    Comparing those two, I see the same simple input pages, very similar results pages (and search results), and similar speed.

    It seems to me that search has already been commoditized…

    Apple and Google seem perfect. Google has more potential and leverage and a bigger moat with less competition

    Whoa—I disagree on every one of those points. I don’t think that the respective corporate histories for the last 5 years as well as the companies’ current statuses support your contentions. Google is very vulnerable in cloud computing, search, and advertising.

    Please explain how Google is “vulnerable in cloud computing, search, and advertising”. Cloud computing is in it’s infancy. Google has more free initiatives for the consumer in the cloud than any other company. They have the best brand in search, and one of the best consumer brands in the world, period. Except for China, Google has crushed the competition in search. Google makes more on advertising than any other company in the world. They are extending their advantages (except for China). Time is on their side as they build out the largest OS empire ever.

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  • Posted: 25 May 2010 11:57 PM #20

    pete - 25 May 2010 09:07 PM
    jeffi - 25 May 2010 05:26 AM

    Google Strategy: My Simplistic View

    1. Best in Search (Algorithms and Scale)
    2. Extend Market Position (old MSFT Strategy)
    3. Commoditize Software to Monetize Search (Free Software)
      -Platforms
          -Smartphones: Android (a demonstrative success)
          -Tablets (likely success due to similarity with Android OS)
          -Desktops/ Laptops: Chrome OS (to be released shortly)
          -TV (late fall introduction, 1st mover advantage?)
          -Application Platform built into all OS
            -games, books, magazines, applications, etc.
            -advertising within all applications
      -Internet Platform
          -YouTube (Video Broadcasting: 2 billion streams per day)
      -Tools (leader in cloud computing)
          -Chrome: Internet Browser (quickly gaining share)
          -Docs (future MS Office killer)
          -Email: Gmail
          -Calendar
          -Photos: Picassa
          -Navigation (already cannibalizing an entire industry)
          -Commerce: Google Checkout (no traction yet)
          -Numerous other Initiatives (Maps, Personal Medical Records, News, etc.)

    I agree on most points. Let me preface my overly simplistic view with the following 2 points:

    Google’s customers are advertisers.
    Google’s users are what Google sells to advertisers.

    The strategy:

    Google’s growth will come from having better insight into its users along with harvesting more users, then selling them to whomever will pay.

    1. Best in Search (Algorithms and Scale)
    2. Extend Market Position (old MSFT Strategy)
    3. Commoditize Software to Monetize Search (Free Software)
      -Platforms
      -Internet Platform
      -Tools (leader in cloud computing)

    #3 I would write as “Commoditize software as data acquisition tools” and describe the strategy as “hand out useful, but free, widgets to people to monitor their behaviour”.

    Advertisers trip over themselves to pay for relevance. Search advertising, where Google is king, works because the ads served result from the user giving them intent - search terms.

    Where Google hasn’t really excelled is display advertising, where Yahoo reigns I believe. AdMob and DoubleClick are Google’s platforms for serving. The algos to determine “what to serve” gets fed data from the commoditized software offerings.

    Let’s say I use the list of tools Jeffi posted:
    -Chrome browser
    -Docs
    -Gmail
    -Calendar

    This gives me data on what I surf, what I document, who I collaborate with, where and when I’m meeting with whom for what.

    -Photos: Picassa
    -Navigation (already cannibalizing an entire industry)

    This gives me data on where I’ve been, who I went with, where I’m going, recency and frequency.

    -Commerce: Google Checkout (no traction yet)

    The killer - purchase history.

    -Numerous other Initiatives (Maps, Personal Medical Records, News, etc.) Google Apps for office, Gmail, Android on my phone

    Ohhhhh Android. Android can provide me with that lucrative missing dimension to eMarketing - location data. Soon we can add GoogleTV viewing preferences to my profile.

    Armed with this much profiling data, the braintrust at Google can apply their efforts toward increasing relevance for display advertising, which benefits everybody in the food chain - developer/content provider/advertiser/consumer/Google.

    I can’t think of a single competitor that can compete on this scale with Google. It’s this sort of insight into the consumer that advertisers crave and pay top dollar for.

    I’m not saying this is exactly how it’s going to play out.. but I can envision this is where all the moving parts of Google fit in.

    Tell me I’m crazy.

    disclosure: my GOOG position amounts to a rounding error of my AAPL position

    Pete, Thanks for adding needed depth to my thread. You are crazy… like a fox!

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  • Posted: 26 May 2010 12:04 AM #21

    Mercel - 26 May 2010 02:06 AM
    jeffi - 26 May 2010 12:52 AM
    Mercel - 25 May 2010 11:06 AM

    Frankly, I think search can be commoditized.  When was the last time you heard anybody remark about the quality of search?  Have you ever googled something and said “Wow, what a great search result!”  And if you ever did, was it in comparison with Bing?  People don’t generally make A-B comparisons between search engines, so where’s the “stick?”  Google has a toolbar and personal habit going for them, but I don’t think qualitative considerations w/regard to search really explain Google’s popularity.

    If Google’s search is a commodity, why do they have such a commanding position? In Europe, Google’s lead is much larger than in the US. Microsoft’s Explorer browser stills commands the most market share. Why is Microsoft’s search virtually invisible? How do you explain Google’s popularity?

    Marketing, toolbar, gmail loyalty and personal habit.  I don’t think it is because of its algorithms.  Google vs. Bing?  I prefer Bing myself.  And Bing is four letters instead of six.  But I have a bookmark, and I still prefer Bing.  grin

    I’ve never owned one share of GOOG and don’t plan to with its “everything free” business model.

    Network TV broadcasting is free. I wish I got in on the ground floor of that. This is my second chance and it’s a much bigger opportunity. Some business models extend better with this structure.

    Of course the “everything free” is really inaccurate. They are monetizing the backend. The customer is paying by enabling targeted advertising. In most cases the customer is thrilled as the customer was in the market for the good or service to begin with.

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  • Posted: 26 May 2010 12:22 AM #22

    jeffi - 26 May 2010 03:04 AM

    I was being somewhat facetious with “everything is free.”  Advertising imposes an intangible cost to viewers. Aside from search, Google has promised far more than it can deliver timely IMHO.  Another reason I don’t like Google?  It has Eric Schmidt at the top, a person whose ethics are highly questionable, to be polite.

    And your rebuttals haven’t changed my thinking that search is a commodity and will be going forward.

         
  • Posted: 26 May 2010 01:18 AM #23

    Mercel - 26 May 2010 03:22 AM
    jeffi - 26 May 2010 03:04 AM

    I was being somewhat facetious with “everything is free.”  Advertising imposes an intangible cost to viewers. Aside from search, Google has promised far more than it can deliver timely IMHO. 

    And your rebuttals haven’t changed my thinking that search is a commodity and will be going forward.

    I think Google has over promised and will under deliver.

         
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    Posted: 26 May 2010 01:53 AM #24

    Now that we understood Google’s strategy, we can agree to disagree.  How about cloud computing?  Is this the computing of the future?  We know that current mobile network is not sufficiently reliable for wide adoption.  How about for desktop (and laptop) computing?  Do enterprises use Google products on their intranet?  According to Jeffi, Google has design on eCommerce, don’t AMZN and eBay be worried too?

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  • Posted: 26 May 2010 08:51 AM #25

    Mace - 26 May 2010 04:53 AM

    Now that we understood Google’s strategy, we can agree to disagree.  How about cloud computing?  Is this the computing of the future?  We know that current mobile network is not sufficiently reliable for wide adoption.  How about for desktop (and laptop) computing?  Do enterprises use Google products on their intranet?  According to Jeffi, Google has design on eCommerce, don’t AMZN and eBay be worried too?

    OK, we can agree to disagree. Google is building for the future. They are looking ahead. Some people view this as unfocused. I think those people just don’t understand their strategy. Google’s focus is on the consumer. I agree that the enterprise will be the last to come on board, especially on the desktop OS. Interestingly, Google Doc’s have some traction in the enterprise for small business. Of course Google is no threat to AMZN. Google may in the future be a threat to Ebay, or they may just buy them. Can we agree on Apple? It is my largest holding smile

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  • Posted: 26 May 2010 09:10 AM #26

    Because Google has scale unlike any other search company… Because they have more information about the search user…  Because Google’s data is more desirable to the advertiser… Google has more advertising customers. This is a virtuous cycle. If your website is getting a share of the advertising revenue it is in your best financial interest to use Google’s technology. It’s not just habit or coincidence that Google’s search is so dominant. Microsoft bribes people with their cashback program to use Bing. I believe they will rebate up to $1,200 per year, per user. I have used it to get money from Microsoft when I purchase Apple products on Ebay. I just love that. Anyway, there are many powerful dynamics at work that enable Google’s business model to thrive.

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    Posted: 26 May 2010 11:20 AM #27

    jeffi - 26 May 2010 12:10 PM

    Because Google has scale unlike any other search company… Because they have more information about the search user…  Because Google’s data is more desirable to the advertiser… Google has more advertising customers. This is a virtuous cycle. If your website is getting a share of the advertising revenue it is in your best financial interest to use Google’s technology. It’s not just habit or coincidence that Google’s search is so dominant ...

    This can be said of Yahoo! portal pre Google days.  Consumers switch because the portal style is too hard on the brain, typing some words on a blank box is much easier.  Then, Yahoo! search is pathetic and slow when compared with Google’s.  Just checked, seem ok now.

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  • Posted: 26 May 2010 12:02 PM #28

    Google’s biggest problem is paying customers.

    I buy from Apple. I buy from Microsoft. Heck, I even buy from Adobe.

    I buy NOTHING from Google. They sell me nothing. As a consumer, Google is a convenience, and not much more. I use multiple search engines to find different results.

    Oh, and I ignore ads, so they’re really not making money off of me when I do use Google.

    I think consumers are starting to realize that while Google is there to stay and serves a purpose, it’s not the end all-be all savior of the web.

         
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    Posted: 26 May 2010 12:24 PM #29

    Two points
    The Cloud is IMO far oversold. The corporate world is not going to go for a cloud that they don’t control. Sure you’re going to get individuals storing their pictures on Flickr for free but there’s no profit in that. Right now I’m involved in a little project where I work. The CEO found out that people were using GoogleDocs and Google calendar for work projects. We have been tasked with replacing all of those with internal solutions due to data security concerns. Nuff said.

    Roughly Drafted had a good article on this subject. They don’t think much of Google’s strategy.

    http://www.roughlydrafted.com/2010/05/25/google-io-2010-takes-on-apple-with-playsforsure-strategies/

    Most telling was near the end where he says

    But wait, you might be asking yourself, aren?t we talking about Google here, the company that never fails and simply churns our success story after success story? Well no, the Google that actually exists only has one exceptional success story: paid search.

    To put Google?s I/O announcements into perspective, consider what the company unveiled last year: Wave, a wildly hyped communication tool that ultimately didn?t revolutionize anything. And consider that Google has been unable to deliver its own competition to websites (the very thing Google is supposed to be really good at doing) such as YouTube (Google Video flopped, prompting the company to buy its competitor for $1.65 billion), Twitter (Google?s Buzz imploded at launch, thanks to an excessively aggressive push out the gate, while its acquired Jaiku didn?t go anywhere), Facebook (remember Orkut? Maybe if you live in Brazil), and Wikipedia (Google?s own Knol didn?t ever gain any traction).

    If Google can?t manage to effectively or consistently compete against websites with adware business models, how can it be expected to take on Apple, a highly competent hardware and software maker with a proven track record in software platform management, practical product development, marketing, online and brick and mortar retail, and customer support? One only has to look at the disappointing sales, poor service and inept marketing of Google?s Nexus One for clues.

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    Posted: 26 May 2010 12:32 PM #30

    geoduck,

    What happen when those currently twenty something took over top management?  Future may not be similar to present.  Present is only a guide not a forecast of the future.

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