Charles Sizemore, in a recent editorial for The Sizemore Investment Letter, shared his opinion that by 2020, Google will no longer exist. While this is a bold claim (and seems almost blasphemous to the many users of Google’s services) he does support his opinion with some convincing rhetoric. But fear not! In this “counterpoint” to Mr. Sizemore’s thesis, I will walk through his arguments and explain why they don’t mean that Google has an expiration date.
Sizemore’s first point is that the majority (96% in 2011) of Google’s profits come from advertising. In case you were wondering, that amounts to a tidy $10.5 billion. In that same year, they pulled in $122 million in licensing and other revenues. Now, if you look at that data by itself, you would probably start getting worried, because advertising revenue on the internet can be so variable (much as it is for the struggling newspaper space). Internet service providers have used the “click” metric to justify the fees advertisers are charged. However, thousands of creative internet users have developed techniques that completely block all ads – therefore diminishing potential revenue for internet providers (including Google).
Such tech developments will continue to challenge the business model of internet “space” providers. However, Google management is well aware of its exposure to the variability of internet advertising revenue. Consequently, management continues to demonstrate a firm commitment to the diversification of their revenue stream.
Among other ventures, Google has started its own TV/Internet provider service, which looks to expand eventually to reach the entire continental US, and infuriate the current “big boys” dominating the cable market (AT&T, Comcast, etc). In the booming tablet space, Google partnered with Asus to offer their own tablets. This effort kicked was kicked off with the popular Nexus 7, and has expanded with the introduction of its “iPad competitor”: the Nexus 10.
Such initiatives are not those of a company that has become complacent, nor do they reflect a company willing to remain overly dependent on revenue streams as variable as advertising. If you do a quick internet search of “Google”, you’ll find an imposing list of products and services developed and marketed by Google (some of which may be “new” to you). Exemplifying the appeal and reach of Google is the fact that my mother (a middle school educator) spent most of a Saturday at big conference sponsored by the Illinois Computer Educators – with the sole focus being on Google products such as Chrome, Forms, Scripts, and Drive. Each workshop offered multiple tips how to utilize these products in the classroom (such as “’Driving’ with Students”. Obviously, the ultimate impact of these moves has yet to be determined, but early indicators point to continued and growing success.
One of Mr. Sizemore’s points was although Android is currently dominating the smart-phone market (with a share approximately 75%), the games application market for Android phones has not yet nearly matched the scale of game choices offered through the iPhone App Store. He suggests that makes Android vulnerable. However, Sizemore neglects to acknowledge that the deep market penetration of the Android iOS offers Google considerable leverage within the marketplace, as well as in negotiations with partners. One case in point is the Samsung Galaxy phone, which has captured the current “buzz” in the market and is increasingly coveted by teenagers and young adults. Given Samsung’s growing market success within the Android space, its bulging base of younger users will serve Google well when its partners/licensees come to the table to discuss terms for renewal. Therefore, I would suggest that Sizemore has over-weighted the urgency for Google to rapidly expand the “play” space. I am quite confident that expansion will come in due time – without unduly endangering Google’s future.
Sizemore’s final point is that Apple and Microsoft seem, at almost every turn, to offer some form of competition for Google: a growing Bing user base; Microsoft’s partnership with Facebook on its new (very targeted and limited) “search” product; Microsoft’s major update of its Windows smartphone (a phone much more easily incorporated into secure “enterprise” networks); and persistent rumors regarding a major Apple initiative referred to as “Apple TV”, not to mention its recent PR disaster related to “Google Maps”. Sizemore suggests that Apple and Microsoft could find a way to effectively “block” (or at least “curtail”) what they perceive is Google’s quest to “takeover” the technology world (well, OK, just the internet space). I suggest that Sizemore has over-weighted that concern, as well. Depending upon one’s trust in U.S. and European regulators, one should always assume the axiom that anti-trust laws exist to foster competition and curtail monopoly – even if Apple and Microsoft don’t manage to “hem Google in”. The truth is that the global marketplace is more than big enough for Google, Apple, and Microsoft to co-exist quite profitably. In fact, the competition in which they engage will inevitably push each of them to be more efficient, more creative, and more productive! There is absolutely no need to postulate that Microsoft’s or Apple’s successful product expansion could result in Google’s “death”! Such a contention would be as absurd as assuming that today’s “troubles” for the iPhone makes that iconic phone “yesterday’s news” -- even if Android’s customer base continues its growth!
Wrapping up, the truth is that Google has gotten too big to disappear quickly. Right now, if Google were to somehow collapse or shut down, it would leave such an enormous gap of services in the internet and technology space that no one company would be equipped to fill it. If you will permit me to exaggerate just a bit for effect -- Google might have become “too big to fail”. Finally, we shouldn’t neglect Google’s motto -- “Don’t be evil”. With a motto like that, can we really wish them anything but greater success? :-)
[Note: This piece was written by my 22 year old son, Will Petty, whose passion and expertise is very technology-centered.)
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