Normal readers of this blog, bear with me while I take a little detour this morning…
Much has been made about Samsung’s threat to Apple. With the recent announcement of the Galaxy S4, tech pundits continue to pronounce Apple’s demise. Stick a fork in them. However, Samsung is not who Apple should be worried about; it’s Google. And Samsung should be worried about Google as well.
My background
I have made lots of dumb stock moves, but I’ve made some really good ones too. I’m a software developer and my focus with investing has been on tech stocks. Old folks remember when Kennedy was shot. I remember the day someone showed me Google. I was working as a computer programmer around the year 2000 and had a question about the code I was working on. I was talking to the long haired, Boulder-based IBM consultant about my issue and he said, “Well let’s just check Google.” My response was something like, “Goo what?” He fired up Google on IE (pre-Firefox and Chrome days), typed in my issue and hit return. POOF! Like magic, there was my answer and I was a believer. When Google IPO’d, I participated, buying 100 shares at $85 each. I hold them to this day.
Fast forward to January 2007. There were rumblings that Apple was about to release a smartphone. On 1/9, Mr. Jobs made it official, the iPhone was real. Up until then, I had always hated smartphones, but I had a feeling that Apple had finally nailed it. I bought Apple stock at around $90/share. Apple did get it right and despite the recent declines, I sit on hefty gains.
Owning Google and Apple stock has made me follow these companies very closely. I’m always trying to think ahead so that I can make a good decision to bail before the demise of either one. Please note that I’m not a financial adviser and have no ties to either company; this is my speculation only.
Google’s Plans
Google continues to surprise. They are changing the world. From the digitization of the world’s knowledge to self-driving cars, they are doing amazing things. However, all of this is funded by ads.
At the core, Google is an advertising company and none of their moonshot Google X projects would be possible without making money, lot and lots of money. Google’s money machine functions by connecting people to information (search, maps) and selling ads next to that information. The more people that are connected to the Internet, the better Google does.
To help with this mission, I believe Google will greatly expand their phone and ISP businesses in the near future.
Google X Phone: Apple (and Samsung) killer
In this article that showed up last week, Google is rumored to release its own line of phones that they would sell at cost or maybe even at a loss. The cheapest phone would be $199. Amazingly, the $199 phone is contract free.
Google set the precedent for a cheap phone with the Nexus 4. The Nexus 4 costs only $299. Again, this phone is sold at cost or even at a loss. Google makes the money on the back end when the phone is used to connect to Google’s services.
The hardware plan was set in motion with the purchase of Motorola Mobility. Everyone thought Google bought Motorola for the patents and maybe Google didn’t have plans to produce phones at that time. However, they sure do now.
Good luck trying to compete with $199 phones Apple and Samsung.
Google Network
Earlier this year, it was revealed that Google had applied for an FCC license to install a WiFi network on it’s campus. Prior to that, there had been plenty of rumors of Google working on nationwide networks. Google already provides free WiFi in Mountain View and parts of New York City. I do a bike ride across Iowa every year and I recently learned that Google will be providing free Wifi on it. Google would like nothing better than for everyone to have cheap (or better yet) free, widespread connectivity to the Internet.
Of course, Google will have to battle some very powerful forces to bring this plan to fruition. AT&T and Verizon aren’t going down without a big fight.
The Bottom Line
Heavily subsidized phones and free Wifi are expensive endeavors, but from Google’s point of view, the strategy makes perfect sense. Both of these efforts have the direct result of more people on the Internet:
- More people are using Google to search
- More people are using Google Maps to figure out where they are going
- More people are reading their Gmail
Next to all of this information are ads and Google throws more money into their immense coffers.
Great article!
I’m a Samsung user…but I haven’t bought a brand new phone since switching to prepaid (Verizon is such a rip off) but the thought of a $199 or even $299 brand new phone….and Google! Sign me up. However, I’m not a fan of Motorola….so, we’ll have to see how the reviews come in. But, I do spend about that on a used Samsung phone (currently using a Galaxy 2).
I had read about Googles wifi. I would sign up for a plan…even if I had to pay for it.
Thanks!
Agreed about Motorola phones. I hope Google steps up the hardware quality. That is where Apple really shines. My 4 year old iPhone still works perfect. So does my 5 year old Macbook and 10 year old iPod. They charge a premium, but the stuff is built to last.
I love Google and I always have. When Chrome came out, I dropped Firefox almost instantly. When Droids became popular, I left my iPhone in the dust. But, I feel like Google half-asses so many of their projects and choose to focus on things that don’t really matter.
The biggest example is Google+. Everyone knows that it sucks. My site personally looks better in Firefox AND Internet Explorer than Chrome (that alone forced me to move back to Firefox).
And recently I switched to Windows Phone 8 and I love it. It’s everything that iPhone and Droids weren’t. Google does have some awesome projects in the works, but I feel like they need to focus on the things that matter… like Reader and Feedburner 🙁
Wow, I share almost all of your views! Google DOES half ass lots of stuff. Its like they haven’t thought the product itself through or they haven’t thought about how normal people will use it (people who work at Google are different breed). Buzz, Wave and the first couple iterations of Android are all additional examples.
I can’t believe they are canning Reader either.
You have me wanting to try out Windows Phone. Perhaps Microsoft will turn their boat around, but they’re going to be facing some rough waters in the immediate future.
They’re canning Reader, because it isn’t profitable. I think most people would be fine with a few ads, if that’s what they needed to keep it afloat. It’s a really good product, and so easy to use.
WP8 is really cool. They’re still lacking on apps though. The big ones that I would use everyday aren’t available (Mint, USAA, Pandora). It’s getting better though 🙂
This article about why an engineer left Google is a year old, but I still think it’s relevant today:
http://blogs.msdn.com/b/jw_on_tech/archive/2012/03/13/why-i-left-google.aspx
The gist of it is they are more concerned about facebook and making money than every before and the innovatiive culture isn’t what it was. This is a result of Larry Page becoming CEO.
Great post! I would also add that Apple lost their innovator, though that’s a different issue. I agree that Google is the main 800 pound gorilla that others need to be thinking about as they seem to be putting their finger in every pie there is. Like others have commented though, they do half ass things and they need to solve that. That could hurt things long term especially if they continue to do so over time. On a side note, 100 shares of GOOG at IPO…Nice!
Yeah, who knows whether Apple can thrive long-term without Jobs. Product roadmaps are years out, so I don’t think its fair to judge quite yet.
Google is fascinating to watch. Like you said, they are delving into all kinds of new stuff. To think that they started out as a search engine.
Thanks for this. Great insight. Looking forward to more!
Thanks Tony!
Young people are fickle and want what is trendy. They often don’t make their purchasing decisions based on quality and price but on what they want to be seen carrying or wearing.
Once the trendy shine is off the Apple they will be forced to compete with price and features like all the other companies.
Yes, you’re absolutely right. I feel the “cool factor” moving in favor of Google lately. Apple is going to have to step up it’s game somehow.
Very thought provoking post. I was not aware of the Google strategies but they seem to know what they are doing.
Also, kudos to you for taking the risk on investing in these companies based on your special understanding and insight. Very brave and now you can say profitable!
Hi Steven-
One other thing that I have since read about is Samsung makes more money from just phones than Google makes as a company. That is amazing and I’ll bet that fact isn’t lost on Google.
Thanks for the encouraging words!