What Is Google's Strategy To Remain Relevant Part Deux
The world is already changing since the my post in mid June looking at Google and their potential irrelevance as the web matures from the crude beast of today. While people are already calling YouTube and other simplistic offerings examples of Web 2.0, I simply couldn't disagree more. We likely won't see truly innovative Web 2.0 solutions until the next innovation cycle starts post 2010. These current fits and starts are simply experimentation on the way to major breakthroughs of the future. For now, enjoy hacking away on your keyboard, viewing YouTube videos and doing crude searches on Google tethered to your cable modem.
What is changing is Google's reach. Times will likely never be better within the framework of Google's current business model. That is not to say their future won't be bright or that they will end up irrelevent. But, the global economy has likely peaked and, if so, so will ad spending. Especially ad spending for a consumer who will lead us into this slowdown versus 2001's mild slowdown where they kept spending, thus fueling Google's growth through this cycle.
In addition, the global communications, media and content providers are starting to flex their muscle as they develop clarity into future strategy. All surely want to either reduce their dependence on Google and other third parties, negotiate partnerships on more equitable terms and want to drive more value via their proprietary efforts. ie, It is not in the best interests of Disney or Verizon or Sprint or Apple or Time Warner or the New York Times or Sony or Bertelsmann to be in a disadvantageous position relative to Google or Yahoo. On a totally separate but similar note, it is not in the best interests of Verizon, as an example, to make Apple rich by adopting an iTunes phone hence the fact that no one has yet announced an Apple branded product for their network. Apple's best bet for a next generation wireless handheld/phone is via WiMax and mobile internet telephony adoption versus Sprint, Cingular, Verizon or ATT Wireless. Of course, all of the aforementioned providers have designs on controlling wireless internet access, music, content distribution as well as the ad revenue associated with it. My point is that the net is still in its infancy and to assume the future will be set by the leaders of this moment is not a sure bet.
So, in a world where we become untethered from our PC to a more pervasive awareness of the net, how again does Google generate revenue? If you are using a Verizon portable device or Sprint WiMax network to access the net, how does Google generate ad revenue? This is already a problem for Google in a significantly more advanced wireless society such as Japan. It is not uncommon for a Japanese youth to go without a PC yet they all are adept mobile internet users. If it is a natural progression that American youth adapt to the mobile wireless culture as Paul Kedrosky notes and I believe is inevitable, how will Google replace lost revenue from search? What is Google's current penetration in an untethered society such as with the ultra sophisticated Japanese youth? Without having those break downs, I doubt very well at all. Yes, there is a new announcement of streaming video and ad banners with MTV to other sites and yes their are other methods of attempting to transform their business model, but will new sources of revenue be adopted on a wide scale as Google paid search is today? Will Verizon control future ads and streaming video on its network as it does today via VCast?
In addition, what of this MySpace deal? $900 million payment to Fox with an estimated $225 million of Google revenue over the life of the deal. I have to be missing something. I'm too lazy to dig too deep but this deal would have been a loss generator for MSN or Yahoo to quote an analyst. So, will it really be profitable for Google? Or the AOL deal? $1 billion investment to protect their existing revenue stream from Yahoo or MSN? Or what about the ridiculous waste of dollars on its ever growing stream of unsuccessful products in an effort to create alternative sources of revenue? Money doesn't grow on trees. While it appears it does for Google, that is not a phenomenon which will last forever.
My point is that Google has a very cloudy future that no one seems to recognize. They seem to be spending alot of money for unproven revenue streams as well as protecting their existing sources of revenue. There are deep pocketed content providers, network providers, media companies and undiscovered competitors which make a company so reliant on one source of revenue vulnerable over the long term. As I said before, remember how long it took for Google to eat Yahoo's lunch. How long would it take for the next Google(s) to eat Google's lunch? Maybe never but Google has made alot of enemies and all gunning for the leader. Just a thought to ponder when contemplating Google as an investment in these uncertain times.
What is changing is Google's reach. Times will likely never be better within the framework of Google's current business model. That is not to say their future won't be bright or that they will end up irrelevent. But, the global economy has likely peaked and, if so, so will ad spending. Especially ad spending for a consumer who will lead us into this slowdown versus 2001's mild slowdown where they kept spending, thus fueling Google's growth through this cycle.
In addition, the global communications, media and content providers are starting to flex their muscle as they develop clarity into future strategy. All surely want to either reduce their dependence on Google and other third parties, negotiate partnerships on more equitable terms and want to drive more value via their proprietary efforts. ie, It is not in the best interests of Disney or Verizon or Sprint or Apple or Time Warner or the New York Times or Sony or Bertelsmann to be in a disadvantageous position relative to Google or Yahoo. On a totally separate but similar note, it is not in the best interests of Verizon, as an example, to make Apple rich by adopting an iTunes phone hence the fact that no one has yet announced an Apple branded product for their network. Apple's best bet for a next generation wireless handheld/phone is via WiMax and mobile internet telephony adoption versus Sprint, Cingular, Verizon or ATT Wireless. Of course, all of the aforementioned providers have designs on controlling wireless internet access, music, content distribution as well as the ad revenue associated with it. My point is that the net is still in its infancy and to assume the future will be set by the leaders of this moment is not a sure bet.
So, in a world where we become untethered from our PC to a more pervasive awareness of the net, how again does Google generate revenue? If you are using a Verizon portable device or Sprint WiMax network to access the net, how does Google generate ad revenue? This is already a problem for Google in a significantly more advanced wireless society such as Japan. It is not uncommon for a Japanese youth to go without a PC yet they all are adept mobile internet users. If it is a natural progression that American youth adapt to the mobile wireless culture as Paul Kedrosky notes and I believe is inevitable, how will Google replace lost revenue from search? What is Google's current penetration in an untethered society such as with the ultra sophisticated Japanese youth? Without having those break downs, I doubt very well at all. Yes, there is a new announcement of streaming video and ad banners with MTV to other sites and yes their are other methods of attempting to transform their business model, but will new sources of revenue be adopted on a wide scale as Google paid search is today? Will Verizon control future ads and streaming video on its network as it does today via VCast?
In addition, what of this MySpace deal? $900 million payment to Fox with an estimated $225 million of Google revenue over the life of the deal. I have to be missing something. I'm too lazy to dig too deep but this deal would have been a loss generator for MSN or Yahoo to quote an analyst. So, will it really be profitable for Google? Or the AOL deal? $1 billion investment to protect their existing revenue stream from Yahoo or MSN? Or what about the ridiculous waste of dollars on its ever growing stream of unsuccessful products in an effort to create alternative sources of revenue? Money doesn't grow on trees. While it appears it does for Google, that is not a phenomenon which will last forever.
My point is that Google has a very cloudy future that no one seems to recognize. They seem to be spending alot of money for unproven revenue streams as well as protecting their existing sources of revenue. There are deep pocketed content providers, network providers, media companies and undiscovered competitors which make a company so reliant on one source of revenue vulnerable over the long term. As I said before, remember how long it took for Google to eat Yahoo's lunch. How long would it take for the next Google(s) to eat Google's lunch? Maybe never but Google has made alot of enemies and all gunning for the leader. Just a thought to ponder when contemplating Google as an investment in these uncertain times.
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