GOOGL - Google

[Liberty]

For the sake of argument, lets assume I am cherrypicking. Instead, lets examine Linux, an OS widely used by Google for all its server infrastructure since day one and also as the core of Android. Would you expect that Google has made significant contributions to the OS that it has developed so much on?

 

Take a look: https://lwn.net/Articles/451243/

 

Google has been building custom server infrastructure for years, yet a relative newcomer like Facebook open sources its architecture while Google still is closed:

http://opencompute.org/

 

Since you don't believe the $1B Android number, maybe you can tell me what it really is? You seem to disagree with what Google had announced during a conference call:

 

http://thenextweb.com/mobile/2010/10/15/android-pulling-in-1-billion-revenue-this-year/

 

 

Maybe we should send Google an email asking them to correct their Android revenue estimates  ;)

 

1) I know that Google hasn't contributed as much to Linux's kernel as others (though they haven't tried to kill it like MSFT, and they contribute a lot of userland tools and libraries), but it's probably because the type of infrastructure-level modifications that they do are part of their secret sauce (how to scale massively at the lowest cost possible and with the highest performance). Facebook could lose it's performance edge and still be fine thanks to its network-effect moat, but Google's moat is in good part created by throwing more ressources at problems than anyone else (when you do things the hard way, you make it harder for competitors and you can do stuff for your users that others without the same infrastructure can't match) and being the low-cost "producer" of those computational resources.

 

2) I don't know what the real number is, but I know that hiding your capacities is second nature to Larry Page and has been from the very beginning (he wouldn't even tell VCs how many searches they were doing a day at first). They've waited the maximum number of time for the IPO (until they were forced to by SEC rules about number of shareholders) to avoid revealing anything about their revenues and profits and such, and I believe they're doing the same thing with Android now because it puts them in a better position to make gains in that sector. I could be wrong about that, but based on the information I have, I'd say it's likely.

[Liberty]

 

Maybe they're using the Android press release generator:

http://android-press-release.com/

 

; :D :D :D

 

Yeah, I thought those were quite bad, but that's the way these things work.. They contact a company's PR at the last minute and suggest a statement and the PR guys and CEO sign off on it, usually keeping it short and keeping the original structure, often without changing it too much. It's still better than the sound of crickets after a big announcement :)

[meiroy]

 

Interesting user comments here:

http://yro.slashdot.org/story/11/08/16/2334230/Analysis-of-Googles-Motorola-Acquisition

[Guest valueInv]

 

1) I know that Google hasn't contributed as much to Linux's kernel as others (though they haven't tried to kill it like MSFT, and they contribute a lot of userland tools and libraries), but it's probably because the type of infrastructure-level modifications that they do are part of their secret sauce (how to scale massively at the lowest cost possible and with the highest performance). Facebook could lose it's performance edge and still be fine thanks to its network-effect moat, but Google's moat is in good part created by throwing more ressources at problems than anyone else (when you do things the hard way, you make it harder for competitors and you can do stuff for your users that others without the same infrastructure can't match) and being the low-cost "producer" of those computational resources.

Now we are getting somewhere. Google isn't any more open than most companies, it's just marketing. Since you mentioned their strategy - here it is: Commoditize the complement. They open source or undercut competitor's products and give them away for free or low cost hoping to make money up the value chain in advertising. The free giveaway allows them to get marketshare quickly. It's no surprise that they are not open sourcing their core technologies, they are not an open company, they're a commoditization company. They're open where it suits them -  competitors strengths. Android is a child of this model. Google is no Red Hat.

 

2) I don't know what the real number is, but I know that hiding your capacities is second nature to Larry Page and has been from the very beginning (he wouldn't even tell VCs how many searches they were doing a day at first). They've waited the maximum number of time for the IPO (until they were forced to by SEC rules about number of shareholders) to avoid revealing anything about their revenues and profits and such, and I believe they're doing the same thing with Android now because it puts them in a better position to make gains in that sector. I could be wrong about that, but based on the information I have, I'd say it's likely.

 

Well, if Google announced the number, then it's real isn't it? Unless you think Google is lying.

Since when does Google keep secrets? They have no problem tweeting how many Android activations they have every week or how many signups they have on Google+ and so on. This has nothing to do with capacities but their financials.

 

All the information you want is out there. After all, is Google is "open" isn't it?  ;) ;)

[Liberty]

Now we are getting somewhere. Google isn't any more open than most companies, it's just marketing. Since you mentioned their strategy - here it is: Commoditize the complement. They open source or undercut competitor's products and give them away for free or low cost hoping to make money up the value chain in advertising. The free giveaway allows them to get marketshare quickly. It's no surprise that they are not open sourcing their core technologies, they are not an open company, they're a commoditization company. They're open where it suits them -  competitors strengths. Android is a child of this model. Google is no Red Hat.

 

Google isn't more open than most companies? Whatever man, this is getting tiring...

 

Almost all of their APIs and tools are open in one way or another, but expecting Google to open source core infrastructure stuff is like expecting them to open the search algorithm, or expecting Facebook to allow people to export their social graph and user data. If you expect them to fill in their moat, you're dreaming. Google is the biggest computer maker in the world (not the individual components, but they assemble more computers than HP or Dell), that's part of their core competency and can't be given away for obvious competitive reasons.

 

If you think that culture doesn't matter at a company and that Google's culture is just marketing, I suggest you read the following books: I’m Feeling Lucky: Confessions of Google Employee Number 59, The Search, and In the Plex. Google is modeled on a grad school, and while not everything in a company can work like that, it has a big influence and it makes Google different from almost all other companies in that regard.

 

Well, if Google announced the number, then it's real isn't it? Unless you think Google is lying.

Since when does Google keep secrets? They have no problem tweeting how many Android activations they have every week or how many signups they have on Google+ and so on. This has nothing to do with capacities but their financials.

 

All the information you want is out there. After all, is Google is "open" isn't it?  ;) ;)

 

As you know, there's more than one way to skin a cat. How much revenue something provides depends on where you set boundaries and how many indirect levels you count. In the case of Android, since they don't charge for the OS itself, that revenue is a lot fuzzier and how you define it can make a big difference. Do you count only search revenue in Android's built in search? In search used through an app downloaded afterwards? In browser search? Adsense ads clicked in mobile browsers?

 

And btw, your 1b number is from Q3 2010, if I'm not mistaken. At the rate at which mobile is growing, I'm pretty sure that number hasn't stayed put.

 

4, Google has technology called MapReduce that it uses extensively. Some of their engineers wrote a paper on it. Yahoo's engineers read the paper, implemented it and open sourced it as a project called Hadoop. Hadoop is now a thriving open source ecosystem with multiple companies built around. AFAIK, Google has not contributed to the open source version of its own technology. Its own MapReduce technology remains closed.

 

And you don't give them any credit for publishing the paper in the first place and making the creation of Hadoop possible in the first place? Chances are they didn't release the actual google code because studying it would have given too much information about Google's secret infrastructure, but they still put the ideas out there, which is the most important part.

[tombgrt]

 

 

I sold my GOOG recently (I figured a 20% profit in about a month wasn't bad) to raise cash for other more undervalued stuff I wanted to buy during the crash. But they are still definitely on my watchlist and I wouldn't be surprised to own them again someday.

 

Might be sooner than later...

 

How soon the market forgets. GOOG lost more in market cap in three trading sessions than the cost of its Motorola acquisition.  :D

[Guest valueInv]

$200M down the drain:

 

http://venturebeat.com/2011/08/25/max-levchin-leaves-slide-google

[txlaw]

$200M down the drain:

 

http://venturebeat.com/2011/08/25/max-levchin-leaves-slide-google

 

Expensive acqui-hire.

[Guest valueInv]

Interesting:

 

http://techcrunch.com/2011/09/02/amazon-kindle-tablet/

 

Probably do wonders for Android's tablet marketshare.

[Liberty]

http://online.wsj.com/article/SB10001424053111904836104576558600549181370.html

 

Google buys Zagat.

[biaggio]

http://online.wsj.com/article/SB10001424053111904836104576558600549181370.html

 

Google buys Zagat.

they must have noticed how often I google for restaurants to eat at when I am in a new city

 

but how will they make money with this?

 

 

 

[Guest valueInv]

How soon does it join these?

 

http://searchenginewatch.com/article/2107084/Google-Kills-10-More-Projects-Including-Aardvark  ;)

 

 

[Liberty]

they must have noticed how often I google for restaurants to eat at when I am in a new city

 

but how will they make money with this?

 

It makes their mobile offerings better. More people using them = more people clicking on ads in them = more money.

[Liberty]

How soon does it join these?

 

http://searchenginewatch.com/article/2107084/Google-Kills-10-More-Projects-Including-Aardvark  ;)

 

Google's model is to release early and often and see what sticks, lots of beta stuff and projects developed by a couple of engineers. Very different from Apple's model. The important part to make this a success is to also fail quickly when it doesn't work so you don't have zombie projects that hang around for years.

 

Larry Page seems to want to do an early spring cleaning this year, though.

[Guest valueInv]

How soon does it join these?

 

http://searchenginewatch.com/article/2107084/Google-Kills-10-More-Projects-Including-Aardvark  ;)

 

Google's model is to release early and often and see what sticks, lots of beta stuff and projects developed by a couple of engineers. Very different from Apple's model. The important part to make this a success is to also fail quickly when it doesn't work so you don't have zombie projects that hang around for years.

 

Larry Page seems to want to do an early spring cleaning this year, though.

 

I was pointing to the fact that Google buys companies and often kills them - Slide, Advaark, DodgeBall, parts of Postini, etc. There are other acquisitions what products I know of that no one inside Google is working on. They are effectively dead but have not been announced externally. 

[Liberty]

I was pointing to the fact that Google buys companies and often kills them - Slide, Advaark, DodgeBall, parts of Postini, etc. There are other acquisitions what products I know of that no one inside Google is working on. They are effectively dead but have not been announced externally.

 

Indeed, they often acquire companies to get the talent, or to get parts of the technology which are merged into bigger products. It's not because the stand-alone product/company doesn't live on that all is lost.

[Guest valueInv]

I was pointing to the fact that Google buys companies and often kills them - Slide, Advaark, DodgeBall, parts of Postini, etc. There are other acquisitions what products I know of that no one inside Google is working on. They are effectively dead but have not been announced externally.

 

Indeed, they often acquire companies to get the talent, or to get parts of the technology which are merged into bigger products. It's not because the stand-alone product/company doesn't live on that all is lost.

 

The talent seems to take the money are run and start companies that compete with Google:

 

Evan Williams - Sold blogger to Google and went on to found Twitter. Has refused offers to sell Twitter to Google

Dick Costolo - Sold Feedburner to Google, now leads Twitter, competing with Google

Denis Crowley - Sold Dodgeball, complained about how he couldn't get anything done at Google, left to found Foursquare

Mac Levchin - Sold Slide to Google and quit/pushed out soon after.

 

These guys use the credibility and the money gained from the acquisition to found the new companies.

[Guest valueInv]

Now we are getting somewhere. Google isn't any more open than most companies, it's just marketing. Since you mentioned their strategy - here it is: Commoditize the complement. They open source or undercut competitor's products and give them away for free or low cost hoping to make money up the value chain in advertising. The free giveaway allows them to get marketshare quickly. It's no surprise that they are not open sourcing their core technologies, they are not an open company, they're a commoditization company. They're open where it suits them -  competitors strengths. Android is a child of this model. Google is no Red Hat.

 

Google isn't more open than most companies? Whatever man, this is getting tiring...

 

Almost all of their APIs and tools are open in one way or another, but expecting Google to open source core infrastructure stuff is like expecting them to open the search algorithm, or expecting Facebook to allow people to export their social graph and user data. If you expect them to fill in their moat, you're dreaming. Google is the biggest computer maker in the world (not the individual components, but they assemble more computers than HP or Dell), that's part of their core competency and can't be given away for obvious competitive reasons.

 

If you think that culture doesn't matter at a company and that Google's culture is just marketing, I suggest you read the following books: I’m Feeling Lucky: Confessions of Google Employee Number 59, The Search, and In the Plex. Google is modeled on a grad school, and while not everything in a company can work like that, it has a big influence and it makes Google different from almost all other companies in that regard.

 

Well, if Google announced the number, then it's real isn't it? Unless you think Google is lying.

Since when does Google keep secrets? They have no problem tweeting how many Android activations they have every week or how many signups they have on Google+ and so on. This has nothing to do with capacities but their financials.

 

All the information you want is out there. After all, is Google is "open" isn't it?  ;) ;)

 

As you know, there's more than one way to skin a cat. How much revenue something provides depends on where you set boundaries and how many indirect levels you count. In the case of Android, since they don't charge for the OS itself, that revenue is a lot fuzzier and how you define it can make a big difference. Do you count only search revenue in Android's built in search? In search used through an app downloaded afterwards? In browser search? Adsense ads clicked in mobile browsers?

 

And btw, your 1b number is from Q3 2010, if I'm not mistaken. At the rate at which mobile is growing, I'm pretty sure that number hasn't stayed put.

 

4, Google has technology called MapReduce that it uses extensively. Some of their engineers wrote a paper on it. Yahoo's engineers read the paper, implemented it and open sourced it as a project called Hadoop. Hadoop is now a thriving open source ecosystem with multiple companies built around. AFAIK, Google has not contributed to the open source version of its own technology. Its own MapReduce technology remains closed.

 

And you don't give them any credit for publishing the paper in the first place and making the creation of Hadoop possible in the first place? Chances are they didn't release the actual google code because studying it would have given too much information about Google's secret infrastructure, but they still put the ideas out there, which is the most important part.

 

More evidence of Google's "openness" :

 

http://venturebeat.com/2011/09/07/google-android-oracle-depositions

 

"Essentially, the key document reads that part of Google’s plan for Android, and how to profit from a free operating system, included the following:

 

Do not develop in the open. Instead, make source code available after innovation is complete.

 

Give early access to the software partners who build and distribute devices to our specification (i.e., Motorola and Verizon). They get non-contractual time to market advantage, and in return they align to our standard."

 

 

[Liberty]

The talent seems to take the money are run and start companies that compete with Google:

 

Evan Williams - Sold blogger to Google and went on to found Twitter. Has refused offers to sell Twitter to Google

Dick Costolo - Sold Feedburner to Google, now leads Twitter, competing with Google

Denis Crowley - Sold Dodgeball, complained about how he couldn't get anything done at Google, left to found Foursquare

Mac Levchin - Sold Slide to Google and quit/pushed out soon after.

 

These guys use the credibility and the money gained from the acquisition to found the new companies.

 

That's to be expected. Google has 26k employees, many of them with a strong startup/entrepreneur bent, so a % are bound to leave after a while. Same thing happened to MSFT and AAPL and others.

[Liberty]

More evidence of Google's "openness" :

 

http://venturebeat.com/2011/09/07/google-android-oracle-depositions

 

"Essentially, the key document reads that part of Google’s plan for Android, and how to profit from a free operating system, included the following:

 

Do not develop in the open. Instead, make source code available after innovation is complete.

 

Give early access to the software partners who build and distribute devices to our specification (i.e., Motorola and Verizon). They get non-contractual time to market advantage, and in return they align to our standard."

 

This is very personal for you, isn't it? you seem to be trying very hard.

 

What's the alternative? Have code repositories that are public and updated in real-time so that as you start working on a new feature, the whole world - and especially your competitors - can look over your shoulder and try to implement it in parallel (or faster), meaning that you are basically never ever able to take the lead on anything.

 

Smartphone OSes are a very competitive industry and so a certain level of openness will make more sense than with other types of software. What's the point of being all 'real-time open' if it hurts Android and by extent all the Android partners? Better to build in some delay in the process so that those who want to look under the hood can, but as long as they aren't competitors trying to beat you to the punch and benefit from your innovation.

 

Google isn't trying to start a religion, they're running a business, and so this means making pragmatic tradeoffs. I hope I'm not telling you anything you don't already know. But if you are hitting on google for not being open enough, you should be hitting much harder on Apple and Microsoft and RIM...

[Guest valueInv]

Ah, the gift that keeps on giving:

 

http://news.cnet.com/8301-30685_3-20105325-264/googles-post-javascript-web-plan-raises-hackles/?part=rss&subj=news&tag=2547-1_3-0-20

 

I have no problem with companies being closed. However, I do have a problem with closed companies pretending to be open.

 

If you want to see a successful business that is run in an open manner, take a look at Redhat. They do all the the things you mentioned and make money while being the market leader.

[Guest valueInv]

Google continues to lose search marketshare to Bing:

 

http://www.computerworld.com/s/article/9219975/Google_slips_to_lowest_search_share_in_2_years

[jeffmori7]

I'm not worried. I think it's healthy that Google has some competition in search. And the winner in all of this is the consumer, similar to the web browser battle.

[VAL9000]

I think it's fairly typical of Google to lose search share in the summer and regain it during the school year.  I can't remember where I came across this search seasonality (maybe it was here).  The explanation seemed plausible enough; Google is used more for research by students and therefore tapers off in the academic off-season.

 

Google's search share is extremely important.  My belief is that due to the AdWords auctioning system, linear increases in search share result in greater-than-linear increases in profit.  e.g. the 60-65% block of market share generates less profit than the 65-70% block of market share.  That's more of a guess/intuition.

 

I mentioned before that I was long GOOG but I sold out of my position not too long ago.  My reasoning is that I am unconvinced that Google's management will invest in a way that builds shareholder value.  The Motorola purchase was a real jaw dropper for me.  Other than for the patents, I'm not sure I've seen any convincing argument as to why this is a good acquisition.  I see value in other initiatives (Android, Google Wallet), but their ability to generate any economic profit outside of search is pretty lame.  I'll give them credit for trying, but I'm not sure I've seen what I can call a successful product track record, and track records are important to us outsiders.

 

The other risk is search itself.  Microsoft has shown that they can build an effective and useful search engine as well as innovate in areas that Google hadn't.  Next they will move on to improving their advertising capabilities.  Microsoft is showing that Google is no longer infallible in this area.  This raises the risk level by quite a bit for Google shareholders. 

 

Full disclosure, I continue to be long MSFT.

 

 

[Liberty]

Marketshare isn't everything. The quality of users matter. As I've previously written about here, Bing seems to have a large number of users that end up doing a search because they made a typo in IE or something like that. If you look at the traffic statistics of many big websites, you see that Google actually has a much higher share than 60-70% (and even moreso internationally). This is important because random typo users aren't worth much, while people actively searching for something specific are worth a lot to advertisers, as these are the people clicking on ads and doing multiple searches. It also matters that Google's ad system is the best in the world and squeezes much more money out of users and advertisers.

 

In any case, I sold my GOOG shares when the markets melted because I wanted to buy something that I felt was more undervalued and has more upside (size is an anchor - I ended up buying stock in a company that is less than 1% Google's size).

 

I still made over 20% profit in a little over a month, and I could have made 30% if I had sold a bit earlier, so I can't say I'm disappointed. Despite having sold, I still believe they are a very attractive business and if bought cheaply enough they should provide attractive returns over the next decade. I'd look at them and Apple before MSFT, HPQ, DELL, etc.