GOOGL - Google

[goldfinger]

And eventually all the data centers will be connected to allow the end users device to do voice and visual searches.

 

Google's way ahead of you. Voice and image searches, for both mobile and desktop:

 

http://googleblog.blogspot.com/2011/06/knocking-down-barriers-to-knowledge.html

 

Yes but Microsoft is there too and believe it or not it actually performs better technically than Google on some areas of search!

 

But the problem is not the technology that both have, it is the point of access. Skype acquisition will actually surprise in the long run

as its possible applications are many and dreadful for competitors. One thing to consider is that the PC is going to look more and more

like a tablet or small portable device in the future but it will still keep the competitive advantage of local computing power. Battery life is expanding,

Intel and AMD and PC makers are investing tremendous amounts of money to perfect this type of machines in power, size, weight, capabilities etc...

Add advanced User Interfaces, super reliable network communication channels and software, sexy designs and you get a device that could be the one that consolidates the multi-device market one day... With Skype and similar communication software you get super phones among other things!

 

[Liberty]

Yes but Microsoft is there too and believe it or not it actually performs better technically than Google on some areas of search!

 

Could you point me to where that's possible? I haven't found voice search or search by image on Bing. Thanks.

 

Google has those features live on its site, I've used both today.

[goldfinger]

Yes but Microsoft is there too and believe it or not it actually performs better technically than Google on some areas of search!

 

Could you point me to where that's possible? I haven't found voice search or search by image on Bing. Thanks.

 

Google has those features live on its site, I've used both today.

 

Go to Images on www.bing.com. Voice I haven't investigated but they claim to be ready.

I believe you should read what Mindy Mount (VP and CFO of MSFT online division) had to say in a recent conference.

Just go there http://www.microsoft.com/investor/default.aspx and go to the Events frame, there is a transcript there of her interview there. Actually read Cowen too...

Of course they are going to talk their book, but only to a certain extent.

The other part of my answer was to make you think about the fact that PCs may not be dead at all... And Xbox is a gift made in heaven to increase the consumer business.

[Liberty]

The image section of Bing doesn't have any obvious way to do a search by image (either to drag and drop an image, or upload it, or send an image URL) the way that Google's new Image Search does. Maybe it's because I'm in Canada..? Can anyone in the US confirm that Bing allows image search in the way that Google now allows?

[goldfinger]

And by the way, Vista introduced advanced speech recognition APIs that work pretty well. In the world of Speech Recognition some people now recognize they do not need to buy Dragon for example as Windows 7 native speech recognition features are very functional. I know that Google and MSFT "shared" some of the scientists that worked on those algorithms.  ;D

So it is only a matter of time until more advanced features get released. Again Mindy gives a good overview of the strategy with Bing.

[goldfinger]

One last thing to understand with search: it is the impact of social networks. The partnership with Facebook will bring some competitive advantages there.

[handycap5]

I've come to the conclusion that search engine market share seems to gravitate toward monopoly-like outcomes. 

 

I don't know how reliable these market share statistics are, but observe how steady world-wide market share has been for the last two years: Google 82-85%, Bing 3-4%.  http://marketshare.hitslink.com/search-engine-market-share.aspx?spider=1&qprid=5

 

Also, in the attached sheet, observe Google market share by country world-wide: http://googlesystem.blogspot.com/2009/03/googles-market-share-in-your-country.html 

 

It is amazing that Google has 65%+ market share nearly everywhere in the world, except for: Russia, China and satellites, South Korea, and Japan (Malaysia with large Chinese populatin is a special situation).  And in those geographies, Google tends to play the role of the distant follower (sub 25%) that other search engines play in geographies where Google dominates.  I don't think these outcomes are the result of better search results per se.  Instead, one search engine appears to occupy the dominant "mind share" and usage position which appears exceedingly defensible against all "me too" competitors. 

 

Without a big revolutionary shift in the technology or user behavior, Google appears to be a natural monopoly.  I would love to hear the empirically-based counter-arguments.

[DCG]

I've come to the conclusion that search engine market share seems to gravitate toward monopoly-like outcomes. 

 

I don't know how reliable these market share statistics are, but observe how steady world-wide market share has been for the last two years: Google 82-85%, Bing 3-4%.  http://marketshare.hitslink.com/search-engine-market-share.aspx?spider=1&qprid=5

 

Also, in the attached sheet, observe Google market share by country world-wide: http://googlesystem.blogspot.com/2009/03/googles-market-share-in-your-country.html 

 

It is amazing that Google has 65%+ market share nearly everywhere in the world, except for: Russia, China and satellites, South Korea, and Japan (Malaysia with large Chinese populatin is a special situation).  And in those geographies, Google tends to play the role of the distant follower (sub 25%) that other search engines play in geographies where Google dominates.  I don't think these outcomes are the result of better search results per se.  Instead, one search engine appears to occupy the dominant "mind share" and usage position which appears exceedingly defensible against all "me too" competitors. 

 

Without a big revolutionary shift in the technology or user behavior, Google appears to be a natural monopoly.  I would love to hear the empirically-based counter-arguments.

 

Hi handycap5,

 

The empirical evidence is right before your eyeballs, with the newly formed partnership of Microsoft/Skpe & Comcast. The way people around the world will soon be searching in a new advanced way!

 

Skype announced that the companies have entered into a strategic partnership that will enable Comcast customers to communicate with family and friends through HD video calling on their television. Comcast users will soon be able to make and receive Skype video calls from their television, whether their contacts use Skype on their home TVs, PCs or compatible smartphones and tablet computers.

 

And how is that going to have any effect on search engine traffic?

[handycap5]

Let's not digress to suppositions; we can each make our own prognostications - that's what makes a market!  I'm looking for data or facts that call into question my "search engines tend toward monopoly-like positions" thesis.  Otherwise, the numbers speak for themselves.

[DCG]

 

This is all NEW, fresh out of the Xbox, so the data is still being stored in the center of our minds. Search traffic will be directed to the new way of searching via Voice over the internet, combined with IPTV. It just doesn't get any better than that. I don't have all the answers. I'm just thinking about this new & big revolutionary shift in the technology.

 

I just have a hard time seeing that happening, at least to the point where it would erode Google's traffic. That technology already exists to an extent, and isn't used much. Things like Skype and Comcast collaborating has the potential to change the way people make phone calls (although I don't really see that really happening on any significant level either), not really search engine traffic.

 

Regarding Internet Television, I think it has the potential to change the way people search for and watch TV shows and movies, not how they search the internet. Again, all this technology has been out there for several years. Just because it might be cool (for a few minutes) doesn't mean its useful.

[PlanMaestro]

Let's not digress to suppositions; we can each make our own prognostications - that's what makes a market!  I'm looking for data or facts that call into question my "search engines tend toward monopoly-like positions" thesis.  Otherwise, the numbers speak for themselves.

 

Actually, i think the burden of proof should be on the one making the statement that Google is a natural monopoly. Global monopolies are very rare and most concentrated industries evolve to structures of three players with market share of 60-30-10.

 

Your assertion almost reminded me of Hume's is-ought problem, but maybe we should call this instead call this the is-will be problem (yes, my wife is also asking if I smoked something). And that is jumping from what a new industry currently is to the structure of an industry in the future. Let's remember that there advantages from the innovator in any new industry. Netscape was a monopoly in its early beginnings, only to be displaced for another monopoly, and now we are seeing a rebirth of all types of browsers (Safari, Chrome, Firefox).

 

From the point of costs, the infrastructure for search is becoming commoditized so I do not thing that there are great benefits from scale, and usually scale only has given oligopolistic benefits (60-30-10). For Google to become a real monopoly, there must be network benefits and, from the point of consumers, it is not like as if search has become so much better with Google getting larger. And from the point of advertisers, pay per click does not stop them from using several search services at the same time. My understanding is that for the moment, Google can still extract more per click thanks to good placement of the text advertising, but the advantages of good search are diminishing and there is a good chance that it will get commoditized.

 

I do not see Google search as a platform, that is they way that usually leads to monopolies

 

Also, text based marketing is not so good for creating and protecting brands. With the increase of bandwidth, short video snippets has become more important. That is not so much different from television in the 50s and 60s that was an ologopolistic industry in most countries.

 

So, what is your thesis to say that search is a monopolistic industry? To jump from what is to what it will be o a relatively new industry is a least for me a big jump .

[JAllen]

I do not see Google search as a platform, that is they way that usually leads to monopolies

 

Isn't Google search a platform in the sense that it got many people to use other Google products(or at least made it much easier for Google to get more users for new products)?  I now use gmail, docs, calendar, iGoogle, groups, finance, and many more.  So this is in a sense, at least in my eyes, a network effect working in Google's favor.

[Guest valueInv]

"Google has a huge new moat," Munger said. "In fact I've probably never seen such a wide moat."

 

Google's main business of charging companies when people click on their ads after running an Internet search is "incredible," the Berkshire chairman said.

 

"I don't know how to take it away from them," he added.

 

"Their moat is filled with sharks," Munger said.

___________________________________________________________

 

The new frontier of internet search is about to begin. The transition of powerful computing is shifting from the device to the servers in the cloud data centers, like what DELL is doing. And eventually all the data centers will be connected to allow the end users device to do voice and visual searches.

 

If the moat of Google can be taken away from them, it will likely be not with a click of a finger or mouse, but using voice like Microsoft's  Skype combined with something like the newly formed partnership with Comcast's video business, for searches.

 

The merging of voice, video and data over the internet will allow innovation to bring forth advanced ways to search, and if Google isn't ahead of it's game Microsoft can take the lead.

 

Warren just needs to ask Bill about that one.  ;)

 

I question how wide their moat is:

 

http://news.cnet.com/8301-10805_3-20072914-75/bing-grabs-market-share-from-google-over-past-year/

 

Then again, the numbers could be wrong.

 

There are a few questions to invert on:

- What if Apple changes the default search engine to Bing on all its devices? Does that help Bing get enough critical mass to put pressure on Google's pricing?

- What is Google's moat in advertising (Vs display ads, social ads, couponing, etc)?

 

 

[ValueSlant]

I do not see Google search as a platform, that is they way that usually leads to monopolies

 

Isn't Google search a platform in the sense that it got many people to use other Google products(or at least made it much easier for Google to get more users for new products)?  I now use gmail, docs, calendar, iGoogle, groups, finance, and many more.  So this is in a sense, at least in my eyes, a network effect working in Google's favor.

 

It seems to me this is the point that Google is really trying to leverage to build a moat around search. They are trying to get the consumer to the point where they are already locked into so much Google-ness (for lack of a better term) with the Google search bar sitting on top so that as long as Google can at least keep up in terms of search quality then they will be able to maintain market share. It seems like Android is also a big step in this direction.

 

This article by Bill Gurley on Android sums it up well-

http://abovethecrowd.com/2011/03/24/freight-train-that-is-android/

 

ValueSlant

Value Investing Analysis / valueslant.com

 

 

 

[PlanMaestro]

It seems to me this is the point that Google is really trying to leverage to build a moat around search. They are trying to get the consumer to the point where they are already locked into so much Google-ness (for lack of a better term) with the Google search bar sitting on top so that as long as Google can at least keep up in terms of search quality then they will be able to maintain market share. It seems like Android is also a big step in this direction.

 

I would disagree that this is a network effect. It is more about branding and generating income through adwords. And even if there were network effects that is not enough to get a platform with a monopolistic position.

 

I think this Cusumano presentation is good in that regard. Check slides 16 and 20, but it includes several other examples:

http://www.scribd.com/doc/49178058/Cusumano-Network-Effect

[ValueSlant]

It seems to me this is the point that Google is really trying to leverage to build a moat around search. They are trying to get the consumer to the point where they are already locked into so much Google-ness (for lack of a better term) with the Google search bar sitting on top so that as long as Google can at least keep up in terms of search quality then they will be able to maintain market share. It seems like Android is also a big step in this direction.

 

I would disagree that this is a network effect. It is more about branding and generating income through adwords. And even if there were network effects that is not enough to get a platform with a monopolistic position.

 

I think this Cusumano presentation is good in that regard. Check slides 16 and 20, but it includes several other examples:

http://www.scribd.com/doc/49178058/Cusumano-Network-Effect

 

Thanks for the slides, nice presentation.

 

You can certainly look at it is as just branding, but maybe at some point it does become a weak form network effect. I think Google might be trying to get it to the point where all of the Google apps or services become a platform in a sense. If I am using Google for so many things from docs to gmail to pics (and maybe even the OS as well with Android) then odds are strong I will use the search integrated with all of that. But you could always open up your browser and go to Bing so this wouldn't be the strongest network effect. Either way whether we call it branding or weak network effect I could see where having google search integrated into that extensive platform would be a pretty good way to keep people in the fold.

 

You are right though I don't see how this gets them to anything like a monopoly. But I do think it will give them a nice moat around the current market share they have.

 

ValueSlant

Value Investing Analysis / valueslant.com

[Liberty]

Here's a few reasons why I think competing with Google is incredibly hard:

 

First, I start with the assumption that to effectively compete, you need to offer at least feature-parity, if not a better product.

 

So right from the start, if you ever hope to offer something similar to Google you need millions of servers in large data centers all around the world. Within the industry Google is known for having some of the lowest, if not the very lowest, costs of computing ($/FLOPS). And Google is making its offering more computing-intensive all the time, so that increases barriers to entry (Google Instant means that every search is actually multiple searches, not just one, and once you get used to instant - especially on mobile where every keystroke can be painful - other search engines feel slow. Google Search by Image and Google Goggles allow to send a picture to Google and it'll find similar pictures, translate text in the pic, tell you where the pic was taken if it can figure it out.. You can also search by voice both from mobile and desktop. Both these things are extremely computing-intensive. Search results contain geo info from maps, youtube videos, news items, real-time twitter stuff, applications like translation between 2000+ language pairs, financial graphs and realtime quotes, math unit conversions, etc. Also, if you are logged in they personalize your search by giving you results that they think will be more relevant to you based on previous searches and other account info.. That's also very hard to do. They also re-index websites very often - stuff I publish on a site with a pagerank of 8 is indexed within seconds.)

 

So very few companies can afford this, and no company of the right scale is 100% focused on search & advertising. Good startups will be acquired, probably by Google, who's the buyer of choice to most entrepreneurs in that space and has a good track record for acquisitions. I don't expect that what Google did to Altavista/Excite/Lycos/Yahoo will be done to Google, in the same way that what Microsoft did to IBM probably won't be done to Microsoft... These were one-time events in immature industries.

 

But the low-cost hardware is just the start. You need thousands and thousands of incredibly smart people, and there Google has the benefit of being mostly focused on search while to most other companies it's a side thing (maybe an important side thing, but not where 90%+ of resources go). Google has had great success attracting genius engineers, and even now that there's more competition for hiring, they're still probably a dream job - along with Facebook and Apple - for most of the technical people who don't want to do a startup. Part of the success there comes from being a company that is run by engineers for engineers, with 20% of the time spent on personal projects, free gourmet food (so you can spend all evening coding), contributing a lot to the open source community (where most programmers hang out and spend their formative years, predisposing many to like Google and want to work there), hosting Tech Talks and just having a great geek-culture, etc.

 

And then, even if you have all this, you still need to monetize it. Google Adsense/Adword has relationships with millions of advertisers/publishers. Advertisers are more likely to buy from Google because they know almost everybody uses it, so they'll reach their target audience, and publishers put adsense on their site because they know Google has the biggest inventory, so it's more likely that relevant ads will be available, leading to higher clickthroughs and CPC rates. Adsense itself is another technical barrier to entry: Every page of every web site with google ads needs to be analysed by Google (requiring lots of computational power and bandwidth to crawl it all) so that the most relevant ads can be served. Even small improvements in the targeting there can lead to big increases in CTR and CPC, so Google is very focused on squeezing the most out of this. And the recent acquisition of DoubleClick (banner ads) increases their reach to many more sites and types of advertisers (more "branding" buys)... I also feel that because Google sells ads using an auction mechanism, with different prices for each keywords, changing day-by-day, that their pricing power is actually easier to use than other businesses where prices are more stable and increases are easier to spot.

 

I could go on like this or a while, but I'll add just one more thing: Mobile. It's growing like crazy and about 400k Android devices are being activated every single day, and they have a Google search field on the home screen. On top of that, there are also many many Apple devices being activated, and while Apple hates Google right now and might tend to favor Microsoft (who they don't exactly love either), it's very very likely that a majority of Apple users use Google as their main search, and there's probably a correlation between the number of searches you do in a day and the likelihood that you use Google (in my experience, Google wins the power-user market hands down). Even with more casual users, Google has great brand and mindshare (definitely one of the most valuable brands in the world). If I gave a smartphone (Android, iPhone, RIM, even Windows) to my father, or to almost anyone I know, they wouldn't ask: "Where's the search engine on this? I don't care what it is...". They'd ask: "How do I Google something on this?". That's very powerful, and it's not exactly like Apple or RIM or anyone can block Google or make it hard to use it on their device, not without pissing off many users and making them feel manipulated. (and I'll add quickly that Google has tons of very valuable geo-data that they've been gathering for years for Google Maps, Google StreetView, and Google Earth that will be very valuable on mobile).

 

I could also talk about why I think Chrome is brilliant, or the Cloud strategy, or GMail (people tend to spend all day in their email, and having TWO different ways to do Google searches at the top of the screen has great value), etc, but you get the idea...

 

The way I look at Google, they are the best narrow artificial intelligence company in the world (as opposed to 'general artificial intelligence'), and their main weapons are their brains and the niches they picked (search and advertising). Like a good insurance company, they're turning smarts into cash.

[biaggio]

Thank you all, good posts.

 

I am getting intersted.

 

Seems to be a great business at a fair price...(i.e. not cheap?)

 

What do others think?

[DCG]

Thank you all, good posts.

 

I am getting intersted.

 

Seems to be a great business at a fair price...(i.e. not cheap?)

 

What do others think?

 

I've owned GOOG for a few years and added to my position earlier this week.

[Liberty]

Got some more GOOG today. Actually sold out of another of my positions because I liked this one better..

 

Update: some stuff about Google's Ad Exchange (which I forgot to mention in my other post above -- it will turn into a nice profit generator, IMO): http://blogs.wsj.com/digits/2011/06/23/google-display-chief-makes-pitch-to-publishers/

[beerbaron]

When are Anti-Thrust issues going to be raised with Google?

 

BeerBaron

[JAllen]

When are Anti-Thrust issues going to be raised with Google?

 

BeerBaron

 

http://www.bloomberg.com/news/2011-06-22/google-faces-senate-subpoena-threats-to-get-testimony-from-page-schmidt.html

[ValueSlant]

When are Anti-Thrust issues going to be raised with Google?

 

BeerBaron

 

http://www.bloomberg.com/news/2011-06-22/google-faces-senate-subpoena-threats-to-get-testimony-from-page-schmidt.html

 

http://online.wsj.com/article/SB10001424052702303339904576403603764717680.html?mod=WSJ_newsreel_technology#project%3DGOOGLE110624%26articleTabs%3Darticle

 

This looks like the big one. At first glance the issues raised don't seem to be the type that would put their entire business at risk. But I guess once the investigation is opened up it could lead to other issues as well as just be an overhang on the company/stock for quite a while as these things tend to drag on. On the other hand, could be a great buying opportunity if the stock continues to get hit.

 

ValueSlant

Value Investing Analysis / valueslant.com

[Liberty]

I've been watching, reading, and listening to a lot of stuff about Google lately (conference calls, conferences, speeches, interviews, etc) and found this part where Dr. Eric Schmidt talks about him and Larry & Sergey going to visit Warren Buffett to get his insights about company culture. Nothing we don't already know, but interesting to me nonetheless that they identified Buffett as a "very smart" person that they should go ask advice to:

 

[tombgrt]

Some questions for whoever can answer them. I believe they could be key in valuing earnings here but I know very little about GOOG.

 

- Will pricing and profits margins in the ads business remain sustainable enough for Google in the future?

Do casual and heavy internet users even ever click those things? I know I don't. Or will innovation save the day and keep interest of the common internet users high enough?

 

- What would happen with profits from the ads business if Bing would become a dominant second player with 20-35% market share and starts a price war? Does Google have any pricing power?

 

 

I am reading the thread now so sorry if it came up already.