On a visit to North Korea in January, the executive chairman of Google (NASDAQ:GOOG), Eric Schmidt, warned the country of the need for a greater openness with regard to access to the Internet. He suggested the country open its doors to information technology in order to decrease the isolation and economic decline. While that seemed like the major objective of the strange visit in the first week of January, Mr. Schmidt's visit will likely help Google transform itself as an international negotiator, rather than just another 'major tech company'. In this article, I will discuss how Google's role as an international negotiator will help it to forge new business relationships across the world.
What Was the Visit All About?
The visit was aimed to pressure North Korea to abandon its nuclear policy and arms, allow Internet access and covertly help Google put the infamous labor camps on Google Maps. Eric Schmidt was accompanied by former New Mexico Governor, Bill Richardson. Richardson and Schmidt delivered their message to the Foreign Ministry of North Korea, the academics and representatives of the government. The message was clear: you have to allow people from North Korea to have access to the Internet. According to Schmidt, as the world becomes increasingly connected, the decision by North Korea to remain virtually alone will strongly affect its physical world and its economic growth, hindering its economic recovery.
How Can Schmidt's Visit to North Korea Help Investors?
For investors it is pretty obvious what Schmidt is doing: conquer a new market. And he is right on doing that because North Korea is a thickly populated country with 24 million people which can prove to be very profitable for Google, if North Korea's government strikes some sort of deal with it.
In North Korea Internet access is restricted to a small elite of a thousand or more individuals and they are often monitored. There is only one internal Internet network (intranet) with no links to the rest of the world whatsoever. The nearly 1.5 million mobile phones belonging to politicians, military and businessmen are regularly tracked. Even if Google manages to sell its Android running smartphones to those 1.5 million people who are allowed access to a mobile phone, its profitability will increase by leaps and bounds.
An increase in Internet traffic can generate more sales opportunities in the form of digital advertising, which currently represents a slice of $50 billion in Google's annual profits. However, Google does not sell or engage in business with North Korea at the moment. The visit was not commercial or business-like in nature, but as Eric Schmidt put it, it was a 'personal visit'. The fact that North Korea tested a 3rd nuclear bomb may make us jittery but the fact is, this will only lead most big powers to engage in negotiations with North Korea.
With negotiations, companies like Google will be able to enter the market eventually. With over 1.5 million mobile phones in North Korea, the population could add to a considerable amount of market segment which hadn't existed until now. Moreover, by mapping North Korean gulags and labor camps, Google is certainly gathering top secret information that can be sold to American and foreign security establishments. Considering how hostile North Korea is, any information that Google brings back to the West will be priceless. And governments will pay huge sums of money to Google to access such information on maps.
Martyn Williams at Korea Tech blog suggested that the results of this visit will be made through 'baby steps' and may go through an "agreement to install modern computers in universities." If Google gets to install computers in North Korea, the elusive government may be ready to pay a lot of money to the company. This is one way of monetizing the visit to Pyongyang.
Google Virtually Has No Competitors When It Comes to Profit Motivated International Negotiation
Yahoo (NASDAQ:YHOO) said it fixed certain vulnerability in its e-mail service that is connected to the recent increase in invasions of user accounts. The company explained that a vulnerability exposed in different videos posted on YouTube has been resolved. Once the largest Internet company in the world, Yahoo can never be expected to be an international negotiator like Google is fast turning out to be. It is busy fixing security issues of email accounts of its users. Google's main competitor at the outset, Yahoo, was the most important search engine in the world. Now, Google is not only the most important search engine but also the most valuable tech stock at the moment. Yahoo sells for a measly $21, whereas Google has cross the $800 mark.
Microsoft (NASDAQ:MSFT) is one company that I believe has the capability to be an international negotiator, and use such an opportunity to increase business. However, in the case of North Korea, Google used the opportunity, or rather created an opportunity and utilized it to put the labor camps on maps. If Microsoft had similarly visited North Korea to install computers, it would have made a lot of money. But it didn't and that says a lot. Once the most important technology company in the world, Microsoft currently trades at a flimsy $28 per share. Google's $800 share price is no match to Microsoft and that should be enough to tell investors which stock is more important.
I am almost certain that Apple (NASDAQ:AAPL) will never take such an initiative and try to become an international negotiator. Tim Cook has often mentioned that Apple is a capitalist company that strives to bring the best in hardware and software. Apple certainly does that but its stock is weakening and competitors like Google have begun to look for unchartered territories like North Korea. Apple currently trades at $450 after falling down from a high of $700. On the other hand, Google now trades at $807, which only shows how important Google is at the moment.
Samsung (OTC:SSNLF), which is based in South Korea, is a company that I really believe could have made an effort to scratch the North Korean iron wall. However, the company seems to not have the courage that Google has. Samsung is doing very well in terms of profitability. With a profit margin of 12% and an operating margin of 14%, it is an impressive company to invest in. On the other hand, Google is far more profitable. It has a profit margin of 21% and an operating margin of 27%.
As we can easily see, Google probably is the only technology company at the moment that can take the role of an international negotiator and covertly use that opportunity to monetize collected information by selling it to security agencies. This strategy will help Google to improve its international public relations when compared with its peers, and that will help it to forge profitable business deals in countries where it is difficult for American companies to do business. Google currently trades at $807, and has a market cap of $256 billion. With an enterprise value of $215 billion, it is one of the largest tech companies in the world. With a return on assets of 9.59% and a return on equity of 16.61%, it is managed very effectively. Executives like Eric Schmidt will help Google to not only be the best technology company, but also don the role of an international negotiator, which shall have far reaching profitable consequences in the long term. This is one stock that investors can always depend upon. Moreover, its competitors like Apple, Samsung, Microsoft and Yahoo are all way below Google's metrics and that should be a point for consideration when it comes to investing.