Ever since Google (NASDAQ:GOOG) first went public in 2004, the vast majority of its revenue has been derived from online advertising (especially from their AdSense and AdWords programs). Having remained the dominant search engine for many years, Google's advertising programs have continued to generate substantial, consistent revenue for many years. But it looks like Google is now exploring a new direction as it is attempting to expand beyond online advertising, and is beginning to delve into hardware and gadgets. Google recently released its Q1 2013 results, and we were able to hear several interesting comments from Google CEO Larry Page regarding what Google has planned for the future.
Of course, while Google has come out with a few interesting updates and new projects (such as Google Now and Google Voice), many of these will not bring in substantial revenue. What must interest GOOG shareholders most of all is new products and revenue streams that could substantially add to its bottom line. In my view, the most interesting new developments and products from Google that could really generate meaningful revenue are as follows:
- Google Glass
- Google Fiber
- Google X from Motorola
- Google Nexus Tablets
Larry Page commented on Google Glass as follows:
And just this week, after three years of development, we started handing over Glass devices to developers. I get chills when I use a product that is the future, and that happens when I use Glass.
Google Glass is essentially a wearable computer that resembles an ordinary pair of eyeglasses. Google Glass has many of the same features of a smartphone in that users can search information online, send text messages, or take photos and videos. But with Google Glass, the user does not need to take the device out of their pocket and start tapping their fingers. Google Glass is voice-activated and totally hands free. The user may say something like "okay, glass, take a video" and the device will begin filming. It's easy to see why tech enthusiasts like Page would be excited about such a gadget.
At this stage, Google Glass is only available to developers and early testers, at a price of $1,500 (I would expect that the price will be lower when it will be released to the public, though it's still unclear). I expect that Google Glass will gain some traction when it will be widely released, but as cool as this device is, I do not see it replacing cell phones. The small screen that the user sees next to their eye does not seem practical for browsing websites or watching videos, and the user still needs to be paired with a phone for cellular or wifi coverage. There are also some concerns about privacy (being that the device can easily and discreetly film), and if Google Glass really will cost $1,500, wearing a pair out in public makes one a prime target to get robbed. I envisage Google Glass as a novelty item that definitely has its uses for performing simple tasks, such as checking the time or checking for new messages, but it remains to be seen how well it sells. While the initial release date was set at 2014, some are speculating that we could see a release in this year.
Google Fiber is Google's attempt at becoming an Internet Service Provider [ISP], as it promises "a connection speed 100 times faster than today's broadband." This rather reminds me of Gmail when it first launched, offering 100 times more storage space than other email providers and creating a new service that was so much better than everything else out there that it soon achieved market dominance. I fully believe that Google is capable of providing an internet service that blows all the competition out of the water, and I expect that current service providers, such as Comcast (NASDAQ:CMCSA) and Time Warner (NYSE:TWC), are already seriously concerned. Google Fiber looks like an excellent service as for just $70/month; users get the following (taken from Google's website):
Up to one gigabit upload & download • No data caps • 1 year contract • Box included • 1TB Google Drive
Google Fiber is still brand new, and Google is currently rolling out cities that are compatible (at this stage it's just Kansas City, Austin, Texas and Provo, Utah). It would require a massive expenditure of time and capital to put the infrastructure in place for Google Fiber to become available in all major cities across the USA, but if any company can revolutionize the ISP industry, it's Google. I expect to hear of many more cities experimenting with Google Fiber throughout the rest of 2013.
Google X And New Phones From Motorola
Google first acquired Motorola on August 2011, and recently, Motorola has been struggling as it tries to compete in the increasingly competitive mobile market (in Q1 2013 it posted a loss of $271 million). Some analysts predict that Motorola will "continue sliding," with some also calling the Motorola acquisition at $40/share a mistake from Google. But Motorola should be far from being a dead business. Most recently, there is some excitement about Motorola's new "Google X" phone, especially after Eric Schmidt of Google stated the following:
Motorola have a new set of products, which are phenomenal, very, very impressive. They're very impressive. Think of them as phones-plus.
Exactly how will Motorola's new phones differ from the competition? Refer to Page's comment in the Q1 2013 earnings release:
Think about your device. Battery life is a challenge for most people. You shouldn't need to carry around a charger with you to make it through the day. If your kids spill their drink on their tablet, the screen shouldn't die, and when you drop your phone it shouldn't shatter. There is a real potential to invent new and better experiences, one that are much faster and more intuitive, so having just seen Motorola's upcoming products myself. I'm really excited about the potential there. In just under a year, they have accomplished a lot and have impressive velocity and execution.
Based on these comments, it should be reasonable to assume that the new Google X phone from Motorola (which is expected to be released in the second half of 2013) will have a strong battery life and be highly resilient. Other features are yet to be seen, but I wouldn't be surprised to see something quite innovative.
Google Nexus Tablets
Google first entered the tablet market with the release of its Nexus 7, which received reasonable reviews and was estimated to have sold around 4.6 million units in 2012. Later, the Nexus 10 tablet was released in November 2012, though some have labeled it a flop and it's unclear how well the device has actually sold (in Google's Q1 2013 earnings call, the device is not mentioned). We know that the iPad has certainly sold better than Google Nexus models. But Google will be coming out with a new model of the Nexus 7 in the second half of this year, and it's said that they are aiming to ship as many as 8 million units. Pricing is yet to be determined, but I expect that at the very least, this new Nexus tablet will represent a significant improvement over the first Nexus 7 tablet.
Google's new projects remind me a little of Microsoft (NASDAQ:MSFT), which for years was focused on its core business of software and operating systems, and now has ventured into numerous other areas. Online advertising will continue to account for the vast majority of Google's revenues for the years to come, but new Google projects will certainly be exciting to watch in the months to come.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.