Google: Setting Itself Up for Failure? 30 comments
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Google (GOOG) is looking to grow through acquisitions. Is this good news for investors? Let me offer up a sports analogy. In baseball, the lifeblood of a franchise is the minor league farm system. Producing your own talent produces a success that is more sure than trying to build a winner through free agency. Once every ten years the Yankees might win a World Series with a team built through free agency but I’ll show you example after example of how a team with a solid farm system outperforms.
Growth through acquisition is akin to a baseball team that abandons their farm system. Google management is sucking the life out of their R&D team each time they purchase a Youtube or an AdMob. Employees who innovate at Google might get used to the new growth through acquisition model and come to expect it. It doesn’t seem like working R&D at Google is as appealing as it once was.
Google might not be getting what they think they’re getting with their $750 million purchase of AdMob. Don’t get me wrong, AdMob is exploding right now with their 80% share of in-app advertising for the iPhone, but is it sustainable? Their success lies at the mercy of Steve Jobs. Mr. Jobs doesn’t seem to mind if you make a little money through Apple (AAPL), but once you become a major leech off the Apple ecosystem you will be shut out. The only barrier holding Apple back from taking over the ad business of App Store offerings is themselves. It’s one Steve Jobs decision away. Eric Schmidt has already soured the Google relationship with Apple and I don’t anticipate Jobs will allow Google to make a killing off the App Store advertising.
I’m not convinced that anything good is coming from Google’s farm system. The techies want us to believe that Android is a huge opportunity just like Chrome, Checkout, Earth, and Maps but I am not ready to join the hype. Over the weekend I watched as Droid clones showed up to empty Verizon (VZ) stores across the country in hopes of finding a true competitor to the iPhone. Hard core techies despise Apple for controlling the App Store and are trying to hype up any alternative. So far, I don’t see any.
Most believe that there is room for more than one winner in the smart phone market but is that really true? In a world where all things are accessible, I believe consumers will flock to the best and shun the rest. At a time when Google should be growing their search business through innovations like those at Twitter and Facebook, they have taken their eye off the ball and they have abandoned their in-house R&D. I don’t like this company nearly as much as I did back in 2006. Google still deserves to be in the group of market leaders but purchases like this AdMob deal make me uneasy. I prefer in-house innovation.
Disclosure: long AAPL
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This article has 30 comments:
This beautiful aquisition makes perfect sense on all accounts and this baseless article is what's making me uneasy.
Story pretends to be about GOOG, but after a quick bit of BS about external growth, Jason is right back to cheerleading for steve Jobs.
Goog, is right on target to purchase Admob, perhaps the pricing is wrong, but the plot is right.
As to steve, cutting them out? Sure, sure that is just what apple wants, to get the DOJ and steelie sniffing around.
In my view, Steve is already thinking about spinning off / freeing /external oversight for the app store.
On Nov 10 12:28 PM jack dee wrote:
> Another day another Jason cheerleads apple story.
On Nov 10 09:20 AM herbert hoover wrote:
> The author does know that APPL was the other bidder for AdMob, right?
> I suppose if APPL had been successful, he would have written an article
> extrolling Apple's "brilliance."
On Nov 10 02:00 PM ryanclarke wrote:
> GOOG at $550 looks like a shorting opportunity. The reality of it
> is GOOG is a one hit wonder who has transformed the advertising model
> of business ... everything else the company has done to date has
> not been a cash cow by any means. Money being thrown into the smart
> phone arena is a waste in my opinion ... as every joe blow tech company
> now has a phone branded with their label ... when Qualcomm, Arm Holding,
> TI, and Intc are the only true innovators ... GOOG is making the
> software side of the phone business ... FREE as usual. I'm short
> DELL, as I see just two massive IT companies surviving this current
> downturn ... HPQ and APPL ... that's right ... when all is said and
> done MSFT is going to flop ... two or three years from now ... but
> DELL goes down the sink next year.
Just a quick look at this Schwarz guy's 30 most recent SA posts tells me all I need to know. Fully 11 of them mention 'Apple' in the title, followed by nothing short of teenage-girlish APPL boosterism, within...APPL is going nowhere but up, Apple kills Palm, Apple may drop Google, etc.
How many articles cite 'Google' in the title? 2 of 30 - both of which, unsurprisingly, also mention 'Apple' - and these posts express nothing but negativity toward the company from Mountain View.
If this clown doesn't qualify as a shill for Cupertino, I don't know who does.
On Nov 10 12:59 PM JW.USC wrote:
> Another day another jack-the-M$-shill hates on Apple comment.
This was a defensive buy rather than anything else. Google has to protect its monopoly in ad selling or its finished. Its a one product company that cannot allow any form of competition to establish itself in its core market.
Furthermore, APPL offers you 45% greater RETURN ON EQUITY compared with what Schmidt offers you.
So what's not to like about Apple? It's a great company by every standard. It's got depth of talent and management.
For ample proof, go read Jason's ebook, AppleRevolution.com
Disclosure - VERY long on APPL, with nothing in HPQ. All my equities overseas. Brazil and China iPhone are cooking nicely.
On Nov 11 09:04 AM NoGambler wrote:
> GOOG is a one product company whereas APPL offers a comprehensive
> model with a global strategy.
>
> Furthermore, APPL offers you 45% greater RETURN ON EQUITY compared
> with what Schmidt offers you.
>
> So what's not to like about Apple? It's a great company by every
> standard. It's got depth of talent and management.
>
> For ample proof, go read Jason's ebook, AppleRevolution.com
>
> Disclosure - VERY long on APPL, with nothing in HPQ. All my equities
> overseas. Brazil and China iPhone are cooking nicely.
Unfortunately, the "official" sales, through China Unicom, are poor-- those phones are crippled; thus, thus the black market phones are doing much better. High black market activity is hardly unusual in communist police states.
On Nov 11 10:05 AM Advill wrote:
> Could you repeat your comment about China and IPhone "cooking nicely"?......China
> now days is Waterloo equivalent for Apple.!!!.
For those of us who invest in tech companies, it's important to hear from analysts about the stocks we hold. We can choose what to read. Most analysts have a stock preference or like certain companies. As long as they let us know if they're invested in a company they're writing about, then I don't see the problem.
Unlike some of their other deals, Google did this as an all stock deal. So they didn't really pay anything for the company, their shareholders did. And considering AdMob's alleged $100 million revenue run rate and GOOG's P/S ratio of 7.9, it looks like GOOG paid exactly an amount they considered to not be dilutive to their shareholders.
For the record, for AdMob's most recently reported period, the iPhone accounted for 48% of smartphone ads, but Android accounted for 17%. This was before the launch of the Droid. So Android is slowly building some market presence.
I agree that we've yet to see Google effectively monetize most of their non-core initiatives; however, Google believes that with things like Android, Chrome, and ChromeOS that they're creating incrementally larger markets to serve. If they define things in those terms, it'll always be difficult to establish a firm metric for success versus failure.
reinharden
Chinese market (as many third world markets) use pay-as-you use credit, you have any store around selling cards with $5 to $20 dollars credit activated by a scratch to read code, that is the way 95% of that market uses phones.
Why Apple is not selling following that model?...millions of chinese dies for an apple but they can not us it.
Rgds.
On Nov 11 10:11 AM Tom B wrote:
> Apple's sold an estimated 3-4 million iPhones in Chain-- that's quite
> good for a third world country with poor per capita GDP.
>
> Unfortunately, the "official" sales, through China Unicom, are poor--
> those phones are crippled; thus, thus the black market phones are
> doing much better. High black market activity is hardly unusual
> in communist police states.
Why on earth does Google need to buy into this market (paying a premium over building it themselves)?
If Google has to buy their way into what amounts to a sub-market within their main area of business, what does that say about management's confidence in their own team?
Mollytjm, you are right, there nothing wrong with an analyst talking about a stock.
But that is not what Jason does, he cheerleads, He points out only good things about apple steering clear of anything that could sound even neutral.
Jason also bad mouths companies that compete with Google, its all about promoting and not about discussing.
In this post he even headlines it as a story about google, and then jumps right back into fanboy mode.
And me , a shill? Hardly, MSFT GOOG MOT would not be bothered paying for my piss poor point of view,
On Nov 11 10:17 AM mollytjm wrote:
> there's nothing wrong with an analyst who tells you he favors a stock
> and then talks about it, which Jason does. Apple is a very good long
> term investment and a company that Steve Jobs has made so financially
> secure and so market strong that it will continue when he no longer
> does. It will be around in 2020, still prospering, which makes it
> a safer investment than some others who might not be. If you're a
> buy and hold investor, that's pretty important.
> For those of us who invest in tech companies, it's important to hear
> from analysts about the stocks we hold. We can choose what to read.
> Most analysts have a stock preference or like certain companies.
> As long as they let us know if they're invested in a company they're
> writing about, then I don't see the problem.
The bad news is that both Microsoft and Google are, have been, and will be terrible at allocating that cash.
The Google and Microsoft "throw enough sh-t on the wall and see what sticks" philosophy sounds great in the early stages, but wears thin. Both companies will continue to dominate in certain business areas. Both will continue to generate tons of cash in their core businesses. But both companies fail to have a good future strategy. The author has nailed it on this point.
Apple doesn't just see the future, they create it. They execute better than the others.
MSFT makes more money on sharepoint then many companies even turn over.
Server software is worth more than some other F500 companies. Msft is making profit with xbox in a market everyone they would be laughed out of.
Tools , xbox azure secondlight its all happening, but then when your entire focus is on phones and fancy keyboards, of course you might miss the fact that GOOG has continued to expand its market, into segs that it was not even a player 5 years ago, but hey why should the truth matter, we are all here just to cheerlead AAPL......
On Nov 11 02:43 PM Dan Braem wrote:
> Google is the new age Microsoft. They dominate in one area (in Microsoft's
> case, a couple of areas) and they generate tons of cash. That is
> the good news.
>
> The bad news is that both Microsoft and Google are, have been, and
> will be terrible at allocating that cash.
>
> The Google and Microsoft "throw enough sh-t on the wall and see what
> sticks" philosophy sounds great in the early stages, but wears thin.
> Both companies will continue to dominate in certain business areas.
> Both will continue to generate tons of cash in their core businesses.
> But both companies fail to have a good future strategy. The author
> has nailed it on this point.
>
> Apple doesn't just see the future, they create it. They execute better
> than the others.
Xbox is a money pit; not a profit source.
On Nov 11 03:52 PM jack dee wrote:
> It appears that Dan has no idea what he is talking about.
>
> MSFT makes more money on sharepoint then many companies even turn
> over.
>
> Server software is worth more than some other F500 companies. Msft
> is making profit with xbox in a market everyone they would be laughed
> out of.
>
> Tools , xbox azure secondlight its all happening, but then when your
> entire focus is on phones and fancy keyboards, of course you might
> miss the fact that GOOG has continued to expand its market, into
> segs that it was not even a player 5 years ago, but hey why should
> the truth matter, we are all here just to cheerlead AAPL......<br/>
>
>
>
> On Nov 11 02:43 PM Dan Braem wrote:
MS Server software has made billions, your liking it , or not liking has nothing to do with it, get over yourself.
The cost of Xbox gets spread across the life of the project not some random dates you pick, and as such it is making plenty of profit. anain , sorry the whole real world thing is getting your way again...
On Nov 11 09:38 PM Tom B wrote:
> A few corrections: MSFT SERVER software isn't very good; it mostly
> sells in support of the Windows/Office franchise-- Outlook/Exchange,
> etc.
>
> Xbox is a money pit; not a profit source.
But it's not. Windows is MSFT's most important business. And they get paid for every (well every legal) copy, generating billions in profits. And it has to succeed or MSFT dies. Android is GOOG's defensive science project. It's all expense for them and failure is an option.
I read and Android fan somewhere talking about how "Google needs to put its best engineers on this" referring to an Android aspect. Really? Financially, Android/Chrome looks like GOOG's least lucrative major business. They'll make just as much selling ads on Windows or the iPhone.
For free, Android needs more resources than AAPL does for billions in profits. And AAPL can allocate its best engineers.
If I'm MSFT, I hope GOOG's best engineering is on Android, not apps or Wave or search.
I think Android/Chrome will keep AAPL & MSFT honest. No more.
Wishful thinking on your part. Over the life of XBox, that division has swallowed upwards of 20 Billion. And I guess the console will need a refresh soon; it's been out a while.
On Nov 11 10:24 PM jack dee wrote:
> Sorry Tom B some corrections...
>
> MS Server software has made billions, your liking it , or not liking
> has nothing to do with it, get over yourself.
>
> The cost of Xbox gets spread across the life of the project not some
> random dates you pick, and as such it is making plenty of profit.
> anain , sorry the whole real world thing is getting your way again...
>
>
> On Nov 11 09:38 PM Tom B wrote:
The inevitable can be forestalled only so long.
People such as I bring a healthy dose of reality to any given situation when people such as yourself can't stop eating Pie In The Sky.
Now go do something useful and sit on a tack.
On Nov 11 11:14 AM JW.USC wrote:
> Keep hoping for that, Mr. Classless in Dallas.
>
> People like you are pathetic.