By Adam Sharp
It's an exciting time for Google (GOOG) investors. Over the last few years, the company has positioned itself brilliantly. And it's starting to pay off.
Not only did they maintain their massive lead in search, they managed to grow it. And management made shrewd investments in other key areas. For example, in 2005 Google bought a little startup named Android.
In 2005, most of us didn't realize how quickly the smartphone market would take off. Google did, apparently. They moved into the space at just the right time.
Here we are five years later, and Google's early investments are paying off in spades.
Every day, 200,000 new Android devices are activated worldwide. Units sold rose 1373% in Q3, compared with the same period a year ago. That's 20 million units sold last quarter, versus 1.4 million in Q3 of 2009.
That is simply explosive growth.
Dozens more Google-powered gadgets are in the pipeline at big manufacturers like Motorla (MOT), HTC, and LG (OTC:LGERF); smart phones, e-readers, and tablets.
They also just announced the Nexus S — their second Google-branded smart phone — a follow-up to the mediocre Nexus One. The new phone is the product of a partnership with Samsung. It does some unique tricks, like 3d graphics and some Nintendo Wii-like sensor functions.
It's slick-looking too, vastly more polished than its predecessor. Having a slick product is critical, as Apple has taught us. Tech retail isn't easy, but Google is learning fast. PC World has a nice writeup on how the Nexus S stacks up against the iPhone 4 here.
The S will be sold directly by Google, as opposed to most Android-powered phones, which are marketed independently.
Best Buy secured the exclusive deal to sell the phone. I expect it to do well, especially with all the recent attention Android's been getting.
Google stands to make money from each Android-powered device sold by partners, as well.
What's that you ask? If Android is open source (free), how will they make money off it?
Mobile ads, for one. Smartphone ad revenue will top $1 billion this year, and is growing at an incredible pace.
With their dominant Adwords search platform, and their recent acquisition Admob, a leader in mobiles ads, Google was already set to dominate this market. Android's success expands their reach in the space even further.
Their apps marketplace will be another revenue driver. Apple has been making a killing selling apps and games for years, and Google is finally catching up.
Android will drive revenue in other ways, too. But Google isn't getting greedy, they're focused on grabbing the most market share possible.
Smartphones are still a young market, hard as that is to believe. Android could be a significant growth driver for decades to come. Getting the lead early, and keeping it, will be critical.
Don't think they forgot about you, Microsoft
Nokia (NOK), Apple (AAPL), and RIM (RIMM) aren't the only companies in Google's crosshairs. We already know that Google is dominating Microsoft when it comes to search and mobile. That match is a rout.
The logic of combining two laggards to take on the reigning champ 1v1 escapes me. And what a clunky process the merger has been, allowing Google to break further ahead of the pack. The aging tech-bigwigs probably stood a better chance apart.
Of course, Google's ambitions go way beyond mobile and search. They are determined to infiltrate every corner of Microsoft's most lucrative businesses.
Docs, for example, is Google's MS Office killer (or so they hope). The office productivity software industry is a big space, with sales of around $20 billion annually.
Since its launch in 2007, Docs has made major progress. It's now part of Google's Business App offerings (not to be confused with the mobile apps marketplace).
Google Business Apps is a complete suite of office/productivity software. Apps offers companies branded e-mail, security, word processing, spreadsheets, presentation software — the whole package, all hosted by Google on their cloud, allowing workers to collaborate online and share documents seamlessly. 3 million businesses already use Apps, according to Google.
Microsoft's worst nightmare, perhaps.
To get their foot in the door with businesses, Google is giving away free versions of nearly all its services. Businesses can then upgrade to premium services — and pay for them on a per-year, per-user basis, similar to Microsoft's corporate sales model.
Have to say, I love the long-term thinking here. Microsoft is thoroughly entrenched in the software space. Wedging them out of there won't be easy, so to get traction, Google is getting dirty and innovative. As they should.
These two projects alone — Android and Docs/Apps — are set to steal billions' worth of market share from tech giants Apple and Microsoft.
But the Holy Grail for Google may be PC operating systems.
Microsoft's bread and butter is their pervasive Windows OS, which accounts for the majority of its $60b+ in yearly revenue. Google has made it clear that they aim to shake things up in this space, and I trust they will.
Developing an OS is no small task though, even with thousands of PhDs and brilliant research and development scientists available. PC operating systems are yet another long-term, big-potential project for Google. I'd guess 1-2 years till it's out of beta, minimum. They can't bomb the first major OS release, it needs to be near-perfect.
There are dozens more potential blockbusters in the pipeline, all at varying stages of development: e-books, Google TV, self-driving cars, travel, renewable energy, and cloud computing, to name a few.
In 15 years, we may think of Google as a different kind of company. I'm confident that at least a few of their promising mega-projects will pan out, as some already are.
In fact I think the primary factor that could hamper Google's ascension is the "monopoly" card. Hopefully by boosting lobbying efforts, they can combat these anti-monopolistic attacks, which are likely fueled by competitor complaints.
Unsolicited advice for Google
And finally, I'd like to submit a humble proposal to Google's executive team.
As a 0.0000000000000013% owner of the company, I feel entitled to voice my crackpot ideas. Here's one.
- Buy Barnes and Noble (BKS) for $1.5 to $1.8b.
- Install Google Stores inside each of the 1,000 B&N retail locations.
- Sell Android phones and other Google gadgets.
- Utilize Nook e-reader to expand e-book share.
For less than $2 billion (rough estimate), they could gain a legitimate retail presence to sell Android products, plus other Google services. Not to mention a huge boost in the e-bookstore market.
Having a competitor to Apple's wildly popular retail stores could be a very positive development, if well-executed. It may ruffle some feathers among retail partners, but that shouldn't stop a potentially lucrative deal from happening.
With $30 billion plus in the bank, Google could easily afford the deal.