Today we take a look at Google (GOOG), which is reporting earnings today. When Larry Page stepped up to the table to take charge again of the company he had co-founded over a decade ago, he knew he had a lot of different challenges to work on. It has only been a few months, but it’s safe to say that things have not gotten any easier for Google as it tries to protect its key businesses and become relevant players in many others where it faces solid competition.
The Good News
Most internet users connect to the web through a laptop or desktop and scour the internet through Google’s search engine. Google places ads on those listings. It has dominated this market for years and despite competition from many of the largest tech companies, Google’s market share has been stable and even increased slightly. There are some challengers that have gained increased exposure in search, such as Twitter, YouTube and iTunes; the biggest of those, YouTube, is owned by Google. The main challenge here is Google’s absence in China, where Baidu (BIDU) dominates, mostly thanks to censorship laws and other interventions by the Chinese government that even caused Google to mostly pull out of China. It is certainly a limitation on Google’s growth in search to be out of the one market that seems to be growing these days.
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Platforms Are Changing
Google’s biggest concern stems from the fact that users are now interacting with the web in very different ways, which can influence Google’s earning power. Increasingly, users are reaching the web from mobile devices to get local information, communicate with friends, etc. Google is a major player in the mobile space thanks to its search engine (used on almost all mobile operating systems) but also thanks to Android, which is the most used mobile operating system (34.7% market share as of the end of March).
I don’t think it’s difficult to argue that Google is in a great position to beenfit from the growth of mobile, mostly thanks to Android. That being said, Microsoft (MSFT) has been aggressive, and there are always questions about which direction Apple (AAPL) will head towards. Thanks to the iPhone, the top smart phone almost everywhere around the world, Apple has a lot of influence, and with the recent rumors of Apple releasing cheaper phones that could go mainstream, Android’s dominance is far from certain.
While surfing the internet used to be about searching and finding information, the incredible rise of Facebook has had a huge part in a big change in how consumers actually connect to the internet. That is significant in many ,ways, but it also means that Google’s search becomes less relevant. Why? Because Google does not have access to Facebook data (and even lost access to Twitter recently), making it vulnerable.
Facebook has strong ties to Microsoft, which would certainly mean even stronger ties between Facebook and Bing. How would a world where the web is increasingly closed look for Google? Very dangerous. It’s unclear how this will play out, but I think it’s very clear how serious Google is taking this. After Page confirmed that social was the top priority for Google, and the one that employees' bonuses would be decided on, Google finally launched what now looks like a credible product a few days ago: Google+.
Does it stand a chance against Facebook? It’s difficult to say; there’s a strong possibility that both will co-exist rather than only one surviving. At this point, even surviving and becoming a Facebook rival would be a huge accomplishment for Google. Of course, it’s far from done, as most users already have their networks up and established on Facebook, something few will be tempted to duplicate, but it does look like Google’s most promising attempt by far.
It seemed as though Google had taken an incredible lead in the clouds years ago thanks to Google Docs and other such initiatives. While those products still look solid and have great market share, the recent announcement by Microsoft of its Office suite being offered in the clouds, as well as various Amazon (AMZN) products, have put into question Google’s offerings. Can it continue to increase its presence? Will it ever make significant money out of it? Amazon’s AWS offerings look like a product line that Google could and should have offered.
These days, cloud computing also means bringing the complete PC experience (operating system, browser, etc.) to the clouds and Google has a solid presence on those fronts, but still faces many challenges there as well.
I think it’s easy to overlook how big of a problem recent investigations by US and European government agencies are having. If Google is going to run into all kinds of legal complications every time it makes an acquisition, launches a new product, or thinks about entering a new market, it will certainly make a big difference. It’s difficult to say how much of a problem all of those issues ended up creating for Microsoft in the 1990s, but I don’t think anyone doubts that Microsoft would have been a very different company had those regulations not been in place. Would Google have acquired Twitter or smaller social players if not for worries of more involvment and issues with authorities? Perhaps. If every move is being analyzed by the US government, is there any doubt that it will end up slowing down Google significantly? Does anyone not think that it’s easier for Facebook or Amazon to make acquisitions these days than it is for Google?
Who Else Is Throwing Rocks?
I don’t think there are any doubts that many other companies are facing off with Google, from local players such as Groupon (GRPN) and Yelp to smaller players such as Dropbox in cloud computing.
Disclosure: Long Google