Android, Digital Domain: What's In The Names?

Apr. 5.12 | About: Alphabet Inc. (GOOG)

The first great American novelist once said "history does not repeat itself, but it does rhyme". Headlines of the future may be predicted by what rhymes with today. Want to know what's next in Google (GOOG) news?

Consider this established precedent:

Google Chrome: a minimalist web browser

Which preceded:

Google Glass: a minimalist augmented reality device

And consider what we know today...

Android: an open-source mobile API fueling Google's middleman profits

Might this lead to...

Robot (or something like that): an open-source robot API fueling Google's middleman profits

The name "Android" was insignificant. It could have meant anything. It could have meant nothing. It still could. Clearly it meant something, but this could mean nothing, anything, or everything beyond that. But with Glass, Google showed the extent of its partiality to poetic names.

Glass and chrome are literally related by the category of surfaces. And Chrome is a direct predecessor of Glass, as both introduced into public consciousness a minimalist interface (surface) that reset expectations for simplicity.

How will Android API (machinery) relate to Robot (machinery)? Consider what Android has meant for developers. It is an open-source system. That means it's hacker-friendly. Apple's system is close-sourced, meaning it creates redundancies of effort, and violates a hacker ethic.

Google is a service -- it solves problems. Apple (AAPL) is a brand -- it makes problems "funner" to have. When Apple makes an education product, it colludes with publishers to raise the cost of textbooks. When Google makes an education product, it results in Khan Academy. That's the power of open-source, so that's the power of Google.

The same way Google is scaffolding a sustainably "free" app economy in Android, Google can facilitate robot software distribution.

But Project Glass is significant in robotics beyond poetic clues. It is significant as it provides Google additional data. Those data will be integrated into its public API. Before you scream about privacy, consider that Google allows for opting out, and remember that modern Western culture relies upon the premise of personal responsibility.

This gathered geographic-visual-social data serves as a public resource which third-party developers can use to build apps. Remember, Google is monetizing with revenue from advertising. Because this advertising enables Google to monopolize while avoiding antitrust trouble.

But looking at Google's current cash flows, one may ask, where is the justification for growth? I understand that most professional analysts are accountants, and imagination is considered amateurish, but let's imagine a handful of ways that Glass can enable robots:

  • Remote monitoring and control of robots from Glass
  • Concierge robot delivers items to GPS location of Glass
  • Sensor-ed poker chips to deter cheating in Zynga/Wynn (ZNGA) (WYNN) gambling
  • Oink 2.0 discovery powered by Glass, with suggested robot app downloads to enhance particular experiences within any reviewed location
  • New fitness games that involve human running, robotic objects, and Glass visuals (Would any of you Google bears like to play "Hunger Games" with me?)
  • Robot tool app performs basic automated work alongside humans, with humans fine-tuning via streaming instructions on Glass, and vice versa

Along these lines, Digital Domain Media Group (DDMG) is a strategic, little-known growth play, as they are currently creating immersive-visualization simulations for military and surgical training applications. Secularly we're seeing a convergence of digital and physical, and Digital Domain is an infrastructure-level play on this. The simulations currently in development are work-for hire and flat in compensation, but speak to the potential for future scaling.

By infrastructure and scale, I'm referring to the economic good of talent in visual modeling. With experience providing first-class effects labor across all video mediums, Digital Domain is beginning to scale its expertise by directing education in Florida, Abu Dhabi, and wherever else management finds appropriate partners.

This week's call came with beaten expectations for earnings. We heard of an increased stake in Ender's Game. And Q&A brought up an overseas comparable buyout around 200MM, which approaches TEV of Digital Domain, and doesn't account for Digital Domain's business model beyond Digital Domain's (superior) legacy work-for-hire business. So there is some considerable margin of safety.

By exploiting the shortage of talent in visual design, Digital Domain commands unprecedented upside deals with limited downside. While John Carter flopped and lost Disney some hundreds of millions, Ender's Game can at worst lose Digital Domain a few tens -- and Ender's Game is not a film to bet against. I wouldn't be surprised if it netted DDMG 80MM (although DDMG management would be a little surprised).

And while for-profit education companies grapple with inquiries into student loan defaults, Digital Domain intends to employ what it trains. This transcendent dynamic of asymmetric upside/downside coincides with the value of Digital Domain's scarce infrastructure, which should scale further alongside Android.

"Digital domain" once referred to a domain of film work like Titanic. As games grew in popularity and sophistication, Digital Domain began to refer also to games, like Halo 4. But through Glass, we see a digital domain overlapping with physical. That's bullish for the designers behind Avatar and Benjamin Button, whose private-placement investors paid more for shares prior to IPO in a bearish 2011 season than the current price.

Mark Twain also said "against the assault of laughter nothing can stand". The question is, should you be laughing at me? Or should you be laughing at the primitive status of our civilization?

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Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.