What many investors don't understand about Google (NASDAQ:GOOG) and its current strategy is how global it is.
Google aims to do for the 21st century what Coca-Cola did for the 20th - give the world an American brand they can trust and depend upon.
Gartner reported this week that Google's Android strategy is working very, very well. Mobile phone shipments fell during the second quarter, but smartphones were up 42.7% over a year ago and Android makers, especially Samsung, took the biggest share of that.
But what these observers fail to note is that there is a big difference between the way in which Google approaches the smartphone market and the way Apple (NASDAQ:AAPL) does. To Apple the device is the end product, and future revenues are peripheral. To Google the product is a means to an end, and that end is to be the globe's dominant Internet contact.
That is made clear by Google's latest purchase, Frommer's Travel Guides. Google is no longer buying anything that moves. It's buying strategic assets for its Google Plus social play.
Think of Google Plus as an elite version of Facebook. It's not about friends. It's about business connections across the world - and that global focus gives it a leg-up on LinkedIn (NYSE:LNKD), the current social favorite of Wall Street.
I have been signed to Google Plus for a little over a year. I now find I have followers in Bulgaria, Algeria, Pakistan, Turkey, India, Bali, and China. Some are in businesses that want a wide collection of contacts, like travel. Others are in technology and know my journalism.
They are not friends in the conventional sense, and Google isn't depending on friendship to build the site. Instead they're looking for services that people who travel the world on business might want easy access to. Frommer's fits into that as well as Zagat did. The price was probably dirt cheap, compared with buying a tech company.
So Google takes the mass market in phones, combines that with the class market in social, and becomes a trusted brand to more people around the world. This allows it to extend its data centers into more places, building its cloud, and ultimately providing more service to global cloud players in more places than even Amazon.Com, which is depending on shopping and infrastructure to lead its growth.
Investors are noticing. Google is now trading near an all-time high, with a PE of just under 20, and unlike the multiples of its cloud rivals that's sustainable. The stock split approved in June is designed, like stock splits of the 1990s, to make the stock appear more affordable, to broaden its ownership, even while control by the founders is tightened.
When compared with its chief rivals for tech leadership - Apple and Microsoft (NASDAQ:MSFT) - Google has long been the price-earnings leader, and that gap is increasing. There is a reason for that.