Google, again
Re the news breaking late yesterday of Google/GOOG investing $1 billion for a 5% stake in AOL -- in addition to the structure of the ad sharing arrangement -- this article, by David Vise and published by the Washington Post, seems to be the one that is most free of typical journalistic pabulum.
Of course, I have zero input into Google's strategy, but I am not especially pleased by the news. AOL has been likened by many as the "Internet with training wheels"; I agree. Its membership has been declining steadily for years, as its users discover they had no need to pay an extra $25/month for access to the Internet, and at dial-up speeds! Moreover, the portion of the revenues AOL represents for Google itself declines, to 10% from 12% year over year.
So I prefer Google invest its time and money in the pursuit of new and better opportunities. But, then, who am I? If I were a Google employee in the finance department, I would convince the mucky-mucks to amortize the $1 billion cash on a front end basis; expect more from this deal in the early years of the 5 year deal and less in the later years. And meanwhile strive to distribute your revenue base more equally. Yes, I believe AOL makes out like a bandit on this deal; that is AOL gets to hitch a ride on Google's rocket ship whereas Google invests $1 billion in an asset (AOL) that slowly crashes to earth. In sum, I disagree with Wall Street, which embraces the deal, most easily seen via its quickly bidding higher the share price of Google/GOOG when the story leaked yesterday. Oh well.
UPDATE:
Does Google Want to Rule the World?
At first glance, a seemingly silly question. And yet, some forward-looking people believe that, in a sense, that’s exactly what Google is all about.
Consider that when Google held its much ballyhooed stock IPO in late 2004, the opening price was $85. As we write, you have to pony up $411 and change to get a single share, nearly a quintuple. Not bad for a company founded only seven years earlier by a couple of guys—Larry Page and Sergey Brin—who were then in their mid-20s, and who entered a field jammed with competitors.
Especially not bad because this is a company that seems to have no real product, in the traditional sense of the word, and that gives away its primary offering for free. Yet the-search-engine-that-has-become-a-verb employs over 3,000 people, sports a market cap of $121 billion, and features traditional value yardsticks like price/earnings and price/sales ratios that are in nosebleed territory at 91 and 23.5, respectively. Obviously, shareholders believe that this is not only a good company today, but that it is going to be a bigger and better one tomorrow. Among those placing strong bets on Google are insiders, who hold over 35% of all stock, and institutions, which control nearly 38%. What do these people see that, perhaps, the rest of us don’t?
Well, many traders are likely just momentum players, with Google being their flavor du jour. For others, though, the answer may be contained in our initial question. Google seeks, quite simply, to gain control of the Internet. And whoever controls the Internet will, in more than just a metaphorical sense, rule the world.
Flashback to the bad old days. Remember when searching the Net was a time-consuming, frustrating experience? Yeah, we barely do, either. Google changed that in what now seems like an instant. All of a sudden, here was a search engine that was not only thorough, but that returned the results you wanted, more or less in the order that you wanted them.
Somehow, it was able to grasp that if you seek information on black holes, you’re likely to be more interested in the cosmos and less in Calcutta. We don’t pretend to have the slightest understanding of how it does this. All we know is that Google perfected the art of searching. Users noticed right away, and Google soon left the competition in an electronic dust of unused bits and bytes.
From the outset, Google continually extended its reach. After exploiting the obvious revenue bases, advertisers and users who paid to have their websites pushed up the search list, the company applied its phenomenal search and organizational skills more broadly, developing a wide range of goods and services you may not even have heard of yet. Check out its website for such innovations as Google Search Appliances, search engines in a box.
“Wouldn't it be great if search within your company worked as well as search on Google.com?” it asks visitors. “From your corporate intranet to your public website and even your own desktop,” there’s a product just for you. Are you a small business, with a need to routinely index and search about 100,000 documents? Try the Google Mini, at just $2,995. Are you a bigger fish? No problem. “The Google Search Appliance makes the sea of lost data on your web servers, file systems and relational databases instantly available with one mouse click.” This box, attractively finished in gold, can access up to 15 million documents, and starts at $30,000 for half-million capacity.
How long will it be before a majority of the nation’s business transactions passes through Google? Not long, we guess.
Email? Google wants that, too, and is aggressively pursuing it through their Gmail product. According to the company, this is “a new kind of webmail, built on the idea that you should never have to delete mail and you should always be able to find the message you want.” The free service currently offers 2.6 gigabytes of storage, which archives everything you send or receive, and contains (of course) a search feature allowing you to “find the exact message you want, no matter when it was sent or received.” In addition, each message “is grouped with all its replies and displayed as a conversation.” Other free webmails look positively clunky by comparison.
The cost of all this is borne by advertisers, in small text ads down the right hand side of the page, exactly as you see them when you search using Google.com. But not to worry, there’ll be no pop-ups or unrelated banners. You will only be presented with “relevant text ads” and “links to related web pages of interest.” (What that means in plain English is that Google’s Gmail automatically scans your email, searching for keywords that give it a hint what subjects you focus on and where your interests lie.)
Next up, taking over the day-to-day office environment. Office organization is presently dominated by Microsoft, with its MS Office software. Enter Google. In October, Google and Sun Microsystems announced a joint project whose aim it is to “make it easier for users to freely obtain Sun’s Java Runtime Environment (JRE), the Google Toolbar and the OpenOffice.org office productivity suite.”
That ties Sun to Google, but if you project this venture to its logical conclusion, Sun is merely along for the ride. Google is visionary. It realizes that the transmission of information is all about speed, ease of use, searchability and storage. With a big emphasis on the last. Software like OpenOffice is just fine, but it isn’t the important component.
Picture this: An office in which all you need is an Internet connection. Once Google sets up your own personal office network for you, the whole kit and kaboodle moves to cyberspace. Throw away your filing cabinets, your hard drives, your LAN routers, your Rolodexes, everything. Just log in and away you go. You have an intranet that links everyone and everything within your company, personally and privately, with all appropriate firewalling, while at the same time you’re connected to the world.
[Read more about the “Google plan” next week, in part 2 of our article.]
I disagree with much of this analysis from Casey, as well. (Well, what then do I agree with?) First, none of it is new news, second many of his facts are wrong, and third, he perceives Google's strategy and objective to be one that elsewhere, including here, has been mulled on, chewed over, and finally spat out. But whether my surmisal re Casey's perceptions is correct awaits his part 2... Become a subscriber to access the report in full, if interested.
Of course, I have zero input into Google's strategy, but I am not especially pleased by the news. AOL has been likened by many as the "Internet with training wheels"; I agree. Its membership has been declining steadily for years, as its users discover they had no need to pay an extra $25/month for access to the Internet, and at dial-up speeds! Moreover, the portion of the revenues AOL represents for Google itself declines, to 10% from 12% year over year.
So I prefer Google invest its time and money in the pursuit of new and better opportunities. But, then, who am I? If I were a Google employee in the finance department, I would convince the mucky-mucks to amortize the $1 billion cash on a front end basis; expect more from this deal in the early years of the 5 year deal and less in the later years. And meanwhile strive to distribute your revenue base more equally. Yes, I believe AOL makes out like a bandit on this deal; that is AOL gets to hitch a ride on Google's rocket ship whereas Google invests $1 billion in an asset (AOL) that slowly crashes to earth. In sum, I disagree with Wall Street, which embraces the deal, most easily seen via its quickly bidding higher the share price of Google/GOOG when the story leaked yesterday. Oh well.
UPDATE:
I do not pretend to understand the dynamics of corporate strategy; perhaps there is something in this AOL deal that I fail to grasp or understand, perhaps even that the deal will revivify the crumbling corpse of AOL. That alone would make the deal worth doing, as it would bring with it a vibrant partner for Google, locked in at existing rates for the next 5 years, and possibly garner a return on its newly-acquired 5% holding. All that would be nice! Meanwhile, Google proceeds with its grand design, whatever that is. (To be revealed all in good time, Grasshopper. :-)And from Doug Casey at Casey Research comes this essay...
Does Google Want to Rule the World?
At first glance, a seemingly silly question. And yet, some forward-looking people believe that, in a sense, that’s exactly what Google is all about.
Consider that when Google held its much ballyhooed stock IPO in late 2004, the opening price was $85. As we write, you have to pony up $411 and change to get a single share, nearly a quintuple. Not bad for a company founded only seven years earlier by a couple of guys—Larry Page and Sergey Brin—who were then in their mid-20s, and who entered a field jammed with competitors.
Especially not bad because this is a company that seems to have no real product, in the traditional sense of the word, and that gives away its primary offering for free. Yet the-search-engine-that-has-become-a-verb employs over 3,000 people, sports a market cap of $121 billion, and features traditional value yardsticks like price/earnings and price/sales ratios that are in nosebleed territory at 91 and 23.5, respectively. Obviously, shareholders believe that this is not only a good company today, but that it is going to be a bigger and better one tomorrow. Among those placing strong bets on Google are insiders, who hold over 35% of all stock, and institutions, which control nearly 38%. What do these people see that, perhaps, the rest of us don’t?
Well, many traders are likely just momentum players, with Google being their flavor du jour. For others, though, the answer may be contained in our initial question. Google seeks, quite simply, to gain control of the Internet. And whoever controls the Internet will, in more than just a metaphorical sense, rule the world.
Flashback to the bad old days. Remember when searching the Net was a time-consuming, frustrating experience? Yeah, we barely do, either. Google changed that in what now seems like an instant. All of a sudden, here was a search engine that was not only thorough, but that returned the results you wanted, more or less in the order that you wanted them.
Somehow, it was able to grasp that if you seek information on black holes, you’re likely to be more interested in the cosmos and less in Calcutta. We don’t pretend to have the slightest understanding of how it does this. All we know is that Google perfected the art of searching. Users noticed right away, and Google soon left the competition in an electronic dust of unused bits and bytes.
From the outset, Google continually extended its reach. After exploiting the obvious revenue bases, advertisers and users who paid to have their websites pushed up the search list, the company applied its phenomenal search and organizational skills more broadly, developing a wide range of goods and services you may not even have heard of yet. Check out its website for such innovations as Google Search Appliances, search engines in a box.
“Wouldn't it be great if search within your company worked as well as search on Google.com?” it asks visitors. “From your corporate intranet to your public website and even your own desktop,” there’s a product just for you. Are you a small business, with a need to routinely index and search about 100,000 documents? Try the Google Mini, at just $2,995. Are you a bigger fish? No problem. “The Google Search Appliance makes the sea of lost data on your web servers, file systems and relational databases instantly available with one mouse click.” This box, attractively finished in gold, can access up to 15 million documents, and starts at $30,000 for half-million capacity.
How long will it be before a majority of the nation’s business transactions passes through Google? Not long, we guess.
Email? Google wants that, too, and is aggressively pursuing it through their Gmail product. According to the company, this is “a new kind of webmail, built on the idea that you should never have to delete mail and you should always be able to find the message you want.” The free service currently offers 2.6 gigabytes of storage, which archives everything you send or receive, and contains (of course) a search feature allowing you to “find the exact message you want, no matter when it was sent or received.” In addition, each message “is grouped with all its replies and displayed as a conversation.” Other free webmails look positively clunky by comparison.
The cost of all this is borne by advertisers, in small text ads down the right hand side of the page, exactly as you see them when you search using Google.com. But not to worry, there’ll be no pop-ups or unrelated banners. You will only be presented with “relevant text ads” and “links to related web pages of interest.” (What that means in plain English is that Google’s Gmail automatically scans your email, searching for keywords that give it a hint what subjects you focus on and where your interests lie.)
Next up, taking over the day-to-day office environment. Office organization is presently dominated by Microsoft, with its MS Office software. Enter Google. In October, Google and Sun Microsystems announced a joint project whose aim it is to “make it easier for users to freely obtain Sun’s Java Runtime Environment (JRE), the Google Toolbar and the OpenOffice.org office productivity suite.”
That ties Sun to Google, but if you project this venture to its logical conclusion, Sun is merely along for the ride. Google is visionary. It realizes that the transmission of information is all about speed, ease of use, searchability and storage. With a big emphasis on the last. Software like OpenOffice is just fine, but it isn’t the important component.
Picture this: An office in which all you need is an Internet connection. Once Google sets up your own personal office network for you, the whole kit and kaboodle moves to cyberspace. Throw away your filing cabinets, your hard drives, your LAN routers, your Rolodexes, everything. Just log in and away you go. You have an intranet that links everyone and everything within your company, personally and privately, with all appropriate firewalling, while at the same time you’re connected to the world.
[Read more about the “Google plan” next week, in part 2 of our article.]
I disagree with much of this analysis from Casey, as well. (Well, what then do I agree with?) First, none of it is new news, second many of his facts are wrong, and third, he perceives Google's strategy and objective to be one that elsewhere, including here, has been mulled on, chewed over, and finally spat out. But whether my surmisal re Casey's perceptions is correct awaits his part 2... Become a subscriber to access the report in full, if interested.
posted by David M Gordon | 9:17 AM
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