Is Google the Real Tech King?
Douglas is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
While Apple (NASDAQ: AAPL) is setting records for the largest market capitalization in history, crossing the $623 billion threshold, Google (NASDAQ: GOOG) may be quietly perching on the throne as the true king of technology.
Despite Apple’s popularity as an iconic American brand and the near cult-like loyalty of many of its customers, Google’s Android has taken over as the leader in smartphones. The release of Google’s Nexus 7 tablet may be a first step toward domination in that market segment. Lastly, purchases of Frommer’s and Zagat have enhanced the company’s already dominant position in online search. Through dynamically expanding technology products and offerings, Google has become embedded in more and more of the things that most individuals do on a daily basis. If one remains unsure if this is true, all he or she needs to do is google it.
An Integrated Solution
If one reflects back on the last decade or so, it is easy to remember the days when things were a veritable smörgåsbord of applications from different providers. A typical computer user may have used Internet Explorer from Microsoft (NASDAQ: MSFT) to surf the web, may have used Yahoo’s (NASDAQ: YHOO) search engine and checked email through Hotmail or Yahoo mail. Those days have changed.
First, Google showed that its search capabilities were so superior to rivals that there was a brief period during which the Yahoo home page carried the tag “powered by Google.” Second, Gmail unseated its rivals by offering an immense amount of free storage and creating a simple message at the bottom of every Gmail message sent inviting the recipient to get a free Gmail account. Finally, Google Chrome entered the picture and did the unthinkable -- the application not only surpassed IE as the most-used web browser, it has become the preference of many of the Apple faithful, despite the clean functionality of Apple’s Safari. Google Chrome is not available on the App Store for iPhone and iPad.
One of the primary drivers of this success is the availability and simplicity of Google Apps – including, Docs, Calendar and other components. Google has not only seen widespread adoption of its platform by individuals, but government and corporate clients have made the migration as well. Just as Microsoft Office’s ability to integrate with other Microsoft products once made IE an obvious choice, the superior function and integration between Chrome and other Google components has been a driver of the browser’s popularity. The addition of integrated restaurant ratings through Zagat and other enhancements are helping Google to hold on to the lead that Microsoft once enjoyed.
While some company critics point out that despite all of these wonderful upgrades, Google’s primary source of revenue still comes from search, this largely misses the point. This argument is premised on the idea that no matter how useful integrated restaurant ratings may be, they do not really generate revenue for the company. What this fails to account for is the fact that by continually giving consumers reasons to use Google to conduct their searches, it is hard to conceive of how the company will lose its position at the top. Google has achieved a 5-year annual growth rate above 25% and EPS estimates for 2013 mean that when the stock hits $700, it will have a forward P/E of only 14. This is an extremely attractive valuation for a company that continues to climb ever higher with unwavering growth.
Google Deserves the Crown
The final criteria by which the title of “king” must be considered is innovation. While Apple has clearly reigned supreme in this arena for some time, there are no signs that it is on the verge of the next big thing. Google’s particular expertise seems to be taking an existing concept and making it work better than any other market participant; its innovations are not as trumpeted, but are subtle improvements that make its creations indispensable. Where the iPhone may have been the coolest new product most consumers ever bought, those individuals and billions of others rely on Google search to teach them, Gmail to keep them in touch, Google Apps to keep them productive and Google maps to keep them from getting lost along the way. This company has become such an integral part of the daily lexicon that it is difficult to imagine another player having greater influence. To that end, Google is the King of Tech and an attractive core holding for any investor.
Mr. Ehrman has no positions in the stocks mentioned above. The Motley Fool owns shares of Apple, Google, and Microsoft. Motley Fool newsletter services recommend Apple, Google, and Yahoo!. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. If you have questions about this post or the Fool’s blog network, click here for information.