Richard is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
In my last column, I played Devil’s Advocate and tried to imagine a world where the primary way to access the Internet was via your mobile phone. As a Google investor, I wanted to look at the downside of a smart-phone only world, and invited you, the reader, to submit your thoughts on the subject of the future of Internet access, and again, I invite you to express your thoughts as I imagine how each of these big Internet companies will adapt to a world, where I make the giant presupposition that 95% of internet access comes from smartphones, which would have huge ramifications on certain stocks.
So the question becomes, what happens to, and how do the following companies adapt to this new world.
1) Google(NASDAQ: GOOG)- My favorite company which gives me so much- Gmail, blogger for free, video distribution (YouTube), Android for my phone. If there is any new Google product, despite the fact their software is often in beta mode when it first comes out, I am likely going to at minimum give it a try. I have a good chunk of my portfolio in the company, and the idea of the world changing to cell phone internet access, is a scary one, as Google has a HUGE moat around their cash cow, desktop search, that might be bypassed by this new paradigm.
What happens if the world goes Mobile? As of now Android loses money for Google, but because almost half of all new phones activated use Android, Google is in a better position than others.
Larry Page, when asked about declining cost-per-click for search, as reported in the most recent quarter, which was largely attributed to mobile, compared monetization of mobile to monetizing search in the early 2000’s, stating that, “People always spend most of their efforts on the major source of traffic, which is desktop, but over time, that will reverse. Over time, CPCs may actually get better,” “We’re very bullish,” Page explained, adding that Google is making lots of investments in that area, such as Google Offers and Google Wallet, and that Google would be focusing more and more on mobile coming up. Do we take Larry at his word? I’m not sure. Look, right now criminal syndicates of hackers all over the world see infecting cell phones, and their evolving security, as the easiest way to steal credit card numbers, and join the criminal hall of fame. I read a column about this, which interviewed a head engineer at cyber security firm Kaspersky Labs, who stated that with all he knows and sees daily, there is no chance he would ever use a smart phone.
This isn’t the same as an ER doctor warning his children about the dangers of drinking after a depressing shift. These are criminals who are actively creating malware to exploit security issues of a developing technology. No one is immune (not even my beloved Google). Adding to this justifiable fear is the fact that I believe that people are at minimum less likely to buy items via a mobile device, (items generally, for example, look more appealing on a bigger screen, with easier to read information and reviews.)
Thus it seems that pay per click for search, is unlikely to ever to be worth quite as much as searches done on the desktop, even with location tracking and on the spot coupons that I’m sure Google is creating to take advantage of Android and their strong position in mobile.
Also, YouTube, which recently added commercials before some videos, has become more and more an important property for Google. While I find watching videos via my cell phone to be difficult and generally a poor experience, assuming we’re all accessing the net via this medium, how many smart phone users aren’t going to complain about watching commercials that eat-up their limited monthly bandwidth? I wouldn’t be too happy about it.
2) Netflix- (NASDAQ: NFLX) dead in the water. If we access the net via cell phones only, there is no room for Netflix. From bandwidth limitations, to download speeds, to screen size. If my crystal ball told me we’d be giving up broadband, I would short Netflix with every ounce of leverage I have. There isn’t much more I can say, it’s a cut and dry case.
3) Coinstar- (NASDAQ: CSTR) You guys can make fun of me for this one, but I don’t mind watching videos streamed onto my lap-top. But that’s where I draw the line. I ain’t watching a full length movie on my celly. “Gather round everyone, Forrest Gump is on!” If we were to cut broadband, Coinstar and the DVD would be back with a fury. Heck, I might have to ask for my flat-screen back from my buddy who’s had it for the last year while I was abroad.
4) Walmart- (NYSE: WMT) Are you surprised I’m including this on my list of “web companies”? Me too. I have to give Walmart’s management tremendous credit for adapting to the world of E-commerce. While I don’t think their website is the prettiest, or their selection the best, their prices are superior. I had already paid for my Amazon Prime membership, which of course includes some free video streaming, replacing Netflix for me, but after shopping at Walmart.com, I’m not sure if the $79 I spent was as good an investment as I originally thought. Free two day shipping is worthless if you are paying 30% more for the same item.
That being said, people will always need to buy stuff, and as long as Walmart offers the lowest prices, a public move away from broadband won’t much affect them as people will still find a way to give the store their business one way or another.
5) Amazon.com- (NASDAQ: AMZN)A more complex case then Walmart as they offer video streaming and have the Kindle Fire. I’m sure people will still use their Fire to buy from Amazon, because much like Wal-Mart's case, people are still going to buy from a company they trust, which makes me believe that either security on cell phones will beat the hackers, or there will always be room for the slightly more secure, and easier to use desktop …
Look, seeing into the future, your vision isn’t always 20/20, even if you’ve had Lasik. I personally don’t believe that we’re throwing away our PC’s in favor of celly’s and iPads. But what do YOU THINK? Sound off below, I look forward to your thoughts on how Google and other companies will adapt!
Tomorrow- I’ll examine Facebook and Apple amongst others.