Is Google Moving at the Right Path?
Lior is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Google (NASDAQ: GOOG) is always exploring new business sectors outside of its own wheel house – search engine – and trying to reach a significant market share in other markets such as in tablets, social networks, etc. This includes smartphones, tablets, social network, and many more. Is this the right strategy for the company? Is Google heading towards the right path by trying to enter markets that already occupy strong companies? Let’s explore these issues.
In recent years, Google has been trying to “crash other parties” that have already been occupied by very well established companies; e.g. Google Chrome in browsers, Google+ in social networks. Did this strategy worked out for Google? Google has had success in recent years such as the rising use in G-mail over Yahoo’s and Microsoft's email.
Google also managed to take market share in the browsers for desktop: in early 2009 Google’s Chrome had market share of only 1.5%, while Microsoft's Internet explorer reached 69%; as of August 2012, Google’s Chrome market share rose to 17.5%, while Microsoft’s Internet Explorer dwindled to 48.8%. Thus, even in the case in which Microsoft (NASDAQ: MSFT) offers an inferior product – in my humble opinion – than its competitors, the market share dwindled but is still near the 50% mark. So even where Google had a better product, it didn’t succeed in overthrowing Microsoft’s product.
Microsoft has also been trying the same strategy of Google and expanded its operations to other markets; such as Bing in search engine, Microsoft 7 in smartphones, and Zune to compete with Apple's iTunes—with little success. Apple also tried exploring other markets with dominant companies such as a new map feature that will compete with Google maps. So Google's strategy isn't something that other big companies haven’t considered trying.
Even the company’s Android, despite all its growth in recent years, may have been less successful in terms of ROI: According to a recent article, the Android had generated less than $550 million in revenue between 2008 and 2011. According to the article, it's less than Google's revenue from ads on the iPhone. This means, even one of the company’s biggest achievements in recent years might have been less profitable than just sitting at sidelines and letting Apple (NASDAQ: AAPL) take over additional market share in the tablets and smartphone sectors. The recent success of Apple at the patent courts against Samsung could jeopardize to future growth of Android. Further, there are also reports that Apple won preliminary sales bans on Motorola phones and tablets in Germany.
In many of the markets Google is trying to infiltrate the companies that currently have a strong hold there, produce very good products or services – or at least good enough for the company to remain with a strong hold on the market. Let's examine two markets: smartphones and social networks.
In the smartphone market, Google had developed the Nexus. But unless Google will be able to produce a much better product than Apple or Samsung, the Nexus has a low chance to succeed. Amazon also tries to enter to tablet market with Kindle Fire. This product isn’t better than the tablets of Apple or Samsung and the market share of kindle Fire has plunged in recent months. It doesn’t mean that Google won’t succeed, but let’s face it, Google will have its work cut out for it.
In the social networks market there is also little competition. The near monopoly of Facebook has less to do with the company's innovation and depends on other users to be in the network. Otherwise it's a party with few guests. Even though Google+ is expanding on a monthly basis, it’s still very difficult to assume that Google+ will be able to overthrown Facebook.
I don’t say the company shouldn’t expand to other territories it’s just that I think Google might be better off if it will explore roads less traveled - such as Google Goggles or its newest cooperation with Samsung on TVs.
In recent months, Google's stock rose along with the NASDAQ. There were several publications that came out regarding the slow recovery of the U.S that may have contributed to this rally in the stock markets including: the U.S GDP expanded by 1.7% in Q2 2012. The linear correlation between the Google's stock and NASDAQ reached 0.506 (2012). This means that nearly 25% of Google’s volatility could be explained by the movement of the NASDAQ.
The bottom line: Google could do better to its millions of customers and investors if it will continue to develop its web search service and try to seek new ways to improve its service instead of trying to infiltrate into tapped markets that already offer reasonable or even good products and services. The growth of the company could come from expanding into new fronts, i.e. new sectors or services or by organic growth. After all, its dominance in the web-search sector could threaten its position if eventually someone or a company will come up with a much better product.
For further Reading: Is Exxon Due for a Rally?
liorc has no positions in the stocks mentioned above. The Motley Fool owns shares of Apple, Google, and Microsoft. Motley Fool newsletter services recommend Apple and Google. 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.
