Google's a Buyout Shark- Hungry for One Thing
Margie is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Last September, Google (NASDAQ: GOOG) purchased Zagat (restaurant reviews) and just now bought Frommers which “hires writers to write books about places to visit, and publishes professionally-written articles on its website, where it sells ads against them.” According to this article in Forbes, the question arises whether Google can now be deemed a "media company."
The idea that Google could be described as a media company is an anathema to me. Is Wal-Mart (NYSE: WMT), which uses and owns vast tracts of land on which its stores reside, a real estate company? Is a home builder with its own set of cranes a leasing company if it rents them for extra revenue when not in use? No, because this is not the primary purpose for which these assets are owned and utilized.
A media company produces content, for which it will be paid directly, or indirectly, in the form of advertising. While Google does sell advertising, its primary goal in purchasing Zagat and Frommers is primarily one thing: Data.
As Microsoft (NASDAQ: MSFT) and Google battle it out over search engine dominance, a race which Microsoft despite firing every bit of heavy artillery they have, costing its war chest $2.5 billion a year, and teaming up with Yahoo! (NASDAQ: YHOO) in a revenue sharing deal which freed Yahoo!’s engineering department to concentrate on other projects beside search algorithms, Bing still remains light years behind Google in every metric.
However, now that Facebook (NASDAQ: FB) is in the picture, and Microsoft, as a 1.6% Facebook owner and partner, has access to some of the company's data in the form of our individual likes, our interests, and networks of friends, Bing has utilized this data to add a measure of personalization to search, doing its best to keep pace with Google.
Also, the possibility that Facebook will develop its own search engine remains a real possibility, and they certainly have the traffic and user base to mount a heavy attack on Google’s fortress of search.
Meanwhile Google gathers as much personalized data from around the web as it possibly can, to help develop new search algorithms, as well as aid its own personaliziation of search, which along with its Android platform, as sales via mobile phones rises, will help them cater to every single individual's own specific needs and desires (technology today is flabbergastingly amazing, and scary).
Yes, Google might generate some advertising revenue from the Zagat and Frommers, and whomever else they might buy, but even if they made no direct revenues, they would still have likely purchased the companies, though perhaps at a reduced price, just for the added data.
To boot, Google continues to develop new technologies. Look for them to come out with a line of robotics in the not so distant future. Plus there is Google Glass, and Motorola Mobility with their line of cell phones and tablets, and whatever else they might be dreaming up. While it's absolutely true that Google engages the public in ways similar to other media companies, this is not the true purpose behind its “media properties." Even Youtube, which does sell advertising directly to users watching its content, the site still collects massive amounts of data from its users, and keeps them within the Google traffic network, which helps protect it “Fortress of Search,” which accounts for over 90% of its profits.
To call Google a media company is in my opinion a misstatement, and a misunderstanding of the reasons behind the company's moves. Look for Google to continue to purchase similar properties as Zagat, with large installed user bases, possibly even Yelp which it has expressed interest in in the past. (though now that the company is public it would have a high price tag)
But again, understand, if Google is a large shark patrolling Silicon Valley, it's not interested in "media companies" for their content or advertising revenues. No, if it makes an acquisition, it's for their Data.
margiecfl owns shares of Google. The Motley Fool owns shares of Facebook, Google, and Microsoft. Motley Fool newsletter services recommend Facebook, 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.