Google’s a Goner
By Charles Sizemore, The Sizemore Investment Letter
What I’m about to say may sound absurd or even offensive. But I think it is highly likely that Google (NASDAQ:GOOG) will have vanished by 2020 — or at the very least changed to such an extent as to make it unrecognizable to readers today.
I know, I know. Google is so integral to modern life that it is no just longer a company; it is also a verb. So, I can understand an instinctive belief in the permanence of Google.
But think back 15 years. Google didn’t invent the search engine. There were plenty of them around before Google came along: Yahoo! (NASDAQ:YHOO), Excite, Lycos and Alta Vista, to name a few. But Google buried them all in the blink of an eye because Google had a better mousetrap for parsing data. And yes, Google is still awfully good at it, all these years later.
Lest you think I’m an anti-Google crusader, I use Google on a daily basis for search, and it’s easily the website I visit most. I’m also an enthusiastic user of Gmail and happen to be addicted to my Android-powered smartphone. Yet Google’s dominance in all of these areas is tenuous at best. Let us consider:
- Virtually all of Google’s revenues come from online advertising. Given the rate of change in information technology and consumer electronics, I cannot consider that a stable revenue stream with long-term visibility. Furthermore, as online rival Facebook (NASDAQ:FB) is discovering, the shift of user eyeballs from their desktops to their phones and tablets has not been good for the advertising model.
- Email is still critical as a communications medium, particularly in business. But Microsoft (NASDAQ:MSFT) tends to dominate here, and consumers tend to communicate more via social media apps like Facebook and Twitter and via instant messaging. Email is so … passé. And again, Gmail is like the rest of Google’s offerings in that it depends on advertising.
- Android is the king of smartphone operating systems — for now. Yes, Android has roughly 75% of the smartphone market. But again, Google doesn’t sell Android; it gives it away in the hopes that it will coax users into its advertising-based ecosystem, and to a lesser extent into its paid app store. And the Play Store has been far less effective than Apple (NASDAQ:AAPL) in convincing users to actually fork over money for paid apps.
Meanwhile, high-end makers of Android phones — such as South Korea’s Samsung (PINK:SSNLF) — are launching Windows Phones in early 2013. It’s not hard to see why. If you’re Samsung, you don’t want to be completely dependent on one third-party operating system developer — particularly a flaky one like Google. It’s in Samsung’s best interest to have a competitive Windows platform to sell alongside their Android phones.
And let’s not forget Apple. Though Siri, first released on the iPhone 4S, is mostly just a toy right now, don’t put it past Apple to forge it into a Google-slayer. Right now, Siri actually defaults to Google as its default search engine, so it’s hard to make an argument that it’s a would-be competitor. To this I have two answers. First, it completely bypasses the ads that pay Google’s bills … another example of why Google really needs to consider a new revenue model. And second, how long will Apple be content sending traffic to a chief competitor?
And finally, Google has a big, red target on its chest from government regulators. The U.S. government and Google have largely made peace — for now — but the EU still has an ax to grind. Google is in the midst of a long, drawn-out investigation by the EU’s antitrust regulators that may erode its advertising model further.
Again, I use Google daily — and in fact used it extensively when writing this article. But if Google is to remain relevant by 2020, it will have to be a radically different company from the one we see today.
Sizemore Capital is long MSFT.