Analysts are ignoring a one-hour outage at Alphabet’s (NASDAQ:GOOG,NASDAQ:GOOGL) YouTube amid growing signs that all is not well in the House of Google, as multiple, meaningful threats to GOOG stock are emerging.
GOOG stock was trading slightly under the $1,100 per share mark on Oct. 19, significantly below the $1,120 mark it reached on the morning of Oct. 16. One of the factors behind the weakness of GOOG stock was likely the multi-hour outage of its YouTube service on the evening of Oct. 16. Google blamed the outage on “access issues,” but other GOOG services kept running.
Regular Google users, however, have been noticing disquieting signs of slowing service, like e-mail lists that don’t update. The closing of the Google+ social network, after the discovery of a security breach, and a Google Cloud outage a few months ago that took down customers’ services, were seen as one-time blips.
Were they? Or are these blips signs of things to come?
The Opacity of Clouds
Investors know clouds are economically efficient, and large companies that can afford cloud infrastructure now dominate the global economy.
After starting in search, cloud networks have turned all forms of communication into apps that are destroying other industries, from retail to telephony to television.
These are known knowns, and hazards like the YouTube outage represent a known unknown. What we don’t know much about are the unknown unknowns, like the load factor of clouds, i.e. how much of a data center is being used at any one time. While clouds deliver extensive data on their health and throughput, it’s hard to tell if they’re working at full capacity. We know a lot more about the health of our 20th century infrastructure than our 21st century infrastructure.
Cloud networks are faster and said to be more stable than the original internet, but the YouTube outage and other cloud outages indicate that may not be the case. All we really know is that clouds are profitable and their reach is expanding.
Focusing more specifically on GOOG stock, if the reputation of the company’s cloud business begins to suffer, that business may lose many valuable customers.
Challenges From Governments
How profitable clouds remain depends on cloud providers like Google maintaining control of their business models. That is increasingly hard to do as governments seek to control giant tech companies.
GOOG, for instance, is now going to have to charge Europeans separately for its Android operating system and services like the Chrome browser and Play Store. This could allow phone makers like Samsung Electronic (OTCMKTS:SSNLF) to re-direct their users who are looking for apps and mobile websites to clouds operated by other companies like Microsoft (NASDAQ:MSFT) Azure, dramatically increasing Google’s traffic acquisition costs, and lowering its revenue as it obtains fewer clicks on its mobile ads and sells fewer apps. As a result, Google’s results and GOOG stock may suffer.
Europe has also demanded control over Google meta-data through its “right to be forgotten” law, and demanded the company gain permission under the General Data Protection Regulation for every piece of data about Europeans it acquires. Complying with GDPR will definitely raise Google’s costs.
Google’s $774 billion market cap comes from its control of user data, created when you use its services, and of meta-data, the data about data which runs the search engine. Take away the user data and GOOG (or its competitors like Amazon.com (NASDAQ:AMZN) and Facebook (NASDAQ:FB), can’t direct ads to users based on their demographic data and internet history. Regulate the use of meta-data and governments, not Google, determine what you find when you search.
Inrupting the Money
Challenges to Google’s business model are also coming from the private sector.
Tim Berners-Lee, credited as the “father” of the World Wide Web, now runs a project called Solid at MIT, which in turn has spawned a start-up called Inrupt, whose aim is to take control of user data away from Google through PODs that control identity and access to that data.
Berners-Lee hopes he will be able to replicate services like the Google Assistant with data Google doesn’t own. Berners-Lee has taken a sabbatical from MIT and moved to Inrupt, where he’s looking to obtain venture funding.
Berners-Lee’s background gives him a great deal of credibility, and he may convince some businesses to abandon GOOG and give Inrupt a shot. Of course, if many businesses do take that path, Google and GOOG stock will be badly hurt.
The Bottom Line on GOOG Stock
I have written before about how Google is increasingly vulnerable from a legal standpoint.
The YouTube outage begs another question. How vulnerable is it from a technology standpoint?
There are definitely some dark clouds looming for GOOG stock.
Dana Blankenhorn is a financial and technology journalist. He is the author of a new mystery thriller, The Reluctant Detective Finds Her Family, available now at the Amazon Kindle store. Write him at firstname.lastname@example.org or follow him on Twitter at @danablankenhorn. As of this writing he owned shares in MSFT and AMZN.