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It’s a pretty interesting time to be investing in Google, Inc. Google’s stock hasn’t moved much in a year, while Google has been consistently cranking out great earnings and profits.Let’s take a look at Google from a business stand point.
Last updated: April 9, 2012
Google’s primary business is shifting: according to a Google spokesperson, Google is shifting from a search company to an answers company: instant answers are the way of the future (for example, when you type in “what’s the temperature” Google will respond immediately, without you having to click on a link). All I can say is that Google’s search engine will definitely get better in the future (as opposed to the last few years when Google’s search engine was seemingly being destroyed by internet spam). Google has definitely been working on it’s search algorithm, and you can evidently see the improved search results.
Adwords on Google’s search engine are incurring an all-time cost-per-click, which is definitely a huge boon for Google. On the internet, there’s no serious competitor to Google’s advertising: the best advertisement spot is where advertisers can place their ads in front of the right user at exactly at the right time, which is what Google does. Facebook’s ad inventory isn’t even a close competitor.
To make things better, there’s no serious competitor to Adsense. For those of you who don’t know what Adsense is, it’s a revenue sharing program where blogs/websites allow Google to place ads on the blogs/websites, and in exchange, Google gives 68% of the ad revenue to the blog owner / webmaster. Sure, there are tons of Adsense-like programs run by other internet companies, but none are as good as Adsense. In fact, the Adsense-to-competitor payout rate is close to a ratio of 3:1, which is why bloggers and webmasters prefer Adsense. Google made $15 billion last year from Adsense, and as the internet continues to grow, Google’s revenue from its Adsense revenue sharing program will definitely grow with the internet.
And there’s more good news in 2012. Google seems to be fixing on of its’ major problems: a lack of focus. In prior years, Google would be seen doing multiple internet businesses: many of which don’t provide any revenue (only add to costs) and aren’t related to the company’s core business. Since Larry Page became Google CEO on April 4, 2011, Google has shut down 30 failed products. This is definitely an improvement over the previous years, when Google was expanding at a hectic pace, often into totally non-search related and unprofitable areas.
Apple is still ahead of Google in terms of the smartphone wars, but Google is catching up REAL FAST, with more than 850,000 new Android users a day. However, I can already see the future: where Apple is outplayed and outcompeted by Android (it’s much cheaper), forcing the iPhone to become nothing more than a niche product. (This story has already played out in the Microsoft vs. Apple PC wars. Apple gets an early lead, and is eventually defeated by a cheaper, mass market competitor). Let’s face it. As Android continuously improves it’s quality, and the quality-growth of the iPhone slows down, Android will win (afterall, it’s FREE!).
In addition, Android is beginning to port it’s softward towards the tablet market, which is Apple’s second biggest source of income. The higher the quality of Apple’s iPad is, the harder it will be to improve the quality of that product. Meanwhile, other hardware makers will copy the iPad’s hardware using Android’s OS. Once again, I’m predicting that Google’s Android will win out on this one. If it does, Google is definitely in a position to take on Microsoft’s PC platform.
In 2010, Google was kicked out of China for not complying with the Chinese government’s internet censorship rules. That was a major hit to Google’s business, especially since the Chinese internet space is growing at such a rapid pace. Within months of the announcement, Google’s stock tanked by 25%, while the stock price of it’s Chinese search engine competitor Bai Du jumped by 30%. In short, Google’s search market share in China went from 25% to almost ZERO overnight. To date, Google’s search engine business in China is still morbid. However, Google is rapidly expanding it’s mobile industry in China (via Android) because of the quickly increasing Chinese market for smartphones.
And one more thing. As of April 2012, Google has $43.33 billion in cash reserves, while its market capitalization is $206.46 billion.
Threats to Google as a business.
Last updated: April 9, 2012
While Google’s search results certainly are improving, there’s not much search-engine market share left for Google to capture. Google already is the top dog, and with the internet growing at an ever slower pace, one cannot expect Google’s Adwords revenue to increase significantly in the future.
A major problem that Google does not yet acknowledge is Google+. While Google over the last year has tried to focus its workforce and cut out a lot of unnecessary side businesses, it is so obsessed with Facebook that it decided to build Google+, a rival social network. The problem is, Google+ isn’t even close to being as good as Facebook is. Google needs to rid of Google+ and focus its engineers that are working on Google+ onto Google’s core products. Meanwhile, the cost of Google+ is burning a small hole in Google’s pocket. As of 2012, Google+ has over 100 million users, which is tiny in comparison to Facebook’s 850 million.
Some people have been saying that mobile is a serious threat to Google’s search business, which I don’t think is the case. They say that since smartphone screens are so small, users don’t want to search around on the mobile web in order to find answers. They want instant results, which is exactly what Google’s starting to do. Take a look at the following picture.
These instant answers are the path to the future, because mobile screens are so small and people don’t want to click around from link to link.
Conclusion – Investing In Google in 2012.
Seems like a good investment to me! While Google’s search engine won’t be increasing much in the way of profits, Android is definitely a game changer for Google. In addition, Android will ensure that Google’s search engine remains the top dog, even in the mobile space.
For years, Google’s stock price hasn’t moved much at all. At the same time, it’s cash reserves and profits have been steadily increasing, which is definitely a good sign.
And as more and more advertising dollars migrate to the internet space, Google’s definitely one to benefit. Facebook is nowhere close to Google: Google’s Adwords allows advertisers to advertise at exactly the right time, right place. Which is why Google’s click-through-rate is 8%, while Facebook’s is a mere 0.014%. To make a long story short, Facebook isn’t even close to being a threat to the great Google. Google actually fulfills a need: young and old alike go online to find information. Facebook is mostly used by high school, teenage kids who have too much time on their hands.