Google Inc is a very smart company

Google’s business description in a Global Data Report on the company dated 19 December 2013 (the “Report”)  is summarised as follows;

“Google Inc. (Google) is a US-based global technology company. It provides products and services related to web search and advertising. The company’s sales network comprises more than 85 offices in more than 40 countries. Its sales efforts consist of both online and direct sales channels. Google’s offerings are broadly classified into four divisions, namely, Search; Advertising; Operating System and Platforms; and Enterprise.

 If Google Inc were a boxer it would be a heavy weight, and pound for pound probably the finest heavyweight of all time. If you think I exaggerate take a look at the Report. Google’s PE ratio is 32.96, return on equity is a whopping 14.97%, debt to equity ratio is 7.72%, operating profit margin is a very respectable 25.43%, these figures are based on Google’s share price as of 17 December 2013.

However the bulk of Google’s revenues come  from advertising as a result of its almost total dominance of search technology and other search related activities. The company’s advertising service is divided into two categories, Google websites and Google Network Members’ websites. For the fiscal year ended 31, December 2012, the revenue generated from Google websites was $31,221m, Google Network Members’ Website generated $12,465m. How does a company with only one viable revenue stream perform so well? The answer lies in its ideas and innovative products but much more so in its strategy of acquisitions, mergers and strategic agreements from incorporation in 1998 to date.

From 1998 to 2014, Google has been involved in more than 60 deals some of which have been an absolute stroke of genius. To my mind the most brilliant, in order of brilliance are:

(i) The acquisition of  YouTube, an online video-sharing site in 2006.

(ii) The acquisition of DoubleClick in 2008.

(iii) The acquisition of Urchin Software, a web analytics company in 2005.

(iv) Keyhole, a digital and satellite mapping company acquired in 2004.

(v)  An agreement with eBay Inc in 2006 in which Google became the exclusive text-based advertising provider for eBay outside the United States. In addition, eBay and Google integrated and launched “click-to-call” advertising functionality that leveraged both Skype and Google Talk globally in each company’s respective shopping and search platforms.

(vi)  Acquisition of  AdMob in 2009, a mobile display adtechnology provider, to enhance its existing expertise and technology in mobile advertising.

(vii)  In January 2011, Google acquired eBook Technologies Inc.

(viii) In May 2012, Google acquired Motorola Mobility Holdings, a manufacturer of telecommunications equipment. Acquiring a vast range of mobile related patents in the process.

(ix)  In July 2013, Google acquired a portfolio of U.S. patents and patent applications from SR Tech Group LLC. The patent portfolio includes U.S. Patent No. 7,742,922, titled “Speech interface for search engines” and U.S. Patent No. 8,056,070, titled “System and method for modifying and updating a speech recognition program”.

(x) The acquisition of Nest in 2013.

The reason why these deals are brilliant is that with each deal Google has anticipated the direction in which technology and demand is headed and has got there first. Google could now be eyeing up the very profitable mobile hardware market for a long term play. There is not much that Google can’t do so the players in the mobile market shouldn’t get too comfortable.

 

5 Responses to Google Inc is a very smart company

  1. John Harvey says:

    Interesting perspective Peter, although instead of anticipating the market direction, perhaps Google has quietly steered it?

    Reply
    • Hi John. You may be right. If Google has steered the market direction then it has done so in conjunction with anticipating the market direction, don’t you think? Steering the market direction would also take (and probably has) more than just the efforts of Google.

      Reply
  2. I just love the way Google continues to grow aggressively. Many companies in their situation would be content with what they have achieved but Google constantly push the boundaries. Having an almost unlimited supply of money does help. It’s also worth nothing that Alta Vista making such a hash of their search technology years ago gave Google a break to do what they have done. It does make me wonder if things could have turned out differently had there been more competition.

    I’m a concerned about the extent of data Google possesses about everyone now. But the capitalist in me is equally pleased that a company can become so dominant in it’s niche despite all the committees fighting against monopoly. In most of the world, if you want to succeed online (particularly in the UK) you have to dance the Google dance.

    Reply

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