I was having coffee with a contract recruiter for Microsoft recently and he mentioned he had just been in New York meeting with some of the Microsoft Advertising folks. He mentioned they were kind of down as when they went looking for business (I can only assume for Bing), things were not going so well. As it turns out the ad agencies only wanted to talk with one company: Facebook. It makes total sense. If I were wanting to place ads I would much prefer Facebook to search providers such as Google or Microsoft. The reason being simple, unlike a search engine where I do my search and click my link. In Facebook I log on and stay. And judging by some of my friends they are on Facebook a whole lot. This is a big threat to both Google and Microsoft, but primarily Google. Microsoft has a lot of other business groups that generate revenue (Windows, Office, Server and Tools etc..), and Bing frankly has been a cost sink hole. However for Google the avenues are not as plentiful. Facebook poses a challenge to the future of the company, that is well worth getting excited about.
There is no doubt the traditional Google business is under threat. The very business landscape that Google pioneered is shifting as companies look to spend their ad dollars in places where the perceived monetary return is greater than ad words. Facebook will be a big test to that business, as will Twitter. Don’t get me wrong Google has been nothing short of amazing. It’s end of year statement in December showed a company with over $37 billion in revenue. This from a company that was incorporated in 1998. When I started at Microsoft it was already 16 years old and talking of its business units in terms of its first billion. The fear for Google, from the start has been, is Google a one trick pony? Can it take sits enormous revenues and invest those in other web-based services to generate new streams of revenue. There is some hope on the horizon in this area.
The good news for Google lies in the success of its mobile platform, namely Android and the mobile search business. In our increasingly on the go and mobile society the opportunity for new revenue streams in the mobile search business is immense. If you go by one Gartner report mobile search revenue will grow worldwide to over $20 billion by 2015. Based on last years earnings Google already generates $2.5 billion in mobile ad revenue. Google has been very successful in getting mobile handset providers to adopt their Android platform as the mobile OS. Premier providers like HTC and Samsung have been major advocates of Android both for the smartphone, and in the case of Samsung its tablet offering. If there is one note of fear, it is the amount of mobile ad revenue generated from Apple’s iOS platform. Apple and Google are direct competitors in the handset space, so how long Apple chooses to ship Google’s search as a part of its standard offering of apps with both the phone and tablet is open to debate. I am sure Microsoft just waits in the wings waiting to provide Bing as the default search offering for the iPhone.
The other bets will be the continued growth of Chrome as a browser and internet platform. Chrome continues to increase market share ( Use Chrome as my default browser). This is significant as the browser war is the battle fr the internet OS. Today we have four to five players: Chrome, Internet Explorer, Firefox, Safari and Opera. In my view it will come down to three as we are already seeing Mozilla people leave the Firefox camp and Opera is still very small in market share. The other three combined have close to $200 billion in the bank, so I feel safe in choosing them to fight the last battle. This is an area where I feel Google is well positioned as they don’t have a PC OS. Apple has its MacOS and Microsoft Windows. It can be a big advantage to not have a legacy mindset in the industry. Hardware manufacturers have introduced a “PC” without Microsoft Windows. A Chrome Netbook was released. The reviews were mixed as it is a bit different to have a Netbook with no hard drive. Thus your experience is dependent upon connectivity. It is too soon for this device, but if you envision a world where we have ubiquitous connectivity you can see the writing on the wall.
As you see, primarily, Apple has taken the lion share of the tablet market place a new thing is happening. The Windows growth rate over in Redmond is slowing and in some quarters shrinking. The big concern here is not just Windows, but down the road Microsoft Office. Luckily for Google they have been investing in the desktop productivity space with Google Docs. It is not a bad bet on their part as when you are competing against a product with 90 percent market share the only way is up. Given the large cash hoard that Google has they can commit to this space for the long-term and with the rise of tablets and, if we believe, the disk less netbook then the outlook for Google Docs long-term is fairly bright (I wrote about Google Docs in a previous post). They can charge far less than Microsoft and still make billions. It will not be an easy task however we can see the paradigms for the future of how we consume technology changing. One thing for certain in the information age is nothing is forever.
This is the new paradigm we have entered into as the web seems to build up companies overnight into social phenomena’s. Especially with web-based services like a Google, Facebook, Twitter or Groupon where nothing is manufactured. There is no physical output. No handheld device. No PC. Just a bunch of services out in cyber space. The fact that Google has become a $37 billion business in a little over 13 years is truly amazing. Facebook pre-IPO already is generating $3.7 billion in revenue. The internet is creating a velocity of business we have not seen before. The ability to communicate and spread the word of whatever is new and cool is what makes the technology space the most exciting industry on the planet. For a company like Google to continue its path of success it will constantly have to adjust and seek new business opportunities. As long as you have smart people envisioning the future, you can determine your own destiny. Ball is in your court Google.
Good Night and Good Luck
Hans Henrik Hoffmann March 20, 2012