By John Addison (8/6/12)
Google (GOOG) continues to build a permanent advantage over Facebook (FB) with cloud services, Android’s 56 percent share of smartphones, and an extensive mobile platform.
Last week, I joined hundreds of investment bankers, venture capitalists, and technology leaders at the Always On Innovation Summit where the future of the internet, cloud services, and mobility were hotly debated.
“What is Facebook Really Worth” was one of the more interesting panels for me, especially since I own stock in Google. Long-term revenue and profits were debated for both firms. Both Google and Facebook disdained ads in their early years. In 2011, Facebook generated over $3.7 billion of revenue; Google over $37 billion, 10X Facebook. Google is making billions. For last quarter, Facebook reported a net loss of $157 million, or 8 cents a share. Google’s $200 billion market cap prices it at 4X of Facebook’s $50 billion.
Michael Moe, CEO of GSV Asset Management sees big ad revenue growth for Facebook and likes that members spend 13% of their time on Facebook. Dan Madden with Spruce Media sees great value in social networking over traditional media advertising. He points to Zappos (AMZN) achieving a 7X ROI with its Facebook presence. Bill Cleary with CKS Partners cautions that Facebook needs to help brands build communities through mobile devices. Even for panelists who own Facebook stock, mobility is their biggest concern. Their caution was made before Facebook partner Zynga (ZNGA) disappointed investors and admitted to mobile device challenges
Can hackers working on “Hackers Way” understand and care about revenue building? It’s a fair question, but the same could have been asked of Google a few years ago. Paul Deninger, Senior Managing Director, Evercore Partners and investment banker of 25 years says about Facebook, “It’s all about mobile.”
The Future of the Internet
In the future, the internet may more closely resemble interacting with friends. Imagine that you are enjoying lunch in the city with a few close friends. The conversation is personal yet enhanced with a paper-thin display of the menu that can be touched to learn more about each item including pictures and video. One friend takes a video call on her smartphone from her manager, researches the issue, starts a project, and alerts her team.
After lunch, you ask your friends for advice about what you should do that afternoon. You will have a voice conversation, you will be heard and understood, people will know your background and preferences. Friends will even read each other’s expressions, emotions, and gestures. They certainly know your location. In that context, recommendations will be made that might include a free concert, ball game, walking tour, museums, shopping, movies, dinner plans and more. These recommendations are from trusted friends. In the future, will it be Google or Facebook that does a better job of replicating this trusted interaction?
Both Google and Facebook will let you get “a little help from your friends.” Google and Facebook ads will be more valuable that traditional media advertising. Ads will be based on your location preferences, and include ratings of others. Beyond advertising, you can research topics and get directions in the palm of your hand. Advertisers are willing to pay more for location-based advertising on mobile devices, so both companies have the opportunity to increase revenue.
Battle for Mobile Leadership
Google has 56% share of the U.S. smartphone market. Google has mobile leadership with millions of android smart phones, tablets, and with Google’s $12.5 billion purchase of Motorola Mobility. Google also has a broader platform with search, entertainment, enterprise cloud services, and Google TV. Yet for all of its platform leadership, Google+ is making little headway with Facebook in social networking.
Facebook is serious about having its own platform for mobility. According to Bloomberg, Facebook is working with HTC to build its own smartphone and Facebook is developing an operating system for the phone.
Mobile platforms include phones, tablets, and cars. Research and development people from Nissan, Hyundai, and other auto makers were at the conference, interested in how one billion vehicles will increasingly use GPS, internet services, entertainment, EV charging, telematics, self-parking, and even Google’s autonomous vehicle technology.
The internet of the future will not only be people looking at screens and interacting, but the internet of things – 10 billion networked sensors and controls using cloud services. Once preferences are set, lighting systems save energy when no one is present, industrial processes save millions running when utility rates are lowest, smart buildings store and use renewable energy, smart grids reduce blackouts, electric cars charge when rates are low and sell power to the grid when rates are high. Google has leadership in the internet of things.
Platform and Patent Wars
The battle for platform leadership will extend from the palm of our hand to massive server and storage centers connected with the world wide web. HP forecasts data will grow 20X by 2020. The cloud will get fatter; our preferred device will get thinner. Bite-sized mobile apps will work seamlessly with super-sized cloud applications and big data. Google has the advantage from Gmail to Google Cloud to Android.
David Lawee, Google’s VP Corporate Development, sees a robust environment for mergers and acquisitions. At the AlwaysOn summit he stated that Google has made 130 acquisitions since 2002; with over 60% successful ranging from YouTube to Zagat. With a challenging IPO market, Lawee says that this is the best set of companies he has seen in years. Google is looking at mobile, social, and other innovative firms.
Now Google is making acquisition 131, buying Wildfire for a rumored $250 million. With Wildfire, Google will better help brands run their customer engagements and ad campaigns across Facebook, Twitter, YouTube, Google+, Pinterest, LinkedIn and other social networks.
Facebook has only acquired a few small firms. Both companies will continue to make acquisitions to improve the experience for their users. The value of patents is another reason that both firms make acquisitions. Google’s $12.5 billion acquisition of Motorola Mobility brought a wealth of important patents. Facebook bought 650 AOL patents from Microsoft (MSFT) for $550 million.
We are still in the early years of seeing the impact that Google and Facebook will have on our lives. As we increasingly use the internet with smartphones, tablets, and 10 billion grid devices, Google will have the decisive advantage.
