GuruFocus Premium Membership

Serving Intelligent Investors since 2004. Only 96 cents a day.

Free Trial

Free 7-day Trial
All Articles and Columns »

Google: 3 Threats to the Business That Investors Need to Watch

May 29, 2014 | About:
jaggom

jaggom

0 followers

Google (GOOG) had a robust 2013 with shares jumping close to 60%. The stock surpassed the $1,000 mark and investors must be bullish on the company for more such landmarks in 2014. However, Google investors must be aware of the huge threat that they face from its competitors like Amazon.com (AMZN), Apple (AAPL) and Facebook (FB). Let’s analyze the impact of these companies on Google in 2014.

The Prime Rival

Android commands smartphones with around 80% of the entire smartphone market according to research. Android is continuously gaining share in the tablet market as well with its share estimated to reach 65% of overall tablet shipments in 2014, according to another research.

But, Apple leads Google in profits by a significant margin which is the most important area of all. However, Google is pumping up the monetization of the Android ecosystem; revenue in Google's digital apps and content business increased 85% to $1.2 billion in the recent quarter. Google’s share of these industries' profits should continue to grow if it can maintain its unit share lead in smartphones and claim the lead in tablets as well.

Google is also struggling with Apple in the productivity software arena. Apple recently made its iWork suite of productivity apps free to existing users and new owners of its devices. This can be considered as an aggressive move by Apple to slow the growing popularity of Google Docs. But Apple's software is only compatible with Apple devices, whereas Google's applications have no compatibility issues and is available on Windows-powered PCs, Macs, and Google's own Chromebooks. That's a uniquely strong advantage that should continue to benefit Google.

Threat from Amazon

The majority of Google’s revenue comes from connecting businesses with consumers that are searching for products and services to buy. So what if these consumers begin to search for those products on Amazon.com instead? Amazon’s wide selection of goods, low prices and excellent customer service makes it the first and last place for many consumers shopping online.

Google has launched its product listing ads to combat this trend. These ads appear as a set of product photos with prices and links near the top of Google's search result pages, and further pushes Amazon's regular search results further down the page – so becomes less likely to be clicked. In addition, if these ads gain popularity among the customers and are convenient for them to search for items on Google, it could drive all the customers directly to Amazon.com.

Facebook’s Threat

The surging growth in active users for Facebook is an increasing danger for Google. Currently, more than 1 billion people globally drive Google's search business. That's because Facebook blocks Google from indexing its data and making it available in its search results. And Facebook's users generate an enormous amount of valuable data to which advertisers long for access, as those billion-plus users basically tell Facebook what they "like" on an almost daily basis.

But Google has made strides into the social-media platform by launching Google+ which is a "social layer" that enhances many of its online services and helps Google obtain the type of personalized data that Facebook possesses.

Currently, there’s no other company that equates Google's data collection abilities, with its superior positions in desktop and mobile search, Internet browsers (via Chrome), and email (via Gmail), among other services. Through this technique, the data that Google collects enables advertisers to better target their ads, attracting them to buy more ads from Google, which generates more cash flow that Google can reinvest in improving its services and expanding its ecosystem, which is further used to collect more data. This is a kind of non-stop cycle that continues indefinitely.

So as Facebook and other social-media platforms are a threat to Google, the search giant has a solid way of protecting its core advertising business that its competitors could hardly match.

Conclusion

Google could get beaten by the competition if it fails to properly address any of these threats. And altogether, these three threats could defeat the search king. But looking at the reasons already discussed above, Google is believed to be well positioned to meet these challenges head on and, in many cases, win.


Rating: 0.0/5 (0 votes)

Comments

Please leave your comment:


Get WordPress Plugins for easy affiliate links on Stock Tickers and Guru Names | Earn affiliate commissions by embedding GuruFocus Charts
GuruFocus Affiliate Program: Earn up to $400 per referral. ( Learn More)
Free 7-day Trial
FEEDBACK