One of the best things that happened to me straight after college was landing a job at Google (GOOG, Financial) (GOOGL, Financial). Leaving the fact that it is an excessively employee friendly company aside, I loved the way Google pursued moonshot projects in order to make sure that technology changes lives for the better. Since this was a couple of years back, projects like driverless cars and Google glass were in the pipeline and had not taken much shape yet. Fast forward to today, I came across an article on Techcrunch titled “As Developers Depart, Google Glass Is Ready to Become This Era’s Segway.” Now, is this a quick opinion or fact-based conclusion? Let us analyze.
Interest waning
A couple of days back, one of the topics trending on Twitter was the co-founder of Google i.e.,Ă‚ Sergey Brin. This was because the elite Google co-founder arrived on the red carpet during the second annual Breakthrough Prize Awards without his pair of Google Glass, which he has always sported at high-profile events. Now, it is easy to brush off this instance by calling it a minor aberration but again, it is not as simple as it looks. Brin, one of the earliest adopters of Glass, was always confident about the technology and its capacity to impact millions of lives in a great way.
As such, he always used his pair in order to publicize the concept of wearable technology. It is important for investors to know that Glass has been surrounded by concerns like privacy breach and security since its inception, but the confidence of a robust team kept the hopes alive. Therefore, this action by Brin has sent out a signal that the early believers in Google Glass are losing their confidence in marketability of the product.
The big concern is developers
While the head of Google’s secret lab not sporting his pair at a big event is a concern, the bigger concern with Google Glass’s prospects is the departure of developers. It is not difficult to understand that a smart device is as good as the portfolio of app it carries and even though Glass is a differently designed device, its utility is similar to a smartphone. As this Reuters report clearly indicates, developers and early Glass users are losing interest in the $1500 test version of the product. Of 16 Glass app makers contacted by Reuters, nine said that they had stopped work on their projects or abandoned them, mostly because of the lack of customers or limitations of the device. In fact, a big setback in terms of developers moving away from Glass platform was Twitter’s departure. While, Facebook (FB, Financial)Â and OpenTable are still the high-end developers staying with Glass, it would not come as a surprise if they abandon the platform.
Therefore, it is not tough to interpret that both Google and developers (major stakeholders) have started to doubt the potential of this highly advanced device. The company has pushed the official release to 2015 without citing any reasons but it is surely an indication of waning interest in the product.
Though the official investment made in Google Glass has never been revealed, it is for certain that the company spent a huge amount in developing the product. Consider this, Google bought a 6.3 percent stake in Himax Technologies (HIMX, Financial) in July last year with a view to control the upgrades to the device. In case you might not be aware, Himax is a Taiwan supplier of display technology and supplies to Google for its products. Last year, Google bought a 6.3 percent stake in order to ensure a smooth flow of operations for Glass. However, Google recently announced that it would not be increasing its stake in Himax beyond the stake already bought and hence, Himax’s price went for a slide. While there might be more than one reason for this decision taken by Google, we cannot ignore the fact that because Glass might not be seeing viable demand, it might have decided to keep its stake limited.
In a report that appeared on Fortune, Larry Page was named as the businessperson of the year for 2014 owing to his ambition and excellent execution skills. For one thing, Google has always been an ambitious company and as is detailed in the report, the company is currently pursuing a host of new moonshot ideas. While this is definitely a worthwhile choice, investors might be having a hard time in accepting the bulky investments that are yielding no fruit. Additionally, Google has been missing the estimates for past few quarters now and if it continues to do so, investor confidence will go down.
Takeaway
In its most recent quarter, Google missed on the top and bottom lines. This was the 11th time in the past 12 quarters that Google missed on either the top and or bottom line. Only once in three years has the company been able to beat analyst estimates for revenues and non-GAAP earnings, even when estimates have fallen into earnings. Despite a more than $2.75 billion rise in Q3 revenues over the prior year period, net income from continuing operations actually declined by $165 million. Though it is not a major worry for investors, Google has to take adequate care in balancing the efforts between its extraordinary ideas and regular business channels that generate cash.
There is hardly any doubt that Google Glass is losing the sensationalism that it created in the last two years and though it will not have any direct impact on Google’s advertising operation, the investment already put in might not be recouped. Please understand that I am not advising you to vacate your position in the stock. In fact, the point I intend to drive home is that Google is pursuing a good number of improbable ideas and while it might be for best interests, investors need to be cautious of these projects and keep a sharp track of progress the company is making with them.
