Smartphone Talk: Discussing Droid
(CNBC) Discussing the smartphone showdown between Google and Apple, with John Stratton, Verizon CMO; Eric Schmidt, Google CEO; Sanjay Jha, Motorola CEO; Shantanu Narayen, Adobe CEO; and CNBC's Dennis Kneale. Watch video on the unveiling of the Motorola Droid X on CNBC.
Droid Takes on the iPhone 4
Google, Motorola, Verizon, and Adobe joined forces on June 23 to unveil to Motorola Droid X, to counter the iPhone 4 launch on June 24. Reviews of Droid, and comparison to the iPhone 4, have been very favorable. Google CEO Eric Schmidt stated the next battle is for the mobile platform, that is, Apple iOS versus Google Android. The battlefield is devices, market penetration, carriers, OS, and apps. A technical review of the GOOG stock chart will be posted later this weekend.
In a previous post this week, some obstacles facing Google were noted as 1) the withdrawal from China, the world's largest internet market, 2) smartphone competition, notably the Apple iPhone 4, and 3) the ad revenue trend going mobile while Google is still mostly desktop oriented.
Android Smartphones & Android OS
Google has expended much effort in this area, which is the future of consumer technology. A continuous stream of media reports analyze smartphone market share by manufacturer, retailer, OS, web usage, etc. and the favorite subject is Google versus Apple. Adobe Flash Player 10.1 launched June 22 for all Android platforms. The Android OS is still a small share of the mobile platform market but increasing rapidly. However, monetization, significant cashing in, of this effort by Google has not been realized. The next GOOG quarterly earnings report should show the profit impact, if any, as a result of the Google Android.
Developers generally view Android as having long-term potential and therefore are expending effort to develop apps for the Apps Marketplace.
Reportedly, Google must submit to an annual inspection by June 30 so this issue may be resolved one way or the other very soon. Previous reports had stated that Google's internet license in China expired March 31 and Google has not attempted to renew it. In addition, Google is reportedly building a trade case against China over internet censorship, in cooperation with the USA and Europe. The argument is that internet censorship acts as a trade barrier. However, China has now responded on June 21, "China's internet administration is not a system of trade policies". Google's search is apparently working in mainland China, from Hong Kong. However, Google is now at a competitive disadvantage in China to Baidu, the search engine market leader. Baidu is increasing their market share rapidly and has left Google in the dust.
Google Search Engine
Nielsen reported this week the Google May 2010 USA search engine market share was 65.1%, no change from April. March was 65.7%, February 65.2%, and January was 66.3%. Analysts have been noting GOOG's market share is flat. Hitwise reported that Google received 72.1% of search engine hits in May. Is the top in? Microsoft Bing has made some headway into Google's turf.
Mobile Advertising & Acquisitions
Now Google has a mobile advertising platform to go squarely against Apple iAd with the completion of the AdMob acquisition. Smartphones are the future and mobile advertising is the cash flow future! The AdMob acquisition approval by the FTC was seen as an "unexpected positive". Google has also announced the acquisition of Invite Media, which is a demand-side platform, which helps buyers navigate high-volume display advertising exchanges.
Apparently the Apple iAd developers agreement excludes Google. However, Apple is beginning to loosen up their exclusionary tactics as the FTC begins to scrutinize their trade practices. This would be to Google's advantage. We'll see how this works out as the iAd goes live in July. Apple announced April 8 a new mobile advertising platform along with the iPhone OS 4, now iOS 4. Obviously, the iAd platform is a direct threat to Google's advertising revenues, since Apple has made it clear it is going in the mobile advertising business. AAPL stock, news, and fundamentals are reviewed by Apple Digest here.
Quarterly Earnings & Analysts' Estimates
Google beat Q1 estimates but not expectations. Analysts' estimates are mixed. Piper Jaffray maintained an overweight rating last week, and a target of $700, based on strong Q2 click data. Citigroup gave a buy rating to GOOG the week of May 24 with a $640 price target, stating all the concerns about Google are "overblown". Then Citigroup lowered the target to $630 on June 14, noting a change in forex expectations and reduced Nexus One smartphone sales expectations. Also on June 14, Caris & Co. reduced the price target from $565 to $560 and maintained Average rating, noting Q2 clicks are not meeting Street expectations for USA and Europe plus Microsoft Bing has started to gain search market share from Google in Europe.
Google Chrome OS
Devices using the Chrome operating system (not be be confused with the Chrome internet browser) are expected by at least November, hopefully before the holiday shopping season. Chrome OS takes a new approach compared to the traditional Microsoft Windows PC-based operating system. Chrome OS is a web browser as operating system, designed to operate in the cloud, on the internet. There will be virtually no footprint, and therefore files, on the desktop. All of the OS plus spreadsheet, word processing, email, etc. will be online, not on the desktop. Is this the future of consumer computing? That is, little or no software on the desktop PC or laptop? Whether we are all going to the cloud is still unknown, but I personally think we are. This is all nice, but how will Google monetize this OS and produce a significant revenue stream? Dell is reportedly preparing to install Chrome OS on some products.
WiFi Privacy Issue
As Google travels the Earth recording information for Google Earth and Maps, WiFi data was also recorded. Several nations, and USA states, are investigating this as a possible citizen privacy breach. This certainly makes good politics. However, these were unsecured WiFi networks which anyone can access. The ultimate repercussions for Google are unknown.
Google has completed the application process to go into the "Government Cloud" market. This could be a potential significant source of revenue in the future. Now that Microsoft Office 2010 has been launched, and is also available online in the cloud, Google is attempting to compete directly with Google Docs. This cloud competition should be interesting, but Microsoft has a huge lead. Google also announced collaboration with VMware to develop and deploy business enterprise apps in the cloud via Google App Engine, a platform for building and hosting web applications in the cloud. There is also Apps Premier, the Enterprise Divison's flagship product for businesses.
Developers I/O Conference
This conference was the week of May 17 and Google had plenty of announcements! Some of the highlights were 1) activating 100,000 Android devices per day, 2) unveiled the Android 2.2 Froyo OS for smartphones, 3) Froyo will support Adobe Flash, 4) will purchase Simplify Media, 5) through Simplify Media will launch streaming music service, 6) will start selling music through Android Market, 7) announced collaboration with Sony, Intel, and Logitech to start "Google TV", 8) YouTube will have a channel on Google TV. Google is busy! In addition, there was a tremendous amount of Apple Bashing at the conference. It is now crystal clear it is Google versus Apple in more and more markets. The Big Question is, how will all this be monetized and when will significant revenue streams come online and hit the GOOG bottom line?
The Google brand is supreme online in America and also the most visited website.
Google beat Q1 estimates, but not analyst and investor lofty expectations. Of course, it's the long-term outlook that is dampened by the Chinese issue and the world's largest internet market plus the Apple iAd. The question is how much investors will discount Google's PE. Google's PE TTM has stayed in the lower 20s for weeks. In comparison, Baidu's TTM PE is now an astronomical 101 and has been in the upper 90s for quite some time. It's all about expectations and the market has reduced its expectations of GOOG and increased those of BIDU, for example. Again, the Big Question is, how will all these Google ventures and products be monetized and when will significant revenue streams come online and hit the GOOG bottom line?
Product Revenue Streams
There's Android smartphones, Android smartphone OS, Google Apps Marketplace, Chrome browser, Chrome OS, Google Apps cloud computing, Google Docs to compete with Microsoft Office 2010 online, and even Google TV! What is making a net profit besides the online ad revenues??? The core business, online advertising, still accounts for 96% of GOOG business. I think this question is weighing on GOOG stock and investor confidence and expectations. Google's President of Global Sales Operations Nikesh Arora said in May, 2010: "If we are a one trick pony, we have a pretty good trick". So far this trick has worked unimaginably well, but for how long?
Yep, an online store to compete with Apple iTunes may be coming this autumn.
An explanation of Google TV, by Google, was posted here. This is a promising idea, TV advertising, if Google can bring this to fruition, that is monetize it. The time frame on TV advertising revenues to possibly become material revenue stream appears to be long-term. Stay tuned...
CNBC: American Titans
CNBC has done a feature on Google Inc., "Searching for More", the week of May 10 in their American Titans series. Click here for the commentary and analysis in this feature.
Annual Shareholders Meeting
The Google Inc. stockholders meeting was Thursday, May 13. CEO Eric Schmidt spoke and the gist of his message was: "All is well after a year of great tumult". CEO Schmidt also commented on the China Censorship issue: the situation "seems to be stable", with Google redirecting search requests from mainland China through Hong Kong. He mostly talked up the Google Android smartphone OS, currently at 28% of USA consumer sales (compared to Apple 21%). 65,000 Android OS phones are being shipped every day worldwide on 34 devices in 49 countries.
The Curious Case of CEO Eric Schmidt
Schmidt was not on the Q1 Earnings conference call on Thursday, April 15. It was announced he would not be henceforth, period. With the recent accusations of Google being hacked from China, the China censorship issue, Apple CEO Steve Jobs introducing the direct competition of the iAd, and therefore the intense media's, analysts', and investors' scrutiny of Google, this was a PR disaster. At most, and worst, this is indicative of a problem between CEO Eric Schmidt and Google. Regardless, this absence of Schmidt spooked the market at a critical time when Schmidt should have been speaking to media, investors and analysts.