Investment Contrarians

Google’s Risky Strategy

By for Investment Contrarians | Aug 6, 2012

















Googles Risky StrategyGoogle Inc. (NASDAQ/GOOG) is one of the most unique technology stocks. There are many technology stocks that try to rival Google. Google sets itself apart from other technology stocks through innovation as a key investment strategy. But this desire to expand too far has led to some mistakes. While many investors believe Google to be a pure marketing company, it has expanded its investment strategy to include the retail sector.

The retail sector is a slightly different animal for Google, and technology stocks need to adapt their methods for that sector.

Google has recently announced that it will be selling tablets directly to consumers, along the same lines as Apple Inc. (NASDAQ/AAPL). Technology stocks will tend to copy each other once they see a firm has been successful with an investment strategy. The tablet market is one in which Google is falling behind, as Apple currently holds approximately 73% of the market share, according to industry research firm Gartner Inc. In addition to Apple, Amazon.com, Inc. (NASDAQ/AMZN) also sells a tablet, for the lower end of the retail sector, which, funny enough, runs off of Google’s “Android” operating system.

The success of Amazon’s tablet, the “Kindle Fire,” is a problem for Google, as other firms decide to build their platform on top of the Android operating system. This will cause more fragmentation in the retail sector, resulting in Google losing control of its operating system. The advantage of Google’s search engine is that it controls and can keep track of all the searches that are occurring, mining this data for marketing purposes. This data is worth billions of dollars. Once another company builds its system on top of Android, Google does not have access to this information. Amazon, not Google, collects and stores the data from the Kindle Fire.

The retail sector is a tricky investment strategy for many firms, including technology stocks. The last attempt by Google to try to sell to the retail sector directly ended up in poor results with its “Nexus” phone. The new tablet to be sold directly in the retail sector this time should work somewhat better.

Google is also adding a cloud storage service to compete with other technology stocks. I can see an advantage that Google might have over other technology stocks, as its understanding of data search and storage is most likely at the pinnacle of the industry. The main problem that I see with all of these plans is a lack of a complete system tied together, as compared to other technology stocks like Apple and its “iOS.”

The really interesting information comes from Google itself, as it reported the percentage of users running each version of Android. According to Google, only 2.9% of Android devices are using the latest operating system. Over 86.0% of Android users are using old software, without the latest bells and whistles. Either the devices can’t get upgraded to the new software, or consumers aren’t buying the newest devices. Either way, it’s not a good sign for Google.

When developers build applications (apps), they assume the latest operating system is in use. As we all know, consumers want tons of apps to play with. Without the apps, the device is useless.

Google is a great company, no question. I’m only suggesting that Google needs to pay careful attention to the retail sector and formulate an investment strategy that makes sense for the long term. With the brilliant minds at work there, I certainly would not bet against the company. With the stock trading at a forward price-to-earnings ratio of just over 12, the valuation makes a compelling case; however, I would wait to see what the reaction in the retail sector is to these products and services.

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  • Toi

    You have everything werkod out but what you do if the stocks lose value, and I don't see any place for the fees that the brokerage will charge you, and while ten thousand may seem like a lot to you, its not much to them.You won't get rich on ten thousand, if you put it into a standard savings account you will have about $42 more than when you started.The best thing I ever heard about the market was that you have to consider it as legal gambling, you never put money in that you can't afford to lose, and if you are borrowing ten thousand dollars, you can't afford to lose it.

  • James T. Laing

    Google search is top notch. No one can argue with that. But Android is a rip-off of iOS, and the time will come when a federal judge will order Google to send out a kill signal, completely disabling all Android devices – forever. The only question is will Google be able to afford to pay retribution to Apple for their crime. I imagine the judgement will be in the tens of billions of dollars. Google shareholders will rue the day Eric T. Mole stole Apple's secrets. I say fiat justitia ruat caelumet, which for those of you who went to public school means: "Let justice be done, though the heavens fall."

  • Leon Nel

    James, some would say your dilusional.

  • Michael Hall

    I really can't see how it is a rip off of iOS, as Apple did not make the icon, or the scrolling grid. Nor did they invent the touchscreen, or the scrolling list. They did not invent slide to unlock either. All Apple does it rip other companies technology off and patent it first. They invent nothing.

  • jacques townsend

    how is it a rip off its just Google is every thing apple isn't which means 75% of every person that doesn't have an iPhone is has an android the i phone will go no were if they don't do something with the design nobody wants the same thing every one android OS is not the best performance wise but there people just don't understand android yea i agree Google need higher standards on which devices they choose to put there software on but hay they arte making money

  • Javier Fernandez

    Android was in creation back in 2003 and released in 2007 as a beta, released in 2008. Yet IOS was created and released in 2007. Saying that Android is a copy of IOS is saying that that so are Windows phone, SymbianOS and any other smartphone is a copy of Android. IOS isn't the only mobile OS that can exist without the others being a copy. Just because IOS became popular first dosen't mean it was the first mobile OS.

  • mickrussom

    At this point iOS is a bad hack of something Android Like. JellyBean is innovating far more than iOS, so how can the innovator be the one who is copying?

  • Rick!

    Google has something going against it that I never see addressed: It does everything 95% of the way.

    No matter what I've used that is a Google product, I get the impression that it's not completely finished. Like they hurried up and got it "out the door". After all, they're giving most of their products away, right? You get what you pay for, right? Everything they make (search included) works about 95% as good as it should. I'm not saying it doesn't work 95% of the <i>time</i>, I'm saying nothing they have produced seems to work at 100% level.

    I hope they can get it right for once.

  • Altaykai Yamada

    Too jealous you little hypocrite?