A couple years ago I watched the movies The Island and Repo Men. Afterwards I joked to my friend that one day Apple Inc. (NASDAQ:AAPL) was going to rule the world. The corporations in the movies researched and developed a new product, harvestable organs, which people incorporated and relied upon in their daily lives. The technological barriers to entry and demand for the organs helped them expand seemingly without limit. At the time Apple Inc. (NASDAQ:AAPL) had come out with several revolutionizing products and became the largest company in the world. It was said that Apple knew what you wanted before you did.
Since then other companies have taken the fight to Apple Inc. (NASDAQ:AAPL) and established footholds in markets Apple Inc. (NASDAQ:AAPL) once dominated. How does this relate to Google Inc (NASDAQ:GOOG) and its long term prospects? Google has created an ecosystem of almost irreplaceable free products and services for users. They have also been able to effectively monetize this ecosystem.
Irreplaceable Products
Got a question to ask? Go Google Inc (NASDAQ:GOOG) it. Looking for a video? Hop on YouTube. Need directions? Simply enter two addresses and Google Maps will tell you how to get there. All of this is free to use and, as anybody who has used Apple maps can tell you, is higher quality than the competition. All Google asks in return is the ability to gather our information. This information on our habits, searches, and activities is what makes Google such a valuable advertisement platform.
Google Chrome was released on September 2, 2008 and since has become the global leader with nearly 33% market share. Google Inc (NASDAQ:GOOG)’s success with the Android system is even more profound. Since releasing the Android system in September 20, 2008; phones powered by Android now make up 75% of the dynamic smart phone market.
Only a select few companies in the world have the resources to even compete with Google. Microsoft Corporation (NASDAQ:MSFT)’s Bing is the biggest challenger to Google Inc (NASDAQ:GOOG)’s bread and butter, search. Microsoft Corporation (NASDAQ:MSFT) Bing was released May 28, 2009 and has made some gains. Despite this, as of April 2013, Google still has a 90% global market share of search. Not the type of success you’re looking for in a project costing over a billion dollars a year. Also not the type of success Google has had with Chrome and the Android OS.
Google Inc (NASDAQ:GOOG) has used horizontal integration to establish a dominating position in providing services and advertising. It is here Google distinguishes itself from Apple Inc. (NASDAQ:AAPL). Google Inc (NASDAQ:GOOG)’s growth is not dependent on the fickle nature of consumers. Google’s growth is dependent on technological innovations, expansion of the internet, and the need of businesses to advertise and grow. You can see the difference in their stock performance since Apple Inc. (NASDAQ:AAPL) began showing chinks in its armor.
Leader of Digital Advertising
In the advertisement industry, online and mobile advertising is the fastest growing segment; of which Google is the largest and fastest growing company. Google is in a prime position to continue taking advantage of this fast growing market. Google accounted for over half of global revenue from mobile advertising last year. Google Inc (NASDAQ:GOOG) is expected to maintain this lead in 2013 when the mobile advertising market is expected to double to over $15 billion. This lead remains several multiples ahead of closest competitor Facebook. In online advertising Google has a 31% market share with $32.73 billion in 2012, and is expected to grow this to 33% with $38.83 billion in 2013.
The Google ecosystem feeds off of itself by continuously coming out with popular free products for users; while collecting valuable data for advertisers. Advertisers who in turn pay to advertise to Google users. Google’s ability to continuously dominate the online advertising market and create industry leading products is a testament to the strength of this business model.
My personal investing philosophy is to find good companies that are undervalued, wait for a comfortable entry point, and then hold until I think they reach their potential. With Google Inc (NASDAQ:GOOG) trading a few percentage points below its all time high I will be waiting for a lower point to buy in. Google is able to beat competitors at their own game; meanwhile those competitors struggle to compete on Google’s home front. Until this changes Google’s growing lead in online advertising, its superior products and relatively low forward P/E ratio of 16 make it an excellent buy.
The article Why Google Isn’t the Next Apple or Microsoft originally appeared on Fool.com and is written by Xuebing Wang.
Xuebing Wang has no position in any stocks mentioned. The Motley Fool recommends Apple and Google. The Motley Fool owns shares of Apple, Google, and Microsoft. Xuebing is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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