Google: Jack of All Trades, Master of One

Joel Anderson |

Google's list of servicesFacebook (FB) is poised to immediately leap into the ranks of the world's most valuable public companies at some point this year. With 700 million users, Facebook is one of the most ubiquitous brands in the country. Apple (AAPL) is the largest company in the world by market cap, outpacing Exxon Mobil (XOM) by over $100 billion. Its sleek, stylish devices have redefined technology for over a decade and sold over 300 million units worldwide.

So what do these two companies have in common? They both consider Google (GOOG) to be one of their primary rivals. Facebook is battling with Google for the all-important spot as the most-visited website in the world while also duking it out for online advertising dollars. Apple, meanwhile, sees the primary competition to its iPhone coming from Google's Android phones and for its Apple TV device coming from Google TV.

So, how does one company manage to take on two of the biggest names in the tech field at the same time? Simple, Google has diversified their business model greatly, keeping its fingers in a variety of different pies so as to always keep doors open. While it's impossible to say whether or not Google's broader approach will succeed over time, its diversification certainly seems to provide the company avenues to success that aren't available to its competitors.



Ad Revenue Still Primary Income Source

While Google has kept itself open to a number of different markets, the company's profitability is not as diverse, with 96 percent of the company's $37.9 billion in revenue coming from ad revenues. In short, Google still relies almost entirely on selling ads on its high-visibility website, searches, and e-mail. Google currently snags 66.4 percent of all internet searches, advancing from January along with Microsoft's (MSFT) Bing as Yahoo continues to fade, and it has clearly turned that massive market share into equally massive revenues. However, Google is managing to slowly but surely reduce the percentage of its revenue derived from advertising. Ad revenues were 99 percent of total revenue just three years ago.

Operating in Different Markets

Two areas to focus on when looking and Google's efforts to create new revenue streams might be the company's new Google+ social networking platform and the Android Phones that the company produces. In each case, Google hasn't been able to draw significant market share away from either Facebook or the iPhone. However, by inserting itself into both markets, Google is in a situation where only marginal success over the long term will significantly improve the company's revenue streams.

And there are more areas that Google is making inroads into. Google's Gmail had 350 million users according to a January 2012 earnings call, numbers that would put it on the same level as Yahoo (YHOO) and Microsoft's Hotmail. Gmail, though, appears poised to make a more substantial move into the enterprise e-mail segment, an area long dominated by Microsoft. Google appears to be focused on using the expanding usage of cloud services to make this happen.

“While Gmail’s enterprise email market share currently hovers around 1 percent, it has close to half of the market for enterprise cloud email,” Gartner research vice president Matthew Cain said. “While cloud email is still in its infancy, at 3 percent to 4 percent of the overall enterprise email market, we expect it to be a growth industry, reaching 20 percent of the market by year-end 2016, and 55 percent by year-end 2020.”

Diverse Business Interests Could Mean Bigger Profits

Google's revenues may still come entirely from ad revenue, but it might not be long before Google is bringing in serious cash from of these others sources. What's more, by creating such a diverse business empire that's backed by Google's considerable value as the search engine of choice, Google may be creating a business model where only marginal success in each of these endeavors could mean big things. Google has a lot of hurdles to clear, and there are better situations to be in than simultaneously competing with Apple, Microsoft, and Facebook, but Google's status as a Jack of all trades and the master of one could be a new approach to the tech sector that could reap serious benefits.

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to: http://www.equities.com/disclaimer

Companies

Symbol Name Price Change % Volume
TPH.DB.E:CA Temple Hotels Inc. 7.25% Series E Convertible Rede 100.00 0.00 0.00 0
AAPL Apple Inc. 141.35 -0.07 -0.05 8,096,428 Trade
GOOG Alphabet Inc. 817.12 -12.47 -1.50 2,176,649 Trade
XOM Exxon Mobil Corporation 82.08 0.32 0.39 3,222,744 Trade
YHOO Yahoo! Inc. 46.61 0.55 1.19 2,646,422 Trade
MSFT Microsoft Corporation 65.14 0.11 0.17 6,563,968 Trade

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