They should be returning that cash to shareholders rather than creating more Google + type of junk.
I think Google may want to be the frontrunner in the inevitable internet-television market
Apple’s gonna be there with the devices.
That is the argument that some people make. It is also why Larry/Sergei only sell second tier shares to outside investors. They want to maintain control of the company so they can pursue ideological goals which might have no short term financial benefit. It doesn’t seem like outside investors really care - if they did, they would sell the stock. Google is a cash machine. As long as they keep making money, they can do whatever they want.
The death of a tech stock occurs when it announces its first dividend.
I have not read the book, but I recently attended a luncheon where the keynote speaker was the author of “The Idea Factory: Bell Labs and the Great Age of American Innovation”. One of the things he pointed out was that the scientists at Bell Labs were free to explore ideas without concern for time or an immediate market. The world we know today likely would not exist it they hadn’t had that freedom.
Apparently you havent heard of IBM.
Announcing a dividend must happen at some point or the stock is fundamentally worthless unless the company is sold. Waiting too long to issue a dividend just means wasting cash for appearance. Enron tried to play similar games to manufacture unrealistic expectations of growth. All companies and stocks plateau, it’s a fact of life. If you ignore it you’re no different than the 50 year old guy standing in the back of a dance club with a belly and about 15 feet of awkward space in either direction… you just look ridiculous in the aftermath.
That concept cherry picks the few successful examples at the cost of ignoring legions of firms that pissed away shareholder value until there was only a husk of it’s former self left. Furthermore, that research must be guided in a direction that makes sense. Research and ideas, fine. Rolling out massive ill advised infrastructure intensive experiments? Bad idea. They should have sold the technolgy to an interested cable company or refocused the efforts toward something within their scope. The whole thing, like Google+ reaks of hubris.
If they sell the technology to a cable company, they won’t know what you watch, when you watch it, what you DVR, how often you change the channel, whether or not you watch porn on you PC while watching the 700 Club on TV, how many TV’s you have in your house, how many email accounts you access, etc., etc., etc. Within 2 months (making up that number) Google will know everything there is to know about Google Fiber subscribers, and get paid in the process. I just think the capital intensivity of this business line as well as the employee base required for maintainance and the lack of cost synergies makes it a costly game to play and one that is ultimately a distraction to their central model.
You could do the same thing on a much easier outlay using integrated televisions in the manner Apple is pursuing.
I think it’s not unreasonable to say that Google is already a “cherry picked” example. By almost universal account, they are among the best companies in Silicon Valley - best culture, best talent, best brand name, best established business, etc. Ideological projects like robot cars and fiber optics help maintain their culture and talent. Sure, this *could* change at some point, but people have been saying that for over a decade. Today, Google’s stock is over $600. People know that *despite* spending money on ideological projects, as long as Google dominates Search, they have a practically unlimited supply of money.
I don’t think Google+ was hubristic, by the way. Sure it’s not really catching on like Facebook, but Google would have been foolish to not try social media at all.
Bell Labs research did not make money for AT&T.
Xerox Parc Palo Alto research did not make money for Xerox.
I believe some IBM research will probably never make money for IBM (e.g. GaAs-based chips).
This is not to disparage great research or even to say that companies should redirect the money to more applied research.
Google seems to be following a similar model with Google Labs. It will not help the shareholders in the least. I don’t know about Google+, maybe they tried a pilot (similar to Google Voice, gmail, “gfiber”) and it worked, and they thought they could take on Facebook?
BTW if enriching shareholders was truly the goal of the society, then to channel Warren Buffett, it would have been kinder to investors if the Wright Brothers had failed and there were no airlines.
I’d rather Google swing for the fences with projects like computer eyewear than pay me a dividend. They have some great minds working for them. It’d be a disservice to shareholders to hinder their creativity.
I’m more excited about that white-noise internet broadcast thing I read about in economist ~october. Basically, now that tv is all digital, use those frequencies to broadcast wireless internet over miles, for free hopefully (gov’t subsidized or something).
I dont know, wi-fi in the middle of nowhere gets me more excited than 1gb/sec…
In addition to thinking that Google Fiber is a very, very cool project, i also think that this is key strategic move for them vs. just another ideological spasm by upper management.
Providing connectivity is clearly not core to Google today. I went to a presentation by Eric Schmidt earlier in the year and he talked extensively about the wider Google mission/ideology in the developing world, with the billions of people who will join the smartphone revolution, the positive impacts on society that this will bring etc only being held up by device costs and connectivty issues. Android will clearly handle the first bit in due course and then connectivity issues need to be handled by operators/govts… and perhaps Google.
While Kansas City isnt the developing world and this is fixed line as opposed to wireless, you can see why being a provider of connectivity in both the developed and developing world 5 years from now would make a lot of sense. Google will ensure that the average Joe in the US/UK can access all of the HD/3D content that they can consume (and Google can drive revenue from) as well as providing people in remote villages with their first experience of the internet and capturing the growth and opportunities that this will create - more people connected, more searches, more eyeballs, more revenues (and more intelligence around who is doing what, where, how etc as was mentioned earlier)
Secondly, the debate around net neutrality will not go away and is something that provides a real challenge to companies like Google. One way of ensuring that your traffic isnt marginalised/demoted in favour of someone elses is to control the pipe that it travels down.
Finally, providing connectivity isnt a bad business in margin terms. Even former monopolistic operators who suffer from lack of innovation, bureaucracy and lack of customer engagement opps still make good money out of being a “dumb pipe”. Their challenges are around managing legacy networks and not having growth opportunities over the medium term because customers care more about Facebook/Amazon/Google than they do who connects their modem…these arent problems that Google would have.
JT
I don’t think the maintenance cost or even infrastructure investment are that big of a deal. Time Warner hasn’t installed, fixed, or disconnected my service in the last 4 years, and thats around 10 service calls. ITs always contracted out, and the cost of these services is only going down. There are plenty of unskilled, uneducated men who will adapt to the changing economy by getting whatever minor engineering education is needed to do that. “Working on the pole” probably pays more and is more enjoyable than other opportunities available.
I agree this project is about control and extending their platform to generate ad revenue. Imagine if when you were watching TV, only ads that were relevant to you showed up. No more tampax commercials. No ads for crappy shows you would never watch. If that were the case, you might actually WATCH commercials. That is very valuable to advertisers.
Google has always given ther developers time to create side projects. Its not only encouraged, but was required when I read about it. Its not a waste of time or shareholder value at all. By doing stuff like this, they get ideas from every employee instead of a concentrated few, and the employees get a team of amazing people to help them develop their ideas into reality. Thats why the best programmers want to work for google instead of being a consultant for IBM.
BLackSwan, have you ever worked outside of investment management? I’m just curious because I worked for some shitty, overly bureacratic companies in random industries and I think its shaped my analysis of “value” quite a bit. Sometimes a dividend means “We are out of ideas.”
Being “out of ideas” is not necessarily a bad thing. Remember the point of this isn’t to be fun, it’s to make money. And your example IBM is doing just fine…and it has been around for about a hundred years or so…
With that said, I’m not against Google experimenting with random things like this, it’s pretty much necessary for a tech company to do this stuff, and it may become profitable down the line. What bothers me though is the management’s obsession with political projects and statements. (At one point Sergey Brin wanted to donate money to Chechen refugees after the first Chechen war).
I wonder if Google will attract the attention of antitrust regulators down the line.