Happy 21st Birthday Google
Google was founded 21 years ago by a couple of students. It’s now worth over US$800 billion dollars and gets more than 63,000 searches a second. Chris Smith, of CMC Markets, analyses the business.
7 October 2021
Google gets close to two trillion search requests a year, with the average person doing three searches on it a day. How did it get so big, and where’s it headed?
For most people, Google’s now part of their day, and most of us can’t imagine what life must have been like before it.
It was founded as BackRub on 4 September 1998, while founders Larry Page and Sergey Brin were studying at Stamford University, during the Wall Street technology boom.
Page said: “Basically, our goal is to organise the world’s information and to make it universally accessible and useful.”
It was renamed, and now the word ‘Google’ has become a verb in the Oxford dictionary (‘to Google’).
It’s now Alphabet
In 2015, a corporate restructure converted Google shares into Alphabet stock, as its parent company, but it still shows as GOOGL or GOOG on the share market and Alphabet is still run by Page and Brin.
Today it’s one of biggest and most powerful companies in the world, with multiple income streams.
• Website: Google’s the most-visited website in the world, used in more than 40 countries.
• Android: It makes the Android operating system for mobile devices, the most popular operating system globally, going head-to-head with Apple’s iOS.
• Chrome: It runs the Chrome web browser, which is incredibly lucrative for advertising revenue because it controls an estimated 90 per cent of the search market worldwide.
• Data: It also runs at least 15 huge data centres worldwide for processing and cloud storage.
Google has morphed into a business with annual revenue in excess of US$130 billion, with 99 per cent of its profits coming from advertising revenue.
Search businesses have come under huge scrutiny by the public and governments recently. Google controls the content the search algorithm presents to its users and has images, videos, and news going back decades that are almost impossible to remove.
It’s best described as a monopoly, with little competition in the West. The only comparable business is Baidu, in China, where Google doesn’t operate.
The business now supports 100 languages and can translate at least 37 of them.
Alphabet’s top four
Alphabet owns more than 200 companies and continues to buy firms, to keep growing revenue, enter new segments and protect itself from competition. Here are four of them.
YouTube’s the most popular video platform on the internet and it’s being consumed like traditional TV these days. Google bought the business in 2006 for US$1.65 billion, not long after it was launched. Revenue comes from video advertising and sponsored advertisements or content. More than 100 hours of video are uploaded every minute. YouTube has over a billion users and is one of the best investments Google’s ever made. Revenues are reported to be over US$10 billion a year.
Google Maps is another business segment, with over a billion users. It’s now integrated into some cars’ and taxis’ software, and motorists use it daily to check for traffic jams. You can look up any location in the world. It also gives street-level views of many cities, a service that would be hard for a competitor to match. It’s embedded in many real-estate sites, and business websites.
Google’s more secretive in this division, and doesn’t report how much money it makes from Google Maps. Morgan Stanley suggests it’s a billion-dollar ad revenue business that could rise to more than US$11 billion in 2023, with US$1.23 billion from desktop searches and US$9.82 billion from mobile searches.
Google has a smaller market share than Amazon and Microsoft in cloud services, but it’s still one of the big players. Revenues are estimated to be US$8 billion a year and doubled in the past 18 months. The market for cloud services is growing rapidly, due to the streaming and web services, which is a big tick for investors.
Google brought DoubleClick in 2008 for US$3.1 billion. This advertising service earns money for Google by targeting customers and specific pages for clients. It also allows website owners to place ads on their websites. DoubleClick earns more than US$36 billion in revenue. It makes it possible to sell digital advertising in bulk to customers.
What’s its future?
Google listed on the stock exchange in 2004, with a share price of US$85 and revenues of just US$3.2 billion. Today its revenues are over US$136 billion, and it delivers investors consistent growth and profits.
Alphabet’s one of the top five biggest companies in the world, so it’s probably already in your portfolio if you own part of the US index in KiwiSaver.
In October, it posted a 23 per cent drop in its third-quarter profits because its research and development costs went up, and after it faced some anti-trust scrutiny.
Google has a fortress-like balance sheet and revenue did beat estimates, hitting US$33.92 billion, compared to US$28.95 billion in the second quarter of last year. Alphabet continues to buy companies to bolster its strength in online advertising, cloud computing, and hardware.
Other bets by the company include subsidiaries, such as self-driving car company Waymo. There are exciting future prospects for these, along with the huge success they’re seeing in quantum computing.
But to maintain growth and satisfy the demands of investors, Google will need to avoid regulatory changes to the business and lawsuits.
Competing in cloud infrastructure and artificial intelligence (AI) should lead Google to a positive future of growth, and even more advertising dominance.
No doubt, there are many secret projects being worked on as its engineers shape the future. Watch that space.
There’s little competition in the search market, so there are lots of good reasons why Google remains the platform of choice for search and mobile operating systems.
Published 13 December 2019
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