For subscribers without copious technological knowledge, keeping up with Google (GOOG) can seem as challenging as keeping up with the pace of change of technology itself. Even so, readers may find it well worth the effort. Doing so will improve one’s understanding of the dynamic nature of Google’s operations and its industry, which can prove beneficial to interested investors. Moreover, this may allow potential users and customers of Google’s offerings to better evaluate their online options.
Google’s Power Move
The company has recently requested approval from the Federal Energy Regulatory Commission (FERC) to become an energy marketer. Regulators have approved this move. This allows Google to buy and sell bulk power at wholesale rates like a utility. Such a move is not without precedent for a nonutility, however. There are several noteworthy examples of large companies, which consume a lot of energy, that have been granted FERC authority. This list includes Safeway (SWY) and Kimberly-Clark (KMB). Google plans to use this to manage its own energy supplies and gain better access to renewable power. At present, it appears unlikely the company would sell its energy management services or speculate in energy markets.
The Buzz about Buzz
Google Buzz is a social networking and messaging tool, which has been integrated into the company’s popular email program, Gmail. This offering was initially released in February, 2010. The service allows users to choose to share publicly or privately (with only a group of friends) each time they post. It integrates a number of other services, such as Picasa, Flickr, Google Reader, YouTube, and Blogger. When Buzz is accessed from a supported mobile device, it tags posts with the user’s current location. The mobile version integrates with Google Maps so that users can view who is currently near them. The introduction of Buzz appears to be an attempt by Google to compete with social networking web sites, such as Facebook and the microblogging service Twitter. Buzz may well lack the innovative features necessary to gain an edge over these services, but should benefit from Gmail’s 176 million users, as this service allows Gmail users to easily create a network from their existing email contacts. Critics have complained about privacy concerns associated with the service. A particularly notable concern is that Google Buzz, by default, publicly discloses (on the user’s profile) a list of the names of Gmail contacts that the user has most often emailed or chatted with. As a result, users who don’t disable this feature may have sensitive information about their contacts revealed. Such privacy issues with social networking sites are certainly nothing new, nor are they unique to Buzz. We expect Google will take steps to address this matter going forward.
Google’s Display Ads
Revenue from the company’s display advertisements will likely exceed $1 billion (around 4% of total sales) in the current year. This marks an interesting milestone for Google, which has made most of its money from advertisements placed next to search results. Demand for display ads may, in fact, rise faster than search-related ads this year. In this particular market, Google trails Yahoo (YHOO) (which garnered much of its 2009 revenue from display ads). Acquisitions such as YouTube (in 2005) and DoubleClick (in 2007) have helped Google catch up to some extent. Indeed, sales of video and banner ads on YouTube will likely contribute the vast majority of the company’s display ad revenue for 2010. Looking further out, Display Ads could prove an important growth driver for the company in the coming years. Google will capitalize on its expertise in search-related advertising to expand in this field. To this end, the company is developing tools to help marketers create superior banner ads and automate their placement. In addition, Google will likely make a greater attempt to market its products through a people-friendly sales force.
Google’s Broadband Offering
The company has recently announced plans to offer ultrafast broadband service to consumers in a small number of U.S. cities. The Google Fiber Network is expected to be many times faster than current high-speed Internet service. Google will build and test several fiber optic networks that reach homes, aiming to serve 50,000 to 500,000 people. Executives have said that the move is intended to accelerate the deployment of faster networks and display services that could run on them, like high-speed video downloads. Google intends to let other providers resell service on its network, and would not discriminate between different kinds of traffic. This move marks the company’s latest attempt to pressure Internet providers, such as Verizon Communications (VZ) and Comcast (CMCSK), to upgrade and open up their networks, which would likely benefit Google’s core business.