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Google (GOOG)
Google is Wasting its Energy by Developing an Operating System
Google's major product announcements are usually accompanied with a lot of hype even if in the end they don't amount to much. The company has a large influence on the internet given the success of its core advertising business and that cachet transfers over to new initiatives. Tuesday's announcement that Google will be launching a new operating system has created a significant storm not only because of the above factor but also due to the fact that it comes along with a nice business soap-opera plot of Google vs. Microsoft. But for anybody considering an investment in Google's stock based on this announcement, the best advice would be to move on because this is not an investable event -- when it is said and done, Google's operating system, no matter how successful or not, will not have an impact on the stock price.
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When you are successful, you get to set your own rules. Google is no exception. That is why it does not have to answer questions along the lines of why, in all these years, you have only developed one bona-fide money making hit product (AdWords) and why do you spend so much energy in fields that are tangentially related to your core business? Google's response to the latter is typically grounded in the argument that anything which increases the usage of the internet and creates a better user experience is good for us because it means people will do more searches. It seems like that connection becomes more and more tenuous with every Google product. For example, how does Google Voice, which simplifies the telecommunications experience and increases my interaction with the internet given its web interface, increase the amount of Google searches that I will do. It is supposed to make my life easier which means I will have fewer telecom related problems and questions to pose to Google's search engine. Now this is not to say that Google should intentionally create products which do the reverse and make my life harder, but to convey the point that Google's stated rationale for working on all these applications is flawed. To be sure, most of Google's products are cool and simplify life, but their development does not have firm business logic behind them especially because Google is unable to derive significant revenue from them.
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The new operating system is another good example. Google Chrome, as it going to be called, will be released first for netbooks in the fall of 2010. Google's vision is to create a new lightweight alternative to Windows that will load faster and run off the web. Most of its applications will be browser-based which will alleviate some of the compatibility issues that Windows has had. Is there a need in the market for such an operating system? Sure, there is. Some people will definitely prefer a bare-bones OS that is essentially just an unpretentious platform to accessing the internet (where all the fun is). The idea is that you shouldn't even notice the OS because it is merely a tool that allows you to run your favorite browser based applications. But there are tons of other features that come with an operating system like Windows (e.g. file storage, networking, ability to run more intensive applications) that Google's operating system is not going replicate. So this is a niche product. Plus, there is not much innovation going on here. Google is essentially creating a stripped down version of Windows and placing the entire burden on the browser and lightening fast internet connections, which are still non-existent in large parts of the world.
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There is no monetization model behind Google Chrome OS. It is going to be so feature light that Google will not be able to charge much for it, plus it has to learn everything else about the OS business that Microsoft (MSFT: Charts, News, Offers) knows such as how to strike deals with computer manufacturers. Overall, it's hard to see how this increases overall internet usage (if the world is ready for a bare bones OS, there are plenty of people who could provide it besides Google) and even if it does, it is much harder to see how this boosts search volume on Google. If this trend continues, one day Google shareholders might demand that the company spinoff the core search and advertising businesses into a separate company in order to separate them from Google's unprofitable tangential pet projects.
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