One of the reasons that we keep harping on Google as a stock to purchase has to do with their ability to be a disruptive force in almost every market they enter. They are able to do this because their goal as a company is different from most. Specifically, a typical company is attempting to get their clients to spend money on their product. Google, on the other hand, is only looking to drive its advertising business. As such, they can offer a variety of (sometimes costly) services for free (or close to free), thereby destroying the business models of many embedded companies.
That is the theme of this article from The Choson Ilbo. The following quote is regarding the implementation of the Nexus One and its unique bypass of cellular providers:
This is expected to change the very landscape of the mobile communications industry. The days of mobile operators controlling prices will likely come to an end soon. With customers able to freely choose the cheapest service, telecom companies will see their role shrink to mere suppliers of cellular networks and their profits drop accordingly. As companies like Apple and Google expand into the handset market with their own software, existing handset manufacturers will see their powers diminish as well. In 2009 Samsung and LG Electronics boosted their shares of the global cell phone market to the 30-percent level for the first time and pulled in record earnings. But they account for no more than 5 percent of the world smartphone market. They may be riding high now, but there is no telling when they might be knocked out of the saddle. The only way to survive is to innovate, innovate, and innovate.
Sometimes the most important aspect of an event is lost in the hoopla. Everyone is/was very excited about the technological implications of the Nexus One, but the reality is that the long-term ramifications of Google into the handset market might be what people are still talking about years from now. As we alluded to earlier, Google isn’t really giving wireless providers a choice as far as adopting Android devices. In order to remain competitive in the short-term, these companies must accept Android devices – even while the long-term path continues to push cellular telephony more to the peripheral as internet telephony becomes the tool of the day.
Can cellular companies remain relevant? Just the fact that we can legitimately ask this question speaks to the power of Google’s (and Apple’s) ability to disrupt and to innovate.
Welcome to a new week with Invest Smarter. This week we’ll (finally) post Part III of our Google analysis, continue to cover relevant news to our investing ideas, begin an “Investment 101” series designed to get less experienced investors up to speed, and, if there is enough time, initiate coverage on our third stock.
As always, thank you for your readership.