Bullish on Google for the long-haul

By Markets Covestor

I recently watched a recording of a brainstorm session with Steve Jobs and his ‘Next Incorporated” 11 team members back in 1985.

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It is an incredible segment highlighting some of the characteristics we all already knew about one of the greatest entrepreneurs of our era.

 

 

Life is Short

In the video, Steve Jobs said this to his team:  “Companies come and go with the crest of the wave’”

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People, governments, and companies all are born, grow, diversify, expand, decline, and often eventually disappear.

Peter Thiel, one of the most successful startup investors in Silicon Valley says “every moment in business happens only once”.

Or as he puts it:

“What I dislike about business books, is that they all have a formula: the 7 (or 5, 8, 10) steps to success. But the truth is, every moment in business happens only once; the next Bill Gates won’t be building an operating system. If you’re just trying to copy, you’re not learning from them…

… Take Google, for example, and ask yourself: Why is it so successful, on so many levels? Because they’ve been able to carve out a unique category that has put them years ahead of their competition; they are not competing like crazy (the way a restaurant in San Francisco would, for example).”

 

Tech Leader

Google right now is a very successful company, and every single technology company on the planet wants to operate just like them.

I believe the model is perfect for our time, and I expect the company to keep growing and diversifying at least for 10 more years. However, this doesn’t mean that the Google model will be the perfect model for the future.

 

Barriers to Growth

At some point Google will stop growing, it will slow down, and eventually will start to decline.

As companies grow they become more difficult to operate and responsibilities and goals inevitably decentralized.

While Larry Page and Sergey Brin may have hired their own employees, I assume that’s no longer the case now that they have more than 40,000 employees worldwide.

The original Google employees from the 1980’s and 1990’s are now married, have kids and priorities in their lives may have changed.

 

Internal Struggles

Over time this shifting in employee focus and tenure can result in a slowdown in efficiency and innovation, change frequently becomes difficult.

New smart people that want to move up the ladder face a barriers from early employees more interested in protecting their jobs than in coming up with the next great idea (let alone investing the energy required to realize it).

If a life cycle can be applied to a company, Google is still in the expansion phase. And I believe that it may stay in this phase for as many as 10 more years.

At the same time, Google’s innovation and diversification has slowed.

 

Innovation

Google Maps came with an acquisition and was launched in 2004, while Youtube was acquired in 2006.

Since 2006, Google has not launched any significant product or service as big or with the potential of Google Maps or YouTube.

However, despite the lack of recent innovation, these two products, plus Google Fiber and Google AdWords offer Google a lot of room for growth.

 

10-Year Horizon

The focus of the company has changed from innovation to expansion and distribution.

That is what it makes Google so attractive in my opinion. I believe this is a company that, with its current lineup of products, has the potential for growth every single year over the next 10 year at a reasonably healthy rate.

It is true that the company may have its ups and downs like any other company, but a company in this phase has a very good chance of outperforming the S&P 500 over the next 10 years in my opinion.








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