Wednesday April 25, 2012
by Paul McWilliams, editor Next Inning
Since February, we have been detailing what I view as evidence Google (GOOG) will move into the content delivery business.
This would mark a huge change for the company, but as I see it, there is no better way for it to leverage its core assets and disrupt the social networking models of Facebook and other sites that have encroached on its territory.
In short, TV viewing habits have changed radically during the last decade, but TV programmers and content delivery companies have not responded to these changes.
As I see it, GOOG is uniquely positioned to leverage its core assets and, with that, deliver a new TV experience.
If GOOG pulls that off in the fashion I think it can, the model would not only be very disruptive for social media sites like Facebook, it would also add radical new dimensions to broadcast TV that producers, advertisers, and performers would be quick to embrace.
We documented GOOG's FCC application for an antenna farm in Iowa where it could pull down TV programming just like cable companies do today.
We also documented license applications made in both Kansas and Missouri that would allow GOOG to deliver the programming across the 1Gbs fiber optic network it is building out on both sides of the state line in Kansas City.
However, that isn't the real story for GOOG - it's just the tip of the iceberg.
In addition to documenting the fundamental moves GOOG is making, we also explored how GOOG is positioned to "channelize" content from sources like YouTube, Google Earth, and Google Streetview that people can already use to tour historic sites around the world, as well as 151 museums in 40 countries.
However, that's only the start -- it's the leverage of these assets that makes the story interesting and potentially a very high profit and disruptive model for GOOG.
Unfortunately, not a single analyst on GOOG's April 12, 2012 conference call asked about these ventures or what GOOG has in mind for them going forward.
Hollywood understands where GOOG is heading and is totally on board. Hollywood agents who used to focus on headline stars for their client base are now representing the new crop of YouTube "stars."
YouTube has already channelized, and some of the content from some of its up and coming "stars" whose "programs" are already more popular than prime time network TV shows. This trend, however, has just started.
To see what's happening you need to flip conventional thought on its head and follow the money. Shows like Survivor, American Idol, and Dancing with the Stars aren't popular because consumers have suddenly developed an interest in ballroom dancing.
What draws eyeballs, devoted interest and, of course money, is the social aspect of these shows and that is precisely what GOOG is positioned to not only enhance, but take to whole new levels.
Look across the bottom of the screen when these shows are playing and listen to the commentators encourage viewers to participate with Facebook and Twitter.
Now, think about being able to do that directly on the TV screen using a GOOG social networking portal.
Think too about having our friends "virtually" in the room with you and interacting in real time. With those features and capabilities everything changes.
What GOOG has today is a huge fulcrum that not even Apple can easily duplicate, and what GOOG is building out now are the levers to lay across that fulcrum.
If GOOG does this right, it will develop highly disruptive new business models that use the core GOOG fulcrum to leverage even higher profit margins than GOOG delivered for its record setting March ending quarter.
As I see it, GOOG is trading at least 30% below what I think is a full valuation.
Based on this view, and my opinion that Facebook will open trading well above what I could rationalize as a full valuation, I think investors who have set back some money for the Facebook IPO should consider GOOG as a potentially better long-term investment.
Learn more about this financial newsletter at Paul McWilliams' Next Inning.