I'm Bullish on Google

Once again, my friend Rick and I are dueling. This time, instead of arguing over the future of satellite radio, we're debating the future of cloud computing. Google's (Nasdaq: GOOG  ) future, specifically.

Rick is the bear in this debate and I'm the bull. Why should you take my bullish argument seriously? First, because I'm a shareholder. Second, because I'm the Fool who recommended Google at better than $500 a share to our Motley Fool Rule Breakers subscribers.

Here's why I did: Google, not Amazon.com (Nasdaq: AMZN  ) , Microsoft (Nasdaq: MSFT  ) , IBM (NYSE: IBM  ) , or EMC (NYSE: EMC  ) , is the once and future king of cloud computing. Everyone else is a pretender.

Servers, with a smile
If that sounds like a controversial claim, it is. And not just because I'm overcaffeinated as I write that. No, Google is the king of cloud computing because it has what most observers say is the world's largest network of Web-connected servers and, on each of them, a very comprehensive index of the entire Web.

To maintain that index, Google employs some of the world's smartest people -- mathematicians, mostly -- to write and update algorithms that find and rank the importance of Web pages based on the their magnetism, the number of links to them from other sources.

See the pattern here? Google not only has more digital real estate than its peers but it also knows more about the Web than anyone else. Not even upstart Cuil, which claimed to have indexed three times more data than Google, was able to extract as much useful intelligence from the cloud.

Farming the Web's fertile ground
The richness of its results has elevated Google to something more than a search engine; Google is how we measure authority on the Web. That's why big advertisers are increasingly turning away from Gannett (NYSE: GCI  ) and The New York Times (NYSE: NYT  ) and towards Google.

Look at the numbers. The New York Times Co. this week reported -- wait for it -- a $74.5 million quarterly net loss. Can you imagine? Only a mass exodus of print advertising from the paper of record could force such a cataclysmic result.

Google, meanwhile, put up strong first-quarter numbers, despite cutbacks from its own customers. Net revenue climbed 10% to $4.07 billion and free cash flow doubled to $2 billion.

So say what you want about The Big G's propensity for spending astounding amounts of cash on experiments and yet-to-be monetized properties like YouTube; Google is hauling in plenty of moolah. Few equal its engineers when it comes to the ability to create software that customers like. More than 100 million use Gmail, for example. Who cares if it's still in beta? Numbers like that are hard to match.

Building a better cloud
Admittedly, there's a very strong argument for Amazon as king of cloud computing. Microsoft's Ray Ozzie, who carries as much digital street cred as anyone in tech, all but delivered the crown in announcing Azure -- otherwise known as Mr. Softy's cloud computing platform -- in October.

"All of us are going to be standing on [Amazon's] shoulders," Ozzie said at the time. There's some truth to it. Amazon Web Services helps to power Twitter and is supporting enough businesses that star venture capitalist Bill Gurley is betting on Amazon with his own money.

And yet, to me, it's Google that is building what techies call a "stack" for Web computing: servers, storage, interfaces, applications, and a programming interface. A Windows for the Web, you might call it.

Amazon isn't trying that. Microsoft is, with Azure, and it may yet prevail. Trouble is, Mr. Softy lacks partners who want to see it succeed.

Google, on the other hand, has thousands. They're called advertisers, and they're betting that Big G's cloud will do for them what newspapers, TV, and radio used to: make money. Are you sure you want to bet against them?

Google is a Rule Breakers recommendation. Amazon is a Stock Advisor selection. Microsoft is an Inside Value pick. Try any of these Foolish services free for 30 days.

Tim had stock and options positions in Google and a stock position in IBM at the time of publication. Check out Tim's portfolio holdings and Foolish writings, or connect with him on Twitter as @milehighfool. The Motley Fool is also on Twitter as @TheMotleyFool. Its disclosure policy loves its pair of googly-eyed glasses.


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  • Report this Comment On April 25, 2009, at 10:45 AM, WishToRetire wrote:

    There are two uses of the word cloud.

    1) Cloud "Hosting"

    Before this capability came along, you would say "I need a server" and the person who was responsible for getting you one (aka your hosting provider) would go out and but a real server. Now you can say "give me a server, cloud" and the cloud can "simulate" a server. So the hosting provider could have a bank of x servers and be simulating as many servers as were needed (e.g. y simulated servers where y is much largger than x), dynamically at any point in time. And anytime the bank is getting overloaded he'd just add a couple of new servers to the bank and all the simulated servers would instantaneoulsy get the benefit. Much better way to go.

    2) The internet as a cloud.

    Before the first type of cloud came along it was common to draw a diagram with a cloud in the middle and servers 1, 2, 3, etc. all connected to it. Any server can communicate with any other server in the world if they are both connected to the internet. The question of whether the first type of cloud is being used to host the servers or not is a completely different, separate and independant question.

    So... some companies are going to become btter an better at hosting servers for their clients (using the first type of cloud).

    And some companies are going to become better and better at writing computer applications that exploit the second type of cloud. Google is primarily about doing that I beleive. The index of eveything it finds out there on all computers connected to the internet is fundamentally made possible by the second type of cloud, not the first.

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