Is Google Spread Too Thin?

Several recent headlines in the financial media have highlighted the fact that Google (NASDAQ: GOOG  )  is now involved in a lot of seemingly unrelated product lines, such as drones, balloons, thermostats, smoke detectors, software, wearables, Web servers, and driverless cars. The list seems to be a long one.

While most of the products look impressive and the company is innovative, has management gone too far and is Google spreading itself too thin from a business standpoint? 

Another well-known tech company, Apple  (NASDAQ: AAPL  ) , sells only a few types of products and has been very successful at it. Will it continue?

Searching for growth
In the short time since it was founded in 1998 Google has morphed into a monster, the third-largest US public company by market cap, by dominating Web search, and by creating the world's most popular mobile operating system, Android. Google has successfully monetized the businesses and in the last five years revenues have averaged a gain of 20% annually. 

But earnings growth appears to have stalled and it's possible that company management believes that it needs to branch into new areas to jump-start things. And it is trying nearly everything but the kitchen sink.

Google might be interested in expanding the number of people connected to the Internet. Right now 60% of the world is not. In theory, the new users will access Google services and generate income for the company. Drones from the newly acquired Titan Aerospace could join balloons in Google's Project Loon and serve as high-flying wireless access points for people in hard-to-reach places.

Another interest for Google is the Internet of Things, where objects, and more people, would be interconnected. The company recently acquired Nest, the maker of smart-home appliances like thermostats and smoke/CO detectors.

But Google has had a mixed record in developing and managing hardware. It sold off its money-losing smartphone venture, Motorola, only a few years after it was acquired. Nest has had some quality issues with its products. And it seems like balloons and drones could turn into capital intensive businesses and suppress margins.

Bottom line: All of the diverse businesses may be too difficult for Google to manage at once. Investors shouldn't look for any immediate benefit.

Insanely simple
Apple, on the other hand, keeps its business process simple. It developed integrated ecosystems for the computers and mobile devices, which it sells by the millions. Users became addicted to the products and billions of dollars have flowed into company coffers. Smart investors cleaned up. 

Apple hasn't yet seen the need to branch out to some of the seemingly loony businesses that Google gets into. Apple will probably need to release new products, however, as the market for its pricey products saturates. It is likely a smart watch, and possibly some type of TV content agreement with cable companies, will come out of Cupertino some time this year. In addition, Apple may be developing a mobile payments platform that would be based upon its vast experience with iTunes and apps.

Foolish conclusion
Google seems to be trying everything but the kitchen sink in order to try to ensure that its name stays out there on the minds of Internet users. Management probably thinks that it needs to get into many unrelated businesses in order to grow. It is possible that diversification will not help the company.

By contrast, Apple focuses on a few very popular products that its loyal users have scooped up by the millions and a simple ecosystem that the company and its investors have cashed in on. Will Apple add to the list this year with a smart watch, TV product, or retail payments platform? The company may need one more thing in order to improve its own growth prospects.

3 stocks to own for the rest of your life
As every savvy investor knows, Warren Buffett didn't make billions by betting on half-baked stocks. He isolated his best few ideas, bet big, and rode them to riches, hardly ever selling. You deserve the same. That's why our CEO, legendary investor Tom Gardner, has permitted us to reveal The Motley Fool's 3 Stocks to Own Forever. These picks are free today! Just click here now to uncover the three companies we love. 


Read/Post Comments (0) | Recommend This Article (3)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2922534, ~/Articles/ArticleHandler.aspx, 11/26/2014 1:42:31 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement