A $6 Trillion Business in the Making?

Who says that ExxonMobil (NYSE: XOM  ) is the greatest company in the history of the world? If Google (Nasdaq: GOOG  ) is the next Microsoft (Nasdaq: MSFT  ) , then it will one day be worth $20,000 a share, or more than $6 trillion in market value. So says MarketWatch technology columnist John Dvorak.

"[Google is] on the same carnival ride we witnessed with Microsoft. Even at today's closing price, Microsoft's stock value essentially has grown by around 200 times since its IPO," Dvorak wrote earlier this month.

Google closed at just more than $100 on Aug. 19, 2004, the stock's first trading day after its public offering. A 200-fold increase would, indeed, come to $20,000 per share. Multiplying that by 315 million shares outstanding equals $6.3 trillion in market value.

Can you imagine? According to the World Bank, only the U.S. and the European Union produce more in gross domestic product annually.

Yes, but ...
Whether or not you agree with Dvorak's math -- I think it's far too optimistic -- there's no denying that investors measure Google in Microsoft terms. Will it or won't it be the Next Great Monopoly? We ask ourselves this question every quarter, and we'll do so again tonight, when the search king reports first-quarter results.

We tend to believe that Google's various technologies will loosen and eventually end Mr. Softy's grip on personal computing. We believe that cloud computing -- accessing and delivering computing services via the Web, rather than a local hard drive -- will transform our experience, and that Google, along with Amazon.com (Nasdaq: AMZN  ) , IBM (NYSE: IBM  ) , and dozens of others, will lead in this area.

But that belief may be a fallacy. Consultants at McKinsey & Company recently performed a study that found it might be cheaper for larger firms to own, rather than rent, data-center infrastructure.

"The industry has assumed the financial benefits of cloud computing and, in our view, that's a faulty assumption," Will Forrest, a principal at McKinsey, told The New York Times in a recent interview.

So cloud computing is a myth? Not exactly. McKinsey says that smaller firms stand to benefit greatly from on-demand computing models, because they lack the capital to acquire and depreciate rooms full of servers. But Fortune 500 companies should buy direct from Sun Microsystems (Nasdaq: JAVA  ) and its peers, the study suggests.

And while McKinsey doesn't explicitly call out netbooks, Intel's (Nasdaq: INTC  ) recent earnings report tells us that these so-called thin clients are no longer in thick demand. They may lack the personal-computing horsepower that cloud computing environments such as Google Gears demand.

A better way to understand Google
So both technically and financially, Dvorak is oversimplifying. Yet he's also absolutely right to say that Google in search is reminiscent of Microsoft in operating systems.

Abundant growth remains. Why? Because being great at search means being great at organizing and presenting data, which, in turn, helps with creating useful Web software such as Google Maps, Gmail, Google Docs, and the Chrome browser. Google's business model is blessed with a virtuous cycle that should lead to Office-sized innovations that transform the cloud.

Some of these innovations we already take for granted. Think about how you can click-to-call a restaurant after obtaining driving directions from a Google Maps search. Sure, it's common practice now, but we used to just call 411. Small breakthroughs like this help us to believe that Google will lead a new era of innovation.

But there's also another reason, and it's gone mostly underappreciated. Many speculate that Google has hundreds of thousands of servers, if not a million, located around the world. Each of them stores not only an index of the Web, but also delivers email, supplies maps, routes phone calls, and stores documents. Would any of that be possible if Google's network were near capacity? I doubt it.

And so should you. This network is massive, unique, and custom-designed for Web services. It's like a patch of real estate where most of the property is empty, waiting to be designed for needs that have yet to be made known.

Calling that a $6 trillion business in the making is presumptive. But is this the infrastructure of the world's first trillion-dollar business? The Big G has enough digital real estate for me to envision it.

We measure Google by Microsoft standards. Perhaps it's time Microsoft measured itself by Google's standard.

Google is a Rule Breakers recommendation. Amazon.com is a Stock Advisor selection. Intel and Microsoft are Inside Value picks. The Fool owns shares and covered calls on Intel. Try any of these Foolish services free for 30 days. There's no obligation to subscribe.

Tim had stock and options positions in Google and stock positions in ExxonMobil and 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.


Read/Post Comments (5) | Recommend This Article (13)

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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.

  • Report this Comment On April 16, 2009, at 5:48 PM, jmullina wrote:

    I'm sorry if this sounds harsh, but this article strikes me as a very confused. I do agree that Google is developing monopoly power in search, but the rest doesn't make sense to me.

    First, I'm not sure why i should believe the author knows anything about Google's server capacity, but even if he does know something about it... he doesn't make a case between that capacity and an outcome for shareholders. In fact, judging by history, Google's track record has been pretty poor on everything except search - in other words, their experiments have had a pretty low yield rate outside of their core search competency (where they obviously dominate).

    And then there's the confusion around client software -- it seems at one point that the author thinks the everything will happen on the web and the client doesn't matter... and then a couple lines later, netbooks are slowing down because the client software Google wants you to install (google gears) won't work very well. So which is it.. is client software on the way out or not?

    As much as the web continues to become important in new ways, I think the rich experiences people want to have - as well as the exploding array of mobile devices and different form factors - will ensure a bright future for client software for quite some time. In reality, I think most people want software from the cloud/web, on servers, and across many devices to work together well.

    This is actually Microsoft's strategy with "software-plus-services". While I do believe Google shares a very similar vision, they are starting from a very different place.

    And with the very positive reception that Windows 7 and Windows Azure are getting, Microsoft is in the drivers seat.

  • Report this Comment On April 16, 2009, at 5:56 PM, jmullina wrote:

    My comment above may be a bit too harsh - props to Tim for some good points in there about the presumptiveness of Dvorak's piece, as well as bringing up the McKinsey article.

    In particular, i hope the McKinsey article can help move the cloud discussion past the question of whether or not everything should move out of data centers and into the cloud (no) and to a slightly more nuanced discussion of which applications are a good fit for a cloud, and which are best maintained by business in-house.

  • Report this Comment On April 16, 2009, at 6:13 PM, dazden wrote:

    i agree with jmullina...I think softy will drive home with Azure cloud platform. It is hard to believe people are retool from existing dev platform...sorry G...you are not seeing 6Tr market cap

  • Report this Comment On April 16, 2009, at 6:37 PM, Beagle2Mars wrote:

    Yes you are Google. Nowhere near capacity ... ready for things we don't yet know we want, that's innovation. Google leads the field ... in so many fields.

  • Report this Comment On April 16, 2009, at 7:15 PM, Clarvoiant wrote:

    Google has given the expanded future a ,single digit,

    by limiting itself to there paying advertiseres. Short term versus long term. There apex has been reached.

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