Chrome: Just Another Free Google Product

The announcement from Google (GOOG) yesterday that it has released a beta version of a new web browser called Chrome has gotten a lot of attention, but shareholders like myself aren’t overly enthused. Once again it appears that Google is more about coming out with new free products than it is about its earnings or share price. I have no doubt that Chrome is a solid piece of software, but it also is yet another product from which Google will make no money.

Bullish analysts will likely point out that any product that gets Google.com in front of user eyeballs is a good thing and can only help them gain more market share. That may be true, but Google already dominates the search market. I find it hard to believe that the people who will download and use Chrome aren’t already Google.com users.

In my view, a service offering such as free wi-fi supported by Google advertising would be a far better use of the company’s product design efforts. It would be far more likely to add incremental revenue than a browser would (by expanding the wireless user base). Google’s strategy of making an operating system irrelevant is a bold plan, but it likely won’t boost Google’s earnings, and therefore, its share price.

Now, I do own Google shares. When I reduced my original position a while ago, my argument was simply that Google was a one-trick pony, and although it was a strong pony, new products that actually generate revenue would be the key for Google to attain a second spurt of growth. So far, we have seen little in the way of progress on that front.

I own the stock because it is cheap (19.4 times 2009 earnings estimates), not because they are boosting their long term earnings potential with any of these free new products. For the stock to really make a huge move back to the old highs this decade, Google needs to find another way to make money other than from search advertising. I’m not convinced Chrome helps on that front.

Full Disclosure: Long shares of Google at the time of writing

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9 Thoughts on “Chrome: Just Another Free Google Product

  1. shepherd on September 4, 2008 at 4:08 AM said:

    Definitely in agreement with you on Google and free products.

    I don't follow the company closely. Is there data on what all this free R&D does to their net? Have they provided a business case for "replacing the desktop"?

  2. Chad Brand on September 4, 2008 at 6:00 AM said:

    One of the issues with Google is that they don’t do things with a business case in mind… it’s all about the user experience. It is true that revenue will follow with loyal users, but not as much as it could if most of your products are free. It is hard to know exactly how much earnings would be boosted if they cut back on hiring and cap ex (at least to a more reasonable level), but needless to say, it would be significant and is one way they could get the stock up if they ever wanted to.

  3. Anonymous on September 4, 2008 at 7:02 AM said:

    Don’t forget, search didn’t offer any revenue for the first 5 years of Google’s life either. The VC’s were screaming at them to just do something smart and cash in on the advertisements. They waited as long as possible, stayed focused on their users and you might say it paid off. Wouldn’t you? What you are advocating is the quick, cheap approach of trying to juice earnings as compared to long-term attempts to improve the companies business.

  4. Chad Brand on September 4, 2008 at 7:22 AM said:

    Well, Google had ramped revenue all the way up to $1.5 billion in their 5th year of operation, so I’m not sure about your claim, but regardless, you are right if they are actually planning on making money from each of these products within ~5 years of launch.

    I’m not convinced that is the plan they have in mind. I don’t see Google charging money for a web browser ever, for instance. From a shareholder perspective, that is a core issue when evaluating the stock. From a user/fan of the company perspective, it is obviously not of utmost concern.

    The key to their long term financial success will be monetizing other products away from search, so we’ll just have to see how well they do on that front in coming years.

  5. Anonymous on September 4, 2008 at 8:56 AM said:

    You don’t make money directly off of the browser. You never will. What it does is give Google more control over the future environment in which software runs. The whole OS in a browser thing. Google hopes to make money providing the web-based software services users are going to continue to move into. Office products like work and excel are already being release for instance. These products are dependant on the browser supporting them. The fear is that Microsoft will redo their browser to make Google’s products work incorrectly. To get around this Google makes it’s own browser so they always have some control over the product.

    Also, in general you should real the book Built to Last. Google’s approach is similar to other companies mentioned in the book, such as 3M. Essentially 3M has made it’s money by allowing it’s engineers to develop whatever sort of product they dream up (within reason) rather than pre-deciding in a certain department the exact products that need to be met to meet a given market need to maximize profit. You know what I mean.

    In general I think of it as a small scale example of free-markets versus central controlled economies. Google as a company is more of a free market, it puts software out there and sees what happens to it. In my opinion it is just too difficult in the software market to predict what is going to happen to do anything else.

  6. Anonymous on September 4, 2008 at 10:03 AM said:

    Google want people to start using their browser instead of Internet Explorer. Most Internet Explorer users already search with Google but the default search engine is still MSN. If people use their new browser they will gain market share in search vs Microsoft. Also their version of Java/Javascript supposedly works better than the Internet Explorer one. I like my Mozilla.

    I think the stock is not cheap and, unlike Yahoo or Microsoft, has limited upside from here. I bet another bider will emerge for Yahoo in the coming months. Time Warner? Disney? Comcast? A merger with News Corp?

  7. Bobby Kolev on September 5, 2008 at 12:06 PM said:

    Well Gooogle is sitting on piles of cash right now and it’s only logical the shareholder value and stock price is not the first thing on their mind.

    The browser move is only illustrating that point.

    They have long term hopes there and how much of those are going to happen we can only wait and see. But it’s sure they aren’t thinking about shareholders at the time being and don’t have to – they already made them rich recently.

    On another note the story with the advertising on google.com has not happened quite as explained above.

    Google execs did not have the slightest idea they will make money from search advertising, let alone on their own.

    They were, in fact, on the verge of bankrupcy because they could not figure out how to bring revenue despite having an apparently excellent and popular product.

    At the time Amazon.com has had a similar advertising program for product searches on their site and Google tried to advertise there in hope to bring in some cash.

    Their first check, if I remember correctly was for either three hundred or three thousand dollars; I think it was more like the former.

    Either way, until they got it they were seriously hoping this could work for them.

    How and when they figured they could do it on their own I do not know.

    But it certainly wasn’t “we’ll wait until the last moment and then do what we had in mind” thing.

    It was a do-or-die thing, like with Altavista, and the outcome was decided in the last days.

    At least that’s what I was told by a GOOG internal.

  8. Anonymous on September 9, 2008 at 6:59 AM said:

    “They have long term hopes there and how much of those are going to happen we can only wait and see. But it’s sure they aren’t thinking about shareholders”

    I don’t see how working towards long-term goals and thinking about the shareholders. I think what you mean to say is that they are not looking after the short-term speculators.

  9. market folly on September 10, 2008 at 4:33 PM said:

    will be an interesting story to follow here over the next few years. seems google has their hand in everything these days.

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