Tags: Google | tech | media | stock

Why Google Is a Lousy Tech Stock

Wednesday, 24 Jul 2013 07:43 AM

By Patrick Watson

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In the stream of mid-year corporate earnings news, Google (GOOG) was one of last week's biggest logs. The quarter could have been better, but the big picture is unchanged. The same shares that sold at $85 in the company's 2004 initial public offering are now approaching $1,000.

Google is big any way you look at it. The company is one of the top 10 Standard & Poor's 500 companies by market value. Google is the third-largest domestic technology stock, behind only Apple (AAPL) and Microsoft (MSFT).

Strike that last sentence. I'm wrong — Google isn't really a tech stock.

Yes, Google is in all the technology indexes and sector funds. Yes, Google has the most megabytes and gigaflops outside (possibly) the National Security Agency. Yes, it's very hard to get on the Internet without encountering some kind of Google technology.

All this is true, but Google is still not a technology stock. It's not even a technology company. Google is a media company in high-tech clothing.

If you disagree, answer this question. How much did you pay Google this year?

Your answer is almost certainly zero, unless you dropped a few bucks for extra email storage. When you aren't spending any cash, in what meaningful sense are you their "customer?"

In fact, you are not Google's customer. You are Google's product.

The real Google customers are those advertisers whose sales pitches you cannot escape. The services you use — web search, Gmail, YouTube and all the rest — exist in order to attract your eyeballs. Google acquires your attention and then makes money by selling it.

At its core, Google is in the same business as newspapers, radio stations and TV networks. But it's better. Google invented a delivery method that gives advertisers more value for the money. In many cases, Google generates customers far more cost effectively than old media does.

To a lesser degree, you can say the same for Apple and Microsoft. They have substantial advertising and media businesses, too. The key difference: people actually pay money for iPads and Xbox consoles. Apple and Microsoft are tech stocks with media sidelines.

Google, on the other hand, is a media company that uses technology. It uses it very, very well. When Google invents innovative new technologies, the goal is usually to enhance or expand the core media business.

As a tech stock, Google is #3. As a media stock, Google is well on its way to destroying its competitors and dominating the world.

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