The mosaic that is Google is coming together, and it appears the company is on the verge of major disruption to a few notable cash cows. As I scan thru the Technology news over the last few days, it is hard to ignore that Google is everywhere you look. Between the Chromebook, Android, and Google TV the outlook for Windows/Intel and satellite cable industry looks cloudy.
The Google Chromebook is developing into the tool that opens the door for Google in the enterprise space. Chromebooks meet the primary concerns of CIOs, who have shared a common theme for their IT dollars: immediate ROI, cloud, and enhanced security. While it is early in the game, Google is picking up steam as the retirement of XP and Office 2003 approach in 2014. They are running trials for corporate IT departments now. With the development of virtualization, Citirix Receiver and VMware View allow Chromebooks users to access Windows applications if needed.
Sunday’s New York Times discussed Google’s success against Microsoft in small to mid-size business market, but mentions that large corporations are not ready to make the move. I agree. However, the evolution of IT is not headed in the direction of Wintel. I believe this direction is terminal for the likes of Windows &, Intel chips. In addition, the Google TV and YouTube initiatves don't bode well for DirecTV or Dish. So when I say terminal - I don’t believe Microsoft or Intel's tickers are going away, however, I do believe those businesses will crumble. DirecTV and Dish on the otherhand are toast.
Let’s start with Microsoft (Missed Search Fone Tablet). I could actually end it there, but I’ll go on.
I do not believe a company that has missed every major trend in technology over the last five years is going to magically turn it around with Windows Mobile/Nokia. They have a cash cow (Windows) and over 50% of their revenue recurring with little competition. There hasn’t been a credible alternative for large IT departments up until now. I listen to all the valuation arguments on MSFT, and I get it. But where do they fit into the picture 5 years from now? Given the rapid nature of change in IT – I think it’s dramatically different than today. There was actually laughter at a recent Tech conference when a Microsoft executive mentioned monetizing intellectual property in China as an initiative.
Intel. This one is short. I really don’t care about servers and McAfee. Let’s be honest, no one is going to buy an $1,100 Acer Ultrabook over a $300 Chromebook (Acer as well mind you) for the privilege of having a $300 chip inside. From a secular standpoint – there is a decline in PC business. As Goldman’s Semi analyst has pointed out repeatedly – Intel is the only company in the PC ecosystem that thinks the outlook is good. I’m taking the under - something about the CEO interview from a museum to launch the Ultrabook didn’t scream innovation.
At a time when Apple, Google, and Amazon are spending like crazy to build out data centers, implement cloud, and hire talent – Microsoft and Intel are paying dividends, suing people, and operating a museums. That’s not entirely fair – but you get my drift… they are complacent and Google is coming hard.
Satellite TV is pretty straightforward. I’m not the smartest guy in the world, but the business model doesn’t work in a high speed connection world. I pay $100/month for a dish on top of my house that provides me with 1,000s of channels I don’t want. In order to use the interactive features I do want, I have to pay $80/month for a high speed cable connection from another company. Honestly, any a la carte option from Google (that includes ESPN) and it’s sayonara to the dish. In fact if Google is acquiring content for YouTube more aggressively than expected – it may be time to size these guys for toe tags sooner than later.
So how long does this all take? That is the question, isn't it? With Google’s $39B in cash and FCF yield, on a forward basis, of 7-8% they have the firepower to support these initiatives until the inevitable tipping point - and once it starts both of these stories will unravel quickly.
I didn’t even get going on Android.
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