Google just bought Boston Dynamics, the company behind robots such as Big Dog and Petman. Why would Google, a search company, buy a robotics company?
Because it’s part of their long-term strategy.
96% of Googles revenue comes from advertising. It’s a golden goose that sprinkles the company in money. Last year they made more than $10 billion from advertising. This is what drives their whole business – without advertising there would be no google. Depending on one income stream is a risky bet for a large company, and Google knows that the advertising revenue might dry up at some point. Not now, not next year, but sometime in the future. A nimble competitor might come along with a better product, googles search dominance might wane thus giving them access to less advertising space, or the advertising marketplace might change completely in some unforeseen way. In the long run it’s dangerous to be dependent on one income stream. On top of this Google’s marketshare in the advertising business is now so large that growth is becoming difficult.
Google is well aware of this. They know they need to look for other revenue streams to suppleant advertising. Since Google is a large company, and the advertising revenue stream is in the tens of billions of dolllars an alternative income model needs to come from a large market. Even if Google corners the market for dogfood completely it probably won’t make a dent in the financial statement of the company. They need a big market, and they need a big share of it. Otherwise it doesn’t matter.
Other large companies facing the same problem typically try to diversify into other markets where they might have a technological or market advantage. When IBM’s mainframe business was under threat in the 80’s they (successfully) diversified into consulting because they already had the sales organisation in place.
Moving into another market where you have an advantage is a classical strategy. There are 2 things that make google slightly different.
First, they are making the move before their main business model comes uder threat. This is both a rare and visionary thing to do, and it offers the distinct advantage that since advertising still rakes in money they have the resources to stay in the game, even though it might not be profitable this quarter or next.
Second, they don’t try to corner existing markets but look ahead to markets that might become billion dollar industries in years or decades. Robotics, self driving cars, Google Glass and Anti-ageing. The reason Google is able to look to new non-existing but potentially huge markets is that they aren’t in any immediate trouble. On the contrary, one of the hard things at Google HQ must be to decide what to spend money on. They spend it on securing a future where adwords is no longer their main revenue stream.
Google announced the launch of a new company called Calico on September 19, 2013, which will be led by Apple chairman Arthur Levinson. In the official public statement, Page explained that the “health and wellbeing” company will focus on “the challenge of ageing and associated diseases”.
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