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Google’s 2009 Telecom Coup
The launch of Google's (Nasdaq:GOOG) smartphone operating system Android took place in 2008. It waded through a beta testing period until November 2009, when the number of Android-powered phones exploded. The media was all over it, but 2009 wasn't just about Android. For Google, it was about something much bigger.
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Oh, that's where the noise was coming from to be sure. However, the underlying motivation (and monetization) of creating a free operating system - and this remains unknown to many investors - didn't materialize until Google quietly tiptoed into Skype's and Vonage's (NYSE:VG) territory.
Yes, Google moved to the brink of becoming a telecom company in 2009, and may well pull that trigger in 2010. Check out the time line.
From the Beginning
A quick history of how Google got from there to here:
1. October 2008: The first Android-based phone is unveiled: a T-Mobile G1.
2. April 2009: Google Voice is unveiled, enabling telecom customers (wireless and landline) to better manage their third-party provider services. It works for VoIP, but doesn't make Google a telecom provider.
3. May 2009: Up to 20 smartphones are named as future Android-based phones.
4. Early November 2009: After lots of testing, Verizon (NYSE:VZ) launched the next major Android smartphone: the Motorola (NYSE:MOT) Droid. The platform certainly makes mobile/smartphone internet connectivity a snap.
5. Early November 2009: Google pays $750 million for mobile advertising firm AdMob.
6. Mid November 2009: Thirty more upcoming Android smartphones are announced, while some of the original 20 start to launch.
7. Mid November 2009: While the ink is still drying on the Android news, Google quietly pays $30 million for Gizmo5 and suddenly owns the technology to initiate and terminate calls to and from real phones - the one piece of the puzzle it didn't have yet. Though regulatory hurdles have not been crossed yet, technology-wise, Google can now compete in the VoIP space with Skype and Vonage, and indirectly with the likes of Verizon and AT&T (NYSE:T).
In retrospect, it all makes a lot more sense now. Vonage and Skype both offer smartphone apps that turn a Wi-Fi connection into a VoIP option on web-enabled smartphones. Some users are happy with them. However, others are not, citing functionality problems. When a company owns the platform and medium, as Google does now, compatibility and net neutrality are negated problems. And, it's all for free. See, the Google version of a VoIP platform is more like Skype and less like Vonage, in that no monthly fee is required for most users. However, those that need a fee-based service are close at hand - a smart move indeed.
Same Old Google
Needless to say, 2009 was a big year for Google, even if telecom consumers and investors don't fully know why yet. But what's in it for Google if they're giving it away for free, you ask? Two numbers answer the question:
1. Android smartphone sales projections total 76 million units by the end of 2012. You can pretty much bet Google Voice or Gizmo5, or whatever it's called at the time, will work seamlessly with Android, yet cost the user nothing.
2. As was stated above, Google recently paid a big chunk of money - $750 million - for a mobile advertising firm.
Bottom Line
Figured it out yet? Google is not selling telecom service. Instead, it is giving it away for free to collect a lot of eyeballs so that the company can do what it does best - sell advertising. On that front, spending 2009 to establish the venue was time well spent. A coup indeed. (For more on this sector, check out Dial Up Choice Telecom Stocks.)
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IN PICTURES: How To Make Your First $1 Million
Oh, that's where the noise was coming from to be sure. However, the underlying motivation (and monetization) of creating a free operating system - and this remains unknown to many investors - didn't materialize until Google quietly tiptoed into Skype's and Vonage's (NYSE:VG) territory.
Yes, Google moved to the brink of becoming a telecom company in 2009, and may well pull that trigger in 2010. Check out the time line.
From the Beginning
A quick history of how Google got from there to here:
1. October 2008: The first Android-based phone is unveiled: a T-Mobile G1.
2. April 2009: Google Voice is unveiled, enabling telecom customers (wireless and landline) to better manage their third-party provider services. It works for VoIP, but doesn't make Google a telecom provider.
3. May 2009: Up to 20 smartphones are named as future Android-based phones.
4. Early November 2009: After lots of testing, Verizon (NYSE:VZ) launched the next major Android smartphone: the Motorola (NYSE:MOT) Droid. The platform certainly makes mobile/smartphone internet connectivity a snap.
6. Mid November 2009: Thirty more upcoming Android smartphones are announced, while some of the original 20 start to launch.
7. Mid November 2009: While the ink is still drying on the Android news, Google quietly pays $30 million for Gizmo5 and suddenly owns the technology to initiate and terminate calls to and from real phones - the one piece of the puzzle it didn't have yet. Though regulatory hurdles have not been crossed yet, technology-wise, Google can now compete in the VoIP space with Skype and Vonage, and indirectly with the likes of Verizon and AT&T (NYSE:T).
In retrospect, it all makes a lot more sense now. Vonage and Skype both offer smartphone apps that turn a Wi-Fi connection into a VoIP option on web-enabled smartphones. Some users are happy with them. However, others are not, citing functionality problems. When a company owns the platform and medium, as Google does now, compatibility and net neutrality are negated problems. And, it's all for free. See, the Google version of a VoIP platform is more like Skype and less like Vonage, in that no monthly fee is required for most users. However, those that need a fee-based service are close at hand - a smart move indeed.
Same Old Google
Needless to say, 2009 was a big year for Google, even if telecom consumers and investors don't fully know why yet. But what's in it for Google if they're giving it away for free, you ask? Two numbers answer the question:
1. Android smartphone sales projections total 76 million units by the end of 2012. You can pretty much bet Google Voice or Gizmo5, or whatever it's called at the time, will work seamlessly with Android, yet cost the user nothing.
2. As was stated above, Google recently paid a big chunk of money - $750 million - for a mobile advertising firm.
Bottom Line
Figured it out yet? Google is not selling telecom service. Instead, it is giving it away for free to collect a lot of eyeballs so that the company can do what it does best - sell advertising. On that front, spending 2009 to establish the venue was time well spent. A coup indeed. (For more on this sector, check out Dial Up Choice Telecom Stocks.)
Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis article, risk free!
by
James Brumley
James Brumley is a freelance writer and registered investment advisor. He began his career as a broker with a major Wall Street firm, where fundamentals and long-term holding periods were core strategies. After that, he switched gears completely, becoming an analyst at a short-term trading newsletter that focused on technical analysis. He now manages client money using the best of both philosophies. His company, Bluegrass Portfolio Management, offers investors an opportunity to reap superior returns with minimized risk.
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