Investor insight #28: Google Search

Monday 24 May 2021

Portfolio insights

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Tech industry analysts have repeatedly questioned the magnitude and focus of Alphabet’s R&D investments in Google. And the size of the investment is considerable. Alphabet spent more than $105 billion on R&D over the last 5 years, and we estimate it will almost double that figure in the next five years. Its effectiveness was difficult to discern, as it was directed at disparate parts of Google’s business.  

Both the value and strategic intent of the R&D spend became clear at Google’s 2021 developer conference held this month. The utility to users from Google’s investments are worth far more as a whole than the sum of the individual parts, entrenching internet users within Google’s Search ecosystem. We believe this creates multiple paths for long-term revenue growth and solidifies the company’s competitive advantage in a number of markets.


Google’s announcement

Multi-task Unified Model (MUM) will instruct and power Search

MUM is 1000 times more powerful than Google’s current search model and far more advanced. It draws on Artificial Intelligence (AI), to generate the most useful responses using:

  • Text, images, video, audio and multi-media
  • More than 75 different languages
  • All Google applications including Search, Maps, Translate, Lens and YouTube.


Google’s competitive advantages


Enormous and unrivalled user base

  • Over 1 billion people make +3.5 billion Google searches daily, and 84% search +3 times a day
  • Google has 9 products with +1 billion users including Android, Chrome, Gmail, Google Drive, Google Maps, Google Search, Google Play and YouTube
  • Google continues to improve accessibility for search across different mediums including text, image, video and audio, as well as channels including mobile, desktop, watches, speakers and more
  • +3 billion Android devices provide anonymised location data used to measure and analyse traffic patterns, “busyness” statistics for businesses or locations, enabling searches relevant to a user’s location.


AI-powered search capabilities

  • Its latest advancements in Natural Language Processing (NLP) are powered by Google’s substantial investments in AI technology. No other platform has the capability to offer search products across such a variety of platforms, channels, mediums and languages.


Global leader in search

  • The outcome is a new paradigm shift – contextual search that facilitates more complex, nuanced and conversational searches through a single interface. It will provide a superior experience for users across all Google applications.


Google’s opportunity

Google’s mission has always been to organize the world’s information and make it universally accessible and useful


At the conference Google confirmed it has achieved critical mass on “organising the world’s information and making it universally accessible” and is now concentrating on “making it useful” by providing highly relevant multimedia answers for users. The new focus suggests its utility to users will only increase, and the more useful it becomes for users, the more they will use it.

The “Virtuous Cycle” where more users create
more data which encourages greater use



This bodes well not just for advertisers across Google’s platforms but also the businesses they service, as the cycle of outbound traffic and referrals increases commerce more broadly. These cyclical actions and reactions generate opportunities for Google:

  • Protect and expand Google’s market lead through synergies across its applications. Added value to users through greater app integration further entrenches Google’s products and makes it harder for others to compete.
  • Monetising assets such as Google Maps and Google Shopping. YouTube’s massive contribution to Google’s top-line growth over the last few years demonstrates the leverage management has across other assets with high penetration rates and install bases.
  • Digital advertising will persist in gaining ascendency in global ad spending, and online search will continue to play an increasingly important role across all segments of the market but particularly for product discovery and brand awareness. Greater utility and use of online search should also generate higher ad load and more engagement from users.
Difference in digital advertising spend forecasts over the preceding 2 years
 Source: eMarketer

 

About the Author
Denis Vukovac

Denis Vukovac

Investment Analyst

Denis joined the investment team in January 2020 and is responsible for research projects related to the Portfolio including concentrated analysis of companies being considered for inclusion. Previously Denis directed business development for Seismic Asia Pacific working with technology partners across the Asia Pacific region. He also worked in the mining industry and spent eight years in the Australian Defence Force including two deployments in Afghanistan.

Denis is a CFA Program participant, having successfully completed level III in 2020. He holds a Bachelor of Commerce (Distinction) from Griffith University and was a member of the Griffith University team who were runners up at the Australian National Finals for the CFA investment research challenge in 2018.