Google’s recent push into tablets and mobile along with offering new search services such as Google Instant are pushing up company’s capital expenditures, which is slotted to grow almost 184 percent in 2010 to HOW MUCH? compared to last year. And next year that amount is going to go up even higher. But this spending is a good thing – for it allows Google to leverage its inherent advantage – infrastructure.
A few years ago, in a post I noted that infrastructure was Google’s key competitive advantage. It is what allowed the company to innovate and outpace its rivals. It allowed the company to give us results faster than our broadband connections could offer — in the process making us more subservient to its search. In the end, we all forget the directories and instead focused on the search-box as the start of our Internet journey. Today Google is a gigantic, $ 7.3-billion-in-quarterly-sales business.
One thing Google knows: it needs to keep spending money on this infrastructure in order to stay competitive and current with times. The company recently introduced Google Instant, a new feature that allows you to get results even as you are still typing the search term. It is a service akin to the old days when an Intel chip got multimedia extensions.
Google Instant, in many ways is an evolution of a product to keep up with times – today’s faster broadband mean that the search results need to come up faster than one could type. More importantly, Google Instant is a search product optimized for a brave new world where the user interface is touch rather than keyboards, and devices are not your classic computer, but instead mobile and tablet-like.
One of the reasons Google has been able to launch Google Instant is because it can afford to spend a lot of money on its infrastructure. During the third quarter of 2010, the company spent nearly $ 757 million, the highest amount since the first quarter of 2008, according to investment bank, J.P. Morgan. (In comparison, Google spent a total of $ 810 million on capital expenditures in all of 2009.) In a conference call with Wall Street yesterday, Google vice president Jonathan Rosenberg told the analyst community:
From a revenue standpoint, its impact has been very minimal; and from a resource standpoint, it’s actually pretty expensive. So why did we do it? Well, we believe from a user standpoint, Instant is outstanding and the data that we are seeing actually bears this out.
Google’s spending on capital expenditures (mostly on data centers) had been on a decline. THat is about to change. According to J.P. Morgan, the company is going to spend $ 2.3 billion on capital expenses in 2010 versus $ 810 million last year. For next year the investment bank is forecasting, $ 3.2 billion in capital spending.
Some Wall Street analysts are going to view this increased spending and wring their hands. They are idiots and short-term thinkers. I see the growth in capital expenses as a sign of health, and that things are going well for Google – actually really well.
Let me explain – till recently Google had to focus on a small subset of actions to satisfy its end customers – You and I – and thus make money off of advertising. Throw in YouTube videos and Gmail, if you want, but browser-based search and search-based advertising were its bread and butter.
Google is said to be the single biggest source of traffic on many of world’s networks and that is with only a handful of offerings. Now imagine how big Google will be as a percentage of the source of Internet traffic once we start taking their new initiatives into account. That also explains why they need to build their own networks and lay their own fiber pipes.
Now the number of consumer interactions has grown multifold. Google’s Android mobile operating system is an Internet-enabled OS, which is peppered with Google services that are used more frequently because we have access to them in our pockets. This overall growth in data center capabilities is only going to go up as the company becomes more successful with its Android push. By spending on data centers and networks, what Google is ensuring is that Google Android will always have a great user experience. Remember, in a world dominated by cloud clients – nothing matters more than instant access to various Internet services.
Related content from GigaOM Pro (subscription req’d) about Google, and its Mobile Efforts:
- Why Google Should Fear the Social Web
- Report: Google’s Voice Possibilities.
- How Mobile Cloud Computing Will Change Tech
