Google is more than YouTube and Chrome. Which strategy is behind it?
Our perception about google is still dominated by “Google Chrome” as well as “Youtube”. The associated business model is driven by digital advertising.
But is this really all? What is their strategy going forward? What does this mean for incumbents in their industries? What does it mean for banks and insurance companies?
Google`s current structure
Last year, Google`s revenues of US$ 110 bn in 2017 where mainly driven by their digital advertising (more than 85%) with Google Cloud being the second biggest revenue driver.
In addition, Google`s holding company Alphabet has invested in further activities to explore new fields of activities. Among the most important activities are the following:
- Waymo: Platform to foster autonomous driving
- Deep Mind: is an open source platform for artificial intelligence
- Calico: Biotechnology research against aging
At the moment, Google looses market share to Amazon particularly with respect to product search, which still accounts for 60% of overall search requests. It is expected, that Google`s overall market share will shrink by one percent annually to 35,1 % in 2020. At the same time, Amazon`s share increases by 1,5% per annum towards 7 % at the same time. Despite a huge difference, Amazon`s platform strength is likely to close the gap continuously particularly with respect to attractive product searches.
Google`s Strategy going forward
Therefore, Google invests US$ 16,6 bn in its R&D activities, which means 15% of total revenues. The equivalent share with Amazon is 12,7 % and with Apple 5,1%. The core idea is to tackle the largest upcoming markets with a very clear and differentiated offering.
Google has chosen its bets addressing the following target markets:
- Digital advertising: This comprises all income streams from digital advertising. The overall market is estimated at US$ 340 bn in 2022. Currently Google has a market share of 37% followed by Facebook with 20,8% and Amazon with 4,1%. Microsoft and Oath have become irrelevant in this market. It is and will remain a strong revenue driver for the upcoming years.
- Cloud computing & storage: Analysts expect the market to be US$ 513 bn in computing as well as US$ 70 bn in storage. Google can profit from a stronger trend towards multiple cloud approaches. In any case a growing number of connected devices will require more processing power. For Germany, a 98% coverage of the G5 Network until 2025 will be catalyst to that as well.
- Quantum computing: To provide high processing power across IoT devices, Google invests into edge computing capabilities. Core elements are its Cloud IoT Core as well as Edge TPU.
Based upon these markets, google follows a three pillar strategy (see Figure 3):
Pillar 1 - Artificial intelligence: Google builds on its superior data knowledge as well as its analytical capabilities coming from search engines as well as the logic behind google advertising. Patents focus on speech recognition as well as assistance functions such as Duplex that can fulfill whole service functions.
Pillar 2 – Content Delivery: This includes its cloud infrastructure as well as its fiber optic cables around the world. Core levers are solutions for highly regulated industries such as financial services and health, the high-speed needed for players such as Spotify, Netflix or Apple as well as to foster the ability to follow a hybrid cloud approach. Cedexis jugdes Google to have the best delivery capabilities globally.
Pillar 3 – Edge Computing: Major purpose is to foster faster calculations. While classical chips can only process one calculation at a time, quantum computers can perform many calculations at once. Google`s chip Bristlecone contains substantially more quantum bits than its IBM and Intel peers. It is therefore a basis for the further development of Google`s market leadership. One additional application is superior security solution in a quantum computer environement.
Focused industries and countries
Based on its differentiating factors, google has a particular focus on highly regulated industries as well as transportation and health (see Figure 6).
Two core industry elements are
- Mobility & Transportation: Google Maps is a permanently improving basis for future navigation. Combined with its superior delivery capabilities, it is a very promising basis for autonomous driving. Google is experimenting along these lines within its venture Waymo.
- Health care: is a highly sensitive market with realtime applications such as surgery assistance either in emergency situations or when specialist know-how is required. It therefore fits very well Google`s delivery capabilities in a B2B environment. In addition they can use their superior analytical capabilities for consumer oriented applications.
What does Googles strategy mean to financial services?
From the above there is at least three conclusions to draw from a financial services perspective:
- Artificial Intelligence: This is often stated the core element in an open banking environement. And truly so, it offers superior applications such as risk assessment, KYC as well as crossselling.
- Security: Being a leader in quantum computing provides new elements to security which again is core to any financial services application in a digital world. This can definitely proof to be vital or decisive in an open banking environment.
- Hybrid cloud: This aspect is often underestimated. Seeing the enormous cost reduction potential on the one side and the reluctance of banks to move into this direction on the other, makes hybrid solutions key for the future transformation path.
Overall, we see Goolge more on the infrastructure side of financial services. Open banking and data usage remains the big unknown for the moment. On the other hand, it is clear, that google has little to no interest to become a major bank itself.
For established banks – either retail, investment or universal banks, it remains an interesting option for cooperative strategies to profit from Google`s platform economics, either on the client or on the operations side.
Again, the game is on!