'

Reader question: Why isn't Google more focused on its core business?

A young reader asks why Google is investing in so many technologies that seem to add little shareholder value. Good question, eh?

I get lots of emails from readers, some of which are complimentary, some of which offer suggestions or alternative viewpoints, and most of which just tell me why I'm wrong or why Google is actually evil. However, yesterday I received an interesting question from a student in Argentina that's actually on the minds of a fair number of industry analysts. I have a few ideas and thought that instead of answering his email directly, I'd write a post about it instead. By the way, I'm writing the post on my freshly-delivered Chrome notebook, but more on that later.

So here's the question from a young student in Argentina (I've reprinted it as he sent it. I blame the US educational system for not being able to write back to him in even hesitant Spanish):

...I would really much appreciate your help for my final conclusions concerning your ideas about which business direction is taking Google, and why they are investing such amount of money in projects that seems to have no monetization or at least short term returns on  investments like Robotics (self-driving car)/journalism/green impact/hardware (notebooks /tablets) and so on.

Is it because of their liquidity, or maybe it is because founders' ideals were to help solve common problems with technology?  I wonder if they are playing to be God.

Good question, right?

And while most people don't see them trying to be God, a whole lot of people see them trying to be Big Brother (and succeeding remarkably well). Are they really an Orwellian beast of a company? I don't think so, but then again I think we landed on the moon for real, I don't think Area 51 really exists, and I'm pretty sure that Lee Harvey Oswald actually killed JFK.

Even if I'm being completely naive, I'm inclined to think that most of what Google does, including some of their seemingly off-the-wall investments, is in the name of long-term profit. That's hardly Orwellian...it's just good business.

Google also happens to have several billions of dollars sitting in the bank. Those billions allow them to take risks, conduct basic research, and buy companies that might or might not pay off in the long run. However, everything that Google does essentially relates to its core business of search and, arguably, its real business of advertising.

The robotic cars to which the question refers are a great example. If Google is driving your car, it obviously knows where you are. This isn't as creepy as it sounds. It simply gives Google the ability to suggest restaurants or gas stations near you. Gas stations and restaurants will pay significant sums to be first on the list of suggestions and Google guarantees itself another revenue stream from local advertising and search (the motivation behind their failed Groupon acquisition). Clearly, this is a long ways off, but investing in research in this area now ensures that Google has a place at the local search table in the years to come.

Google has struggled to be a "sticky" website since it rolled out its first search. Facebook users will spend hours at a time on the social networking site, while Google users tend to be in and out very quickly once they find what they were searching for. That stickiness translates to more advertising dollars. Thus, the idea of a Google operating system (whether Chrome OS, like that on the notebook I'm using now, or Android) makes perfect sense from a stickiness point of view.

If users are immersed in Google Docs, Google Search, Gmail, and all of the tools that natively work very well (or are actually required for both Android and Chrome OS) then Google has many opportunities to hit them with advertising. In the same way, Google can much better learn a users habits and preferences if the company is literally tapped into the user's OS. Better understanding of these preferences translates into better search results that are more relevant for any given user, which then, again, translates into more advertising dollars. Wouldn't you, as an advertiser, pay more for an ad if users were twice as likely to click on that ad than if you ran it on Yahoo?

Everything Google does is somehow tied to driving revenue in its search and advertising business or opening parallel revenue streams that complement this core business. Google may not make money on Android directly, but the billions are already beginning to roll in from advertising revenue on mobile Maps, Apps, and localized search. Imagine how many billions will roll in from Google Car?