Apple Hits The Breaks on the Google Express

For the past couple years, Google has been my favorite company. My life was completely Googlefied after I purchased an Android phone- I got a Gmail account, started using the Google search engine 100% of the time, calendar by Google, and when Google dropped below $500 a share I promptly purchased the stock.
Since then I have been Google’s biggest proponent and bull, having extended my personal networking with the company’s portfolio of products, and absorbed as much information about Big G as I possibly could. While I am still a huge believer in the company’s mission, talent, and ingenuity, in terms of the stock, I have to take a momentary pause, gulp, and like any investor, reassess.
Charlie Munger, of Berkshire Hathaway, quipped a couple years ago, “Google has a huge new moat. In fact I’ve probably ever seen such a wide moat.” Of course, not one share of Google resides in their portfolio, because, well, that moat seems to be shifting away.
Search currently accounts for 90% + of Google’s profits.  Being a forward thinking, risk taking company, they are reinvesting the majority of these profits into hiring new talent and research and development in an effort to create mind-boggling new technologies and products (driverless cars, A/I, Google Glass, etc.)  I personally applaud this approach, and should the company fail, at least it will go down swinging for the fences and dreaming big which is what I believe we were put on this earth to do.
Google dominates desktop search where they are the undisputed Kings, in this domain lies Munger’s moat, with only heavyweight Microsoft attempting to penetrate the fortress, losing billions of dollars a year for their shareholders in the process.  And granted, it is possible that Facebook will create their own search engine, or team up with Microsoft, using all their social data to personalize search (which is in fact already being done) but that’s not what has me most concerned; what I’m most worried about-- users shifting to mobile search. My friend Ben C recently declared this to be "a huge opportunity for Google,” I don’t see it that way.
Imagine being the semi-benevolent King of Europe.  Every year you pave the roads, enabling your citizens to find their way around your great land, speeding commerce, and each year you collect billions upon billions of dollars in taxes, which you use largely to finance many fanciful projects that one day might reap you even more rewards.  Then one day, an announcement is made that a new world has been discovered, a land full of opportunities, with vast untouched resources. This land is called “Mobile.”
Immediately, you send out your Android army, to develop this new world, attempting to fashion it as you have your current kingdom.  And you’re highly successful, but taking the long term view of retaining your market share, you’re not making any money off of it yet. Meanwhile your biggest rivals Microsoft and Apple, dreaming of dislodging you from your throne and taking over your revenue streams, are also making vast tracks across this world.
The challenge is, more and more of your citizens are migrating to the new land of Mobile, some of the taxes you collect from search, and a smaller percentage of them are using your roads. Especially that vicious competitor Apple, trying to get mobile users to bypass your kingdom entirely via Siri.  
For Google shareholders, Siri is a bitch
It’s not easy for them, you have built an incredible network of roads, but they’re doing everything in their power to figure out how, and being the first to land in this new world, have created an incredibly profitable and loyal user base. Apple has been dialing back on its reliance of Google services, recently announcing its own mapping software for the iPhone.
"The disintermediation of Google by Apple is really a matter of Apple putting together a front end, which happens to be Siri for now, and linking it directly to the high-frequency searches," said Roger Kay, technology analyst with EndPoint Technologies. "And in doing so, bypass the general search mode and more importantly, bypass Google's advertising pages." Apple devices running the company's iOS operating system are the biggest source of Google's mobile revenue, generating roughly 40 percent of the total.
Yelp and a handful of other major consumer content sites, including movie reviewer Rotten Tomatoes and restaurant reservation service OpenTable, will be helping to power Apple's Siri, the voice-activated iPhone personal assistant, in the new mobile operating system iOS6. It is also why Google bought Zagat, to help them compete in the local, user generated content markets.
The stakes are high, said Oren Etzioni, a search and artificial intelligence expert at the University of Washington's computer science department.
"Google is very difficult to dislodge on the desktop," he said, "but mobile search is a very different beast, and the jury is still out on the question of who the ultimate winner in mobile (search) is."
The challenge is that Apple and Siri are skimming off the “cream searches” Google works so hard to get. When you’re close to a restaurant, and likely have the impetus to go, such searches are worth much more than if you’re looking to find information about Columbus’s voyage in 1492.
So is mobile to be an opportunity for Google? For the engineers, for the challenge of it, certainly, but as a shareholder sitting in an ivory tower of the giant desktop search castle, I’d have to say, I greatly prefer the status quo. That moat ain’t worth nothing if everybody migrates to a new world and the big players are competing against each other, almost starting over from scratch.


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