Some of Silicon Valley’s greatest minds and the blogosphere’s most celebrated tech critics may have missed an important point of Google’s autonomous vehicle technology. For those who haven’t yet heard, this technology will, when perfected, enable cars to drive themselves, using sensory monitors to detect traffic and turns, and Google Maps to plot navigation. For the most part, popular reaction to the news has been divided into two camps. The west coast camp, for want of a better term, applauds the adventurousness of the approach and congratulates the culture that would breed such invention. The east coast camp, more practical and financially inclined, wonders out loud about the shareholder value conflict of a public company using its resources for R&D that has nothing to do with its core business. Both camps have failed to notice the obvious, which is to say, Google.
Google – a company that derives almost 100% of its revenues and profits from a single product, search – can grow in one of two ways. It can develop a new product that would generate revenue substantially enough to make a difference to the company’s gargantuan income statement; or it can find ways to increase its search revenues. The former is always a tall order, because few revenue opportunities exist that could even come close to that of Google’s core operation. The latter is also a challenge, because Google already controls some two-thirds of the market for online search. Were Google, however, to increase the search market size, then search revenues would grow even without gains in Google’s share of it. The search market being a function of the number of Internet users, the length of time spent online by an average user, and the number of searches conducted by the average user during this time, there are certain components of this equation that a company like Google could seek to influence.
For example, the company may extend broadband penetration or roll out technology that facilitates it. In fact, the Android mobile platform does exactly that on a large scale, and on a more narrowly targeted level Google is also investing in fiber networks. The Chrome browser, outstanding mainly for its speed, optimizes the efficiency of web browsing during time spent online, thus maximizing the opportunity for the typical user to search. The Google Docs file management platform provides all the resources necessary for document creators and readers to stay online rather than open up a Windows program. Google Mail, with a search box built in, is continuously improving and thus eliminating any reason for users to leave the browser experience for Outlook or Apple’s Mail platform.
Google’s new automotive endeavor is no less fitting with this approach. If a material fraction of the world’s population spends a certain percentage of its waking hours in a car driving, that is a period in which there is no possibility of web browsing, and thus no possibility of web searching. If Google can find a way to free up this segment to browse and search during the time previously allocated to traffic signals and lane changes, this will for Google constitute an enormous search market expansion, and by extension a very sizable revenue growth opportunity. The west coast school, therefore, should realize that Google’s experimentation with driverless cars is more than futuristic playfulness, and the east coast school should take comfort that the purpose behind Google’s R&D project is very much in keeping with shareholder value creation. For both, it should be nice to see a popular tech company, other than Apple, with a long-term strategy based on patient implementation and purposeful innovation.
