Google – King of data

Google looks increasingly mature from here.

• The key to monetisation of the internet is user data and Google has this in spades.
• A recent study (Deepfield) has revealed that 60% of all connected devices in the US share data with Google’s servers every day.
• This makes Google’s share of internet activity larger than Facebook, Netflix and Twitter combined.
• It is important to make the distinction between this analysis and actual traffic volumes where Netflix is the largest.
• A 4GB movie is an awful lot of traffic but the provider of this service will learn almost nothing when compared to the provider of an email service that serves up 4GB of emails.
• Despite this, Google (and YouTube) still accounts for 25% of all US data traffic up from 6% just 2 years ago.
• With more than 60% of all devices in the US exchanging data with its servers, Google knows something about almost everybody.
• This gives it an unprecedented ability to target advertising in a way that is both accurate and relevant.
• This is why Google remains the undisputed No1 in this space but it also begins to explain why things are beginning to slow down.
• In the last two years its share of traffic has increased more than four-fold which has been a major factor in its growth over the last few years.
• I suspect that this is also factor that explains why Google is beginning to slow down.
• Market share is unlikely to improve much from here which combined with signs of greater maturity, implies that the outlook will be more modest from here on in.
• I do see scope for an unexpected bounce in 2014 as Android 5.0 brings a lot more devices into Google’s range (see here) but until then, I think most of the growth has been captured in the valuation.
• Yahoo! looks much more interesting on 16.4x 2013 PER and has much more space to grow than Google on 26.4x 2013 PER as it has already grabbed pretty much all the share it can get.