It comes down to one word: software. What can ubiquitous, chip-based intelligence do, under the control of networked software? We tend to think of software in terms of the programs we use each day. Google makes that sort of software. Apps, Chrome, Android, Cloud, and, of course, Google itself. Google is waiting for you to tell it what to do.
But what if Google isn't just waiting for you? What if it's in the machines all around you? What if it's anticipating your needs? What if Google can drive the ambulance to you, and tell the paramedics just what they need to do?
This is why Google is trading at nearly $700/share, with a PE ratio almost double that of Apple (AAPL). Software is where the margins are, not hardware.
With its ongoing global network expansion paid-for out of cash -- the company has $45 billion in cash and short-term investments on its books -- incremental income all comes down to the bottom line. The recent fall in its margins is all down to the risks of being in the hardware business, and over time the company has made clear it wants to exit that, as much as possible.Google has become what Microsoft (MSFT)was in 1995, when Bill Gates wrote his ill-fated book "The Road Ahead," described here at Wikipedia. It was, in retrospect, a rather strange treatise that showed just how limited his vision had become, the original version barely mentioning the Internet. Page is now the same age Gates was then, but it's clear his dreams are bigger, his vision for networked software and the Internet more ubiquitous than Gates' vision could reach. I'm reminded of Mark Twain's unfinished masterpiece, The Mysterious Stranger, which you can read free at Classic Reader, in which a devil character reveals that all our lives are just imagination, and products of imagination. "Dream other dreams, and better," he concludes. This is what CEOs of successful companies have to do every day. Dream other dreams, then find ways to make those dreams come true with the tools at hand. Google has the world's biggest Internet network, and the world's biggest cloud computer, and its CEO has very big dreams indeed. At the time of publication, the author was long GOOG, AAPL and MSFT. This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.
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