– Amit Nath
In Part I of this series we explored our observation that Alphabet consistently gives away its infrastructure for free in order to attract users/developers/partners to its platform, where it extracts rents in parallel to often offering its own competing products. We discussed online digital advertising, the Android operating system and cloud computing in Part I, and today we will extend this perspective to TV advertising, autonomous driving (Waymo), eCommerce and home automation.
Shopping / eCommerce
- Alphabet appears to be pursuing a infrastructure & platform strategy in eCommerce as well, by recently making its “Shopping” tab in Google Search free for product listings and also providing merchants commission-free access to “Buy on Google”, it’s “one-click” checkout and order management function. Additionally, as it looks to scale it’s eCommerce platform, Alphabet is integrating with increasingly more commercial partners such as PayPal and Shopify
- The combined strategy of making “Google Shopping” and “Buy on Google” free for retailers / merchants will make it much more accessible to a wider range of sellers than other marketplaces. Not charging a commission is a significant differentiator for “Google Shopping” from other marketplaces, with Amazon for example, typically charging fees ranging from 8-15% per item sold
- Alphabet is essentially betting that more sellers, more products and easier checkout, will make it a more significant product search and purchase destination for customers. Given ~20% of all U.S. product searches starts on Google but have low customer conversion, this is a significant opportunity for growth (note ~50% of searches start on Amazon but with very high customer conversion)
Video / TV Advertising
- As Alphabet continues to refine its video ad infrastructure on YouTube ads, it is also developing a platform for traditional TV networks looking to monetize their video content via advertising dollars through it’s YouTube TV subscription product which serves targeted video ads and commercials. It is now opening up this platform and supporting increasingly more TV networks and is a genuine cord-cutting option, however remains expensive due to TV network content
- Similar to Google Search, advertisers can only buy YouTube ads from Alphabet which is the largest online video platform in the world with ~2.1 billion MAUs and holds a very strong position in this vertical
- Given its early lead in the digitalization of TV advertising and prior success in online ads, Alphabet is well positioned to capture this market as well
Autonomous Driving (Waymo)
- After over a decade of experimenting with driver-less / autonomous vehicle infrastructure, Alphabet finally opened the platform up to external capital in March 2020 (sold stakes worth $2.25bn). Additionally it also announced multiple car manufacturers would become users of the platform as well
- Autonomous driving is an enormous opportunity for Alphabet which currently generates next to no revenue
Home Automation / Connected Home
- In early August 2020 Alphabet invested in and partnered with ADT, the largest player in U.S. home automation / security which is four times the the size of the number two player (clear leader)
- ADT will incorporate Google’s video / analytics platform and technology, including its Nest Aware subscription-monitoring service and plans to begin offering Alphabet devices (i.e the premium Nest line) to its customers starting this year
- Over time, ADT’s 6.5mm subscribers are likely to be transitioned to Alphabet’s platform with home automation seemingly another example of Alphabet’s platform strategy in play, sacrificing the premium Nest product line in exchange for the platform, customer data and scale in this case
At Montaka Global, we have a single clear goal: to maximise the probability of achieving multi-decade compounding of our clients’ wealth, alongside our own and believe Alphabet serves this function well in our portfolios.
Montaka owns shares in Alphabet.
Amit Nath is a Senior Research Analyst with Montaka Global Investments. To learn more about Montaka, please call +612 7202 0100.
