Alphabet Inc, the conglomerate that owns Google and its subsidiaries is one of the most fascinating companies in the world. In this post, I will focus more on the Google business of Alphabet Inc.

Google is divided into 2 main segments: Google Services & Google Cloud. Alphabet continues to innovate in the technology space, spending over $100 billion in R&D over the past 5 years, making significant commitments in AI.

Google Cloud

The core products in the cloud segment include: Google Cloud Platform & Google Workspace.

The main source of revenue from the Cloud Platform comes from infrastructure, platform, and other services. Workspace generates revenues mainly from enterprises using cloud-based collaboration tools (ex: Meet, Drive, Calendar, Docs, Gmail).

Google’s Moat

I believe Google’s greatest strength is in its customer captivity – most prevalent in the largest unit of the business, Google Search. I cannot think of a time in my recent memory where I’ve seen or used a different search engine to Google. I believe this is the same for the majority of others. The competitors in this field are shrimp compared to the whale that is Google Search, and the economics of Search shows it. In the video content space, YouTube also remains king. There is fierce competition in this arena, as you compete for consumer attention. However, YouTube unlike a Netflix or Disney+ does not need to focus on creating its own content, when YouTubers do the expensive content creation for them – a wonderful system for both parties involved. The other main competitors for attention come from social media (ex: Instagram, TikTok) have shown that in the case of long-form content they still cannot compete with YouTube. In short videos, where TikTok rules, Google & Facebook have both introduced their own competitors which are growing at healthy rates to perhaps stifle TikTok’s popularity. It is too soon to say who will end up winning the fight of the short form content platforms, but the already concluded battle of long form content platforms is being dominated by Google’s YouTube. Another unit worth mentioning is Alphabet’s Android. The mobile OS has a 47.5% market share of mobile OS as of 2018 (IOS behind with 41.9%) allowing Alphabet to recoup a large pot for themselves from the Play Store. This shared dominance with IOS is unlikely to change with new entrants in a field where consumers are hesitant to change. Alphabet’s position in the markets it finds itself allows the company to produce above average returns on capital. I mentioned that they spend heavily on R&D earlier on, it is important to remember that the nature of most of its business does not require heavy CAPEX. Alphabet’s core business allows for great economics where the shareholders can generate great wealth for themselves through ordinary business operations, a truly remarkable enterprise.