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Prediction: Google To Become the Most Profitable Company in the World

By Ted Arrington-flowers, Published: April 10th, 2009 12:40 PM CDT

As a former stock broker, 20-year stock trader and serial entrepreneur my life experiences have given me a unique perspective to back the prediction made in this report that Google will become the largest and most profitable company in the world within 20 years. From investing experiences I learned as all savvy investors know by now that innovation that defines new markets is what typically creates great wealth.

I remember when I became a stock broker in the early eighties reading about a company that was trading for less than $2 but several experts said that because it had the only real product for the new PC business that this cheap stock would one-day be one of largest companies in the world. That Company was Microsoft (MSFT) which at the time was smaller than Lotus Software. I missed out on Microsoft because I could not grasp it at the time. Later in the late eighties a networking company came to my attention, a company that led the world in networking computers. That company was Cisco (CSCO) systems. I did catch all of Cisco’s growth, in fact at one time I lived off trading Cisco’s stock exclusively for 3 years straight.

The same phenomenon that powered Microsoft and Cisco is at work behind Google. Google is already gigantic having 2007 revenues of $16.5 billion and earnings of $4.2billion. Google has also had growth rates above 50% for the past 3 years. I believe that Google has an innovative business model that defines the greatest market of all time, that of the information market

Information is Google’s infinitely expanding raw resource
Microsoft essentially grew into one of the world richest companies because it had the first applicable product for an explosive new market (that being the Personal Computer market). Cisco System grew because it was the leader in connecting computer networks, which later became connecting computers to the Internet. Google’s claim to fame will be having the best product for searching, indexing, archiving and manipulating on-line information. Google in its annual reports states:

Google is a global technology leader focused on improving the ways people connect with information.

Our mission is to organize the world’s information and make it universally accessible and useful.

So the business and mission of Google is to become the Global technology leader in organizing information and making it accessible to consumers.

Wiktionary defines information as

1. A collection of related data.
2. Knowledge about a topic.
3. Data that have been processed into a format that is understandable by its intended audience.

For this report, Information also includes all websites and their content. Google at this point primarily indexes websites and makes the indexed information contained within websites accessible to consumers during Internet searching. Google however has already started to implement its mission with additional information interaction from novel services like maps and docs. Google gets over 130 million monthly visitors, doing over 4.5 billion monthly searches for 60% of all Internet searches.Google currently is estimated to make 25 cents revenue per search (RPS). The Great thing for Google is that information is Google’s key raw resource is infinite and expanding infinitely. There are currently over 600 million daily Internet users, billions of websites and over 1 billion cell phone. However, the new information is not limited to the above. Music, art, video, online social communities and traditional media like film and TV are now becoming integrated into the online information market at a phenomenal rate. This mish mashing of various information is being termed as newmedia. Newmedia can be published, communicated, archived downloaded indexed, searched and manipulated.

Google sees all of the NewMedia as just more information for them to interact with and monetize, hence we see the introduction of new features like Mobile Reader, Gmail, Maps, Google Video and docs. All these Google new applications will enable consumers to interact with more information and enabling Google to build a larger information market from which to generate revenues .

Google has an infinite expanding opportunity to make more money. Google, however, must move from a revenue per search (RPS) model to that of a Revenue per information service action model (my term here, referring to email, video, etc.  Any action that can be performed between information accessing platforms like pc’s or cell phones and the information they interact with that can also be monetized by an information market services platform).

In order to capture the exponential growth of the information market, Google will have to keep offering applications that give consumers more and more interaction with information. Google is already starting to move its market from revenue per search to a revenue per information service action model. Google should also begin to create higher profits in the RPISA model versus the RPS model.

The information market data available 20 years from today should be 50 -100 times what it is now. In the last couple of years we have seen everything from our banking to our taxes being fulfilled on-line, these trends just keep expanding the information market itself. If Google is in 20 years 10 times the size it is now, it will process 40 billion searches a month.

But Google as stated earlier is also changing from a RPS model to RPISA model (which will include search). If Google were to double its volume of actions with a RPISA model, it could do 80 billion such actions a month. Google should also be able to increase the profitability of the RPISA model over the RPS model. If Google doubled its efficiency it could get 50 cents per RPISA.

In 20 years, Google could be easily generating 80 billion RPISA per month at a rate of 50 cents per RPISA, which would give Google gross revenues of $40 billion a month and profits of $8 billion a month. Google would be approximately 20-25 times larger than it is now.  Its market cap would grow from today’s $150 billion to approximately $3 trillion or more. The Bottom line is that in my opinion every $1 dollar invested today in Google stock will be worth $20 or more within 20 years.

Point: Google will become the largest most profitable Company in the world in next 20 years.


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