This has been a big week for Apple, as it officially announces a watch that connects to the popular iPhone. Apple is now the largest publicly-traded company in the U.S., bigger than even Exxon Mobil. Nonetheless, I'm more of a Google fanboy. Apple has a lot of very smart people doing cool things. Google has brilliant people doing things that leave me in state of complete awe.
A dozen years ago, when asked how the company could make money in free keyword search, Larry Page responded that he was really in the business of developing artificial intelligence (AI). The challenge was knowing the difference between what users type as a search, and understanding what they really want.
So, when Google purchased British company DeepMind a few years ago, it was another milepost towards creating general-purpose AI. While IBM's Deep Blue and Watson required dozens of programmers to win at chess and Jeopardy, Google's DeepMind is a self-learning neural network that teaches itself with minimal outside assistance. In the past few months, DeepMind has mastered over 50 classic Atari video games on its own, including Breakout. It is now learning about medical diagnosis and visual recognition.
Artificial Intelligence is just one of many projects that Google defines as "moon-shots", each of which are audacious in scope in have the potential of becoming billion-dollar businesses.
Project Loon, which uses a flotilla of balloons to ride high-altitude wind currents and provide world-wide internet connectivity, much like having a network of floating cell-phone towers above the clouds. Google can now program its balloons to adjust their altitude as needed, and can keep them in the air for up to six months at a time. The company is reportedly in talks with a multiple heavy hitters, including Vodafone, Telstra, and Telefonica, potentially saving them the enormous cost of the developing land-based wireless infrastructure in remote locations.
There are also Google's self-driving cars, which have been on the road for five years and are considered street-legal in California, Nevada, Florida, and Michigan. In all likelihood, Google won't be in the business of making their own cars, but will use the technology as a "trojan horse" to get their software systems installed in the cars produced by the major auto manufacturers sometime between 2017 and 2020. Analysts at Piper Jaffrey estimate that this could become a $200b business.
Project Calico is a research entity focused on longevity, neurodegeneration, and aging. Google is also developing wearable devices such as contact lenses that can sense and report levels of glucose for diabetics, and change their shape to provide the ability to focus at varying distances. Meanwhile personal genomics company 23andMe is run by Google founder Sergey Brin's former wife, Anne Wojcicki
While not in the category of "moon-shots", Google has also purchased eight robotics companies in the past three years, including Bot & Dolly (motion control), Meka Robotics ("sociable" robots with elastic actuators, and facial expressions), Boston Dynamics (developer of the "Big Dog" and "Atlas" legged robots), Holomni (omnidirectional wheels), Schaft Inc, (Japanese company specializing high-performance electric actuators), Redwood Robotics (low-cost robotic arms), and Industrial Perception (machine vision, sorting).
Last year's addition of Nest Labs put Google in the smart home business through wireless smoke detectors and thermostats.
What these acquisitions all have in common is a much, much bigger trend known as the Internet of Things. This is about moving the internet into the real world, and making everyday objects smarter, searchable, and connected.
Google needs moonshots, because its core advertising business is slowing, albeit to a rate of 20% per year. Investing in Google is a bit like part ownership in a publicly-traded venture capital fund. Only a few of these projects need to be successful.
So, while Apple is busy promoting its newest gadget, Google is hitting it out of the park, and potentially changing the world.
-Jim Lee, CFA, CMT, CFP
Disclosure: Information contained herein is for educational purposes only and is not to be considered a recommendation to buy or sell any security or investment advice. Securities listed herein are for illustrative purposes only and are not to be considered a recommendation. The advisor holds shares of Google (GOOG) and Apple (AAPL) in client accounts as of March 14, 2015.