There seems to be a lot of negative sentiment coming from multiple directions. Tech blogs, Wall Street analysts, and conspiracy theorists are clamoring over Google’s announcement that they will be building a health and wellness company focused on aging and extending life. The sentiment has been expected, but it’s as shortsighted as the reports a few years ago that tablet computers would fail.
This is the best investment Google has ever made. Period.
Google’s press machine didn’t hold back any punches in their short release. They brought in Apple CEO Tim Cook and Hoffman-La Roche Chairman Franz Humer to vouch for the strong and sharp chops of new Calico CEO Art Levinson. Then, they made a PR masterplay by utilizing online and offline publication giant TIME to get the early buzz going around the project. Finally, Google’s CEO Larry Page made sure to put investors’ minds at ease with a simple statement about the undisclosed size of the investment.
“And please remember that new investments like this are very small by comparison to our core business,” Page said in a Google+ update.
It worked, at least in the short term. Their stock closed today at $903.32, up $17.21.
There are three reasons why this investment is such a great one for a company that has had its share of huge wins and major defeats in recent years.
1. They have plenty of cash and tons of revenue
While standard investors look towards the present and near future when determining how to invest, Google is in an enviable position of not needing to buff up their revenue. They have plenty still coming in from their ever-reliable ad network, YouTube, and mobile enterprises. Their coffers are full with $54 billion in cash and they have very little downside relative to their revenue. Getting another moneymaker today simply isn’t necessary.
Perhaps most importantly, they have enough properties, patents, and physical investments that could be quickly liquidated if something catastrophic happened. At this point, there aren’t many things that could qualify as catastrophic enough to shake Google, but it’s good to know that they could survive a virtual or political meteor strike should one be looming on their horizon.
2. “Moon shots” are like lottery tickets
Between driverless cars, wearable tech, and world-connecting balloons, Google has its share of what they refer to as “moon shots”. These are the types of speculative investments that would terrify anyone other than the uber-rich companies with the money and clout to survive utter failure.
For Google in general and Page in particular, these moon shots represent a super-jackpot lottery ticket. If they fail, the investment can be marked down as a learning experience since they aren’t enough to damage the overall company if they absolutely bomb. If they succeed, they can be the foundation for a new generation of Googlers.
Technology is changing exponentially faster than just a couple of decades ago. The paradigm hasn’t just shifted in Silicon Valley. It’s being reinvented every couple of years. It’s naive to think that the ride will continue indefinitely and Google knows that. Their present is as secure as any other company in the world. They must prepare for the future without knowing exactly what it will hold.
All of their moon shots have a chance of changing the way the world operates. They don’t aim low. As a result, they have the potential to be a major part of their future revenues if the lottery numbers line up properly.
3. Health concerns will never go away
It’s hard to imagine a world without the internet, but it’s not impossible. Mobile technology is in the same boat. While most would agree that these are safe bets for the next few years, there’s absolutely no way of knowing whether or not a new technology could come around that would make them obsolete.
It’s unlikely, but it’s possible.
Health and wellness have been on Google’s radar for some time. Google Health failed, shuttered when Page took the reins back on his company in 2011. Calico seems to be different. It has a larger footprint, a longer time-frame, and a proven leader in Levinson. Unlike Google Health, this is a project that is set up from the beginning to give it the best foundation for success.
If Google can get a foothold on healthcare, particularly when it comes to aging, they could very easily eclipse their ad revenue. Currently, they are maxed out on ads and approaching the maximum they can make from mobile. Healthcare could translate into trillions of dollars for an innovative, well-funded, gutsy company like Google in a shorter time than most realize. Page may be talking in terms of decades, but the goals behind the scenes are measured in years.
The Fountain of Youth that Calico is seeking may be a fool’s dream, but it took fools to think they could reinvent the search game. That particular dream seems to have worked out well so far.