Google’s firepower remains awesome. Beneath the headline-grabbing – and short-seller crushing – 46 per cent jump in first quarter net revenues, investment is rising even faster. Research and development was up 65 per cent year-on-year to $673m. Datacentre-related costs, though not split out separately, appear to have about doubled over the same period. Operating cashflow in the first quarter was $1.8bn.
Rival Yahoo looks outgunned. Operating cashflow, admittedly from the fourth quarter, was $657m. Product development, or R&D, was $289m in the same period. Even when Yahoo reports next week, both figures will remain far behind. Meanwhile, Google is rolling in more than $12bn of cash and marketable securities, compared with Yahoo’s $2bn.
In a world where core infrastructure matters – improving for example the speed of each search query – having deep pockets makes a huge difference. It helps when paying for sizeable acquisitions, such as Google’s purchase of DoubleClick for $3.1bn. And although hefty expenditures keep a lid on operating margins, they ensure a steady stream of new products and improvements to existing services to attract internet traffic – as well as new ambitious engineers.
Yet Yahoo is still fighting an approach from Microsoft, the only rival that can outgun Google when it comes to sheer resources. Given the internet arms race in progress, that could be seen as counter-productive. The “evil empire” Yahoo management has so far managed to fend off might be just what the company needs to stay vaguely competitive with Google when it comes to search and other products.
If Microsoft wins, and does not destroy its expensive purchase by messing up the integration, perhaps Yahoo’s engineers will one day come to love the level of resources Microsoft brings to the table – and the chance to compete with Google again on an equal footing.
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