Summary & Strategic overview

On October 1, 2020 Google announced that it will be paying $1 billion to various news publishers and media outlets in the next three years to publish licensed content on Google News Showcase platform (Mullen, 2020). Google stated that this was their biggest financial investment to date (Pichai, 2020). The investment shows Google’s commitment to news curation on their Google News app and search engine, with nearly 200 publications receiving undisclosed amount of investment.

The investment initiative can be regarded as a strategic move to increase the value of Google brand name in news distribution and publication business. Google News, which was officially launched in 2006, is one of the largest news aggregators on the internet and has maintained its position as a strong brand in online news market. As a result, Google News can be considered an intangible asset of Google as it is a strong brand in tech industry (Collis & Montgomery, 1995). Google News has been competing with Apple News and Facebook News rigorously when the latter two introduced combined subscription model (Apple) and offered monetary payments to publishers for story summaries (Facebook). Google’s $1 billion investment for news and media outlets also upholds and affirms Google’s mission “to organize the world information and make it make it universally accessible and useful” (Google, 2020). Although Google News does not currently charge for a subscription fee like Apple News, Google is preparing for its technological advancement in news curation. The new platform that is currently being developed, Google News Showcase, can potentially include a subscription fee and compete effectively with Apple News+ over news subscription.

Google and Apple have been engaging in hypercompetition lately, and news curation is an active arena in that competition. The service targets a diverse array of customer segments with an offer (single subscription, bundled subscription) through the multi-media medium. News is indeed “a combination of a customer segment, an offer, and a place in which that offer is delivered” (McGrath, 2013). As Google and Apple compete heavily on smartphones (Pixel vs Iphone) and laptops (Chromebook vs Mac), Google’s investment in News also signifies an early stage of a potential competition on subscription-based services in the future.

As the battle over news curated content and news curation technology is unfolding at the moment, Google News’s investment presents a big hurdle for other big techs to overcome. Moreover, the news publications that Google pays to produce licensed content for Google News Showcase were mostly outside the US. The investment strategy shows that Google News aims for diversity and multidimensionality for its curated content. With such licensed news content, will Google gain a competitive advantage in news curation and news subscription? This remains to be seen as Apple, Facebook, Microsoft, and/or Yahoo likely to counter with other creative offerings within their bundled subscription.

My thoughts

Capital budgeting process for this investment of Google?

Google’s Finance team(s) might have collaboratively designed a capital budgeting process for this $1 billion investment in licensed news content. Cash flows, revenues, and sales amount could come from bundled subscriptions (similar to Apple +). This will give Google enough information to calculate NPV, Profitability Index, IRR and/or MIRR for this investment. In my opinion, regardless of whether the capital budgeting results are favorable or unfavorable, Google would still go forward with this investment. The communal goodwill and image of Google will be among the intangible assets whose values get significantly enhanced from the investment of Google.

 

References

Collis, D.J., & Montgomery, C.A. (1995). Competing on Resources: Strategy in the 1990s Harvard Business Review, 73(4), 118-130

Google. (2020). About Google, Our Culture & Company News. Retrieved from https://about.google/

McGrath, R.G. (2013). Transient Advantage. Harvard Business Review. June 2013.

Mullin, B. (2020, October 01). Google Pledges $1 Billion in Licensing Payments to News Publishers. Retrieved from https://www.wsj.com/articles/google-pledges-1-billion-in-licensing-payments-to-news-publishers-11601546401

Pichai, S. (2020, October 01). Our $1 billion investment in partnerships with news publishers. Retrieved from https://blog.google/outreach-initiatives/google-news-initiative/google-news-showcase/