Research Team, 8 June 2016

Google (GOOGL) hosted its annual input/output (I/O) developer conference in May where it debuted a number of new products and services. While there were a number of announcements, in this note we focus on the five that stood out as the most important from an investor perspective, including; Google Home, Allo, Daydream, Instant Apps, Project Tango, and new features from the upcoming Android N operating system release.

Google Home and Allo
GOOGL’s goal has always been to organise the world’s information and make it universally accessible and useful. This has been the core mission behind its Google search business. Over the last few years, GOOGL’s search innovations have become much more mobile focussed, given that over 50% of search queries now come from mobile devices.

Google Now
At last year’s I/O conference, GOOGL unveiled an anticipatory search service for mobile phones named Google Now. Google Now aggregates behaviour and intent information on a user from various GOOGL services and predicts what a user will want or need to know before they know they need or want it. The information is then displayed in the form of a card. Currently, Google Now provides users with a handful of cards such as news articles, reservations, public transit, flight status, sport, and traffic. Last year GOOGL also announced a feature called Google Now on Tap that presents users with a contextual pop-up card from Google Now with information related to whatever is currently on the screen.

Google’s Virtual Assistant
This year the conference was all about GOOGL’s virtual assistant. Google Assistant appears to be an upgraded version of Google Now, given that it provides users with similar information. However it is powered by artificial intelligence and advanced voice recognition capabilities which Google Now does not have. Instead of making a series of searches, users can ask Google a series of questions as if you are having a conversation with another person, such as a teacher. Google’s CEO, Sundar Pichai said that Google Search has an understanding of over one billion entities including people, places, and things, and their relationships in the real world.

Google Assistant will be available on Android mobile phones and also on two new products; Google Allo, a chat bot messaging app, and Google Home, a bluetooth speaker that can manage a user’s daily routine (calendar reminders, notes, etc.), pull information and media from the internet, and control other devices around the house (TV, lighting, heating etc.).

While GOOGL might be late to the party in providing these services, after Facebook and Amazon, the technology is still in the early stages and it is based on search which GOOGL has been dominant in for nearly two decades. GOOGL has also spent years working on artificial intelligence. This, coupled with its advanced capabilities in voice recognition and awareness, places GOOGL well ahead of Facebook and Amazon. GOOGL is now using artificial intelligence in over 20 of its products including Google Search, YouTube, and its Cloud Compute Platform.

The proliferation of assistants could have far reaching consequences, disrupting businesses such as Yelp & Foursquare, reduce the number of queries that Google search receives, while also decreasing the importance of individual apps and the overall internet itself. This of course, depends on consumer uptake, an ecosystem of services, natural language progression and machine learning coming together to build a user-friendly interface. As these assistants process huge volumes of data and get smarter by the day, 2016 may just prove to be the breakout year.

In 2014, the company introduced its first foray into the virtual reality market with a product named Cardboard. This was literally a cut out piece of cardboard with head straps and a pair of lenses, powered by a smartphone. GOOGL’s goal with virtual reality has been to make it more accessible to the masses. Last year, GOOGL announced an educational program called Expeditions, which let students take field trips to almost anywhere they could imagine. GOOGL showcased what a trip to Mars would look like using its Cardboard headset. Since 2014, GOOGL has sold more than 5 million Cardboard headsets and over 50 million Cardboard apps have been installed.

This year GOOGL unveiled a much more advanced virtual reality headset named Daydream that is also powered by a smartphone. The company is using a similar approach it used with Android, in that it provides the headset, the operating system and a set of hardware specifications needed for a mobile phone to be compatible with Daydream. GOOGL will also allow other tech companies to make their own versions of the Daydream headset. Daydream has a high-end build quality (that can stack up to competitors such as Samsung Gear VR or Oculus Rift) and GOOGL is also working on a motion controller. Samsung, Alcatel, HTC and LG are just a few mobile manufacturers that have already committed to building Daydream compatible mobile phones.

At present, most virtual reality headsets need high-end PC’s to run and are targeted more at video games. However, for virtual reality to become mainstream it has to have great video content. This puts GOOGL in a strong position, given its ownership of YouTube. When Daydream is released users will be able to watch anything on YouTube and it will also be accompanied by a new YouTube virtual reality app.

It still remains to be seen what types of content will end up being the most compelling to virtual reality users. GOOGL’s vice president of Virtual Reality, Clay Bavor, said the company has been treating virtual reality as an integral part of every team inside Google, including YouTube, search, maps, and Android – essentially as a new technology and interaction method that spans across everything at Google.

Instant Apps
GOOGL announced further developments in improving the mobile phone app experience. At the moment there are over 1.5 million apps available on Android, however, it is very difficult for users to find the specific app they are looking for.   To solve this, GOOGL has developed a new function called Instant Apps which will allow users to gain access to certain parts of an app without having to download it first.  This could have a profound impact on the mobile experience allowing mobile apps to operate more quickly and seamlessly.

Project Tango
One of the more wild concepts that GOOGL is working on is augmented reality, codenamed Project Tango. Using a mobile phone or tablet equipped with an infrared projector and multiple cameras, the device can capture a detailed 3D scan of an environment. Users can then overlay it with virtual objects that appear on the screen. It is also useful for calculating real space measurements if you want to measure the square footage of a room.

Android N
GOOGL provided an update on the next version of its Android operating system, codenamed Android N. New features included split-screen multitasking, improved notification settings, software upgrades to improve speed and battery life and better file encryption to better protect users. However, the feature that stood out the most to us was automated software updates, which allow for system updates to install in the background seamlessly. Mobile devices will download and install system updates in the background with a new version of the software simply appearing when the device next restarts. Hopefully this will encourage Android device manufacturers (Samsung, HTC and others) to provide users with system updates much more promptly (a common gripe with Android users). While the final version of Android N won’t be available until late June, the company officially released a public beta version for developers.