Wednesday, December 15, 2004


I told a lot of people to buy GOOG on the offering; priced at $85. Most did not believe it was a good buy at $85. Yesterday, I bought more at $171. Based on the response to yesterdays blog, I don't suppose many of you think it is a good buy at $171. Surely, however, you all can appreciate how big the GOOG library is going to be.

The expectation is that GOOG will have 70,000 books on line by April. Libraries from 5 countries, including India and China have signed up. Copyright laws will not be breached. The project will start mainly with books published before 1900. However, some copyright holders have already signed contracts. The GOOG founders believe the on-line library will be good for the authors, publishers, libraries and patrons.

Although it is tempting to wonder how the publishers, authors and GOOG will get paid, this thought misses the point. The costs to "lend" a book thousands or even millions of times over the internet will be a tiny fraction of the cost of maintaining thousands of copies of the book in thousands of libraries. The hidden transportation costs to the patrons are enormous.

Jim Brinkley, President of Legg Mason Wood Walker, is a firm believer in the concept that in business, economics always wins. I have not discussed GOOG with him but I am sure he does not need to be convinced that GOOG will build a super sized library by driving down the cost of borrowing books. (Bill Miller, Fund Manager at Legg Mason, has purchased GOOG in Legg accounts).

One need not worry about how an author getting paid if it is dramatically more easy to read his work. Furthermore, GOOG has already worked with AMZN to develop methods to show sections of a work with only a click needed to purchase the entire work. I would even venture to suggest that the amount of reading will go up and the amount of TV watching will go down when books are ore readily available.

For some years, my wife and I have planned our retirement from the condo rental business. Our four bedroom, four and a half bath home is on the market. We have been looking for a one level retirement home. One requirement is that it must be within walking distance of a library. The GOOG library will be within walking distance of billions of homes, offices and schools.

GOOG is changing our world on the magnitude accomplished by Henry Ford, Thomas Edison or Bill Gates. Cars became affordable because of Henry Ford. He did not make all the cars but he changed the way cars are made. Other companies are working hard to catch up to GOOG. For example, Ask Jeeves just followed Yahoo and MSFT with a desk top search system.

The economies of scale and barriers to entry are obvious. GOOG will spend about $10 per page to digitize books. By April, GOOG will have spent $150,000,000 to digitize the first 70,000 books. I wonder how many translations of the bible will be available.

Ask Jeeves claims that their desk top search is the best yet; it may be, but I enjoy the free use the GOOG system. I cannot picture Ask Jeeves competing with its own library. Like several other companies, Ask Jeeves relies on GOOG for a significant portion of its revenues and it certainly does not have the resources to go toe to toe with GOOG. GOOG has signed major publishers to exclusive deals. Others will play catch up from a long distance back.