Like many other tech giants, Alphabet (GOOGL) had a pretty strong 2017: The Google parent's shares rose over 30%, leaving it with a $700 billion-plus market cap, and it managed to post 20%-plus growth on the back of strong mobile search and YouTube ad momentum.
Along the way, Google also expanded its hardware lineup, launched an online TV service and rolled out an array of consumer and enterprise services that leverage its AI/machine learning strengths.
Looking to 2018, it's safe to assume that Alphabet, which prides itself on making "big bets" and whose tentacles extend into everything from online video to self-driving cars to broadband services, will make its share of head-turning moves. Here are some predictions for what the new year could yield:
1. YouTube revamps its streaming service, and sees a payoff
The current YouTube Red service, which launched in late 2015 and combines ad-free YouTube, offline video viewing, the Google Play Music service and a smattering of original content, has its share of fans. But with YouTube Red and Google Play Music reportedly having less than 7 million subscribers combined as of July, its user base remains much smaller than Spotify or Apple Music's.
Part of the problem: By relying on a music service that isn't integrated with YouTube's popular music video, Red yields a disjointed experience. It looks as if Google will be fixing that issue soon: Bloomberg reported on Dec. 7 YouTube plans to launch a paid music service that "would include Spotify-like on-demand streaming and would incorporate elements from YouTube."
Together with the appeal of ad-free YouTube to many of the service's 1.5 billion-plus monthly users, this should position YouTube Red to gain some ground against Spotify and Apple (AAPL) . Particularly if Red's original content efforts yield a hit or two.
2. Alphabet steps up its buyback efforts
For a company of its size, Alphabet has been pretty conservative with its capital returns: The company pays no dividend, and it spent just $2.7 billion over the first 9 months of 2017 on capital stock repurchases.
With its shares still sporting fairly reasonable multiples, look for Alphabet to buy back stock more aggressively in 2018. Particularly since the recently-signed tax reform bill will allow the company to bring back $61 billion in offshore cash (minus a 15.5% one-time tax), as well as deploy future offshore profits towards capital returns.
3. Google preps a consumer AR headset and platform
Two years after Google ended an "Explorer Program" for its once-hyped Google Glass augmented reality headset, Glass has carved out a second life as an enterprise solution used by the likes of GE (GE) , AGCO (AGCO) and Boeing (AGCO) . That could provide a springboard for Google to take another stab at the consumer market -- either via Glass or a new platform relying on some of its Glass' technology.
Working in Google's favor: Its ability to integrate a consumer AR platform with the world's most popular mobile OS (Android) and its related phone/tablet AR platform (ARCore), as well as with services such as Google Assistant, Google Maps, YouTube and Gmail. And just as it has with its Android-paired Daydream virtual reality platform, Google could get top Android OEMs to launch headsets based on its platform, in addition to launching one itself.
This doesn't necessarily mean Google or its partners will launch consumer AR headsets in 2018, given there are technical challenges to overcome in areas such as display quality and (given the form factors involved) processing power. There are good reasons why Apple reportedly isn't looking to launch an AR headset before 2020.
But the time feels right for Google to get the ball rolling. Look for reports and/or announcements regarding a new consumer AR push before the end of 2018.
4. Waymo strikes a major deal with at least one top automaker
Along with Tesla (TSLA) , Alphabet's Waymo unit is arguably ahead of the pack in terms of creating a self-driving hardware/software system that can take over from human drivers in many (though not yet all) real-world environments. Ahead enough that it's ready to start a test in which driverless cars will ferry regular people on designated roads inside the Phoenix suburb of Chandler.
But in spite of such progress -- the fruits of top-notch engineering talent, big AI and mapping investments and over 4 million miles of real-world driving done by test cars -- Waymo still hasn't inked a deal to have its systems built into a high-volume vehicle from a top automaker. The best it can claim is a partnership with Fiat Chrysler (FCAU) to field some test cars.
It looks as if automakers have been hesitant to agree to a deeper alliance with Waymo out of fear of becoming dependent on a third party for self-driving technology. But as the pressure mounts to bring cars supporting Level 4 or better autonomy to market, one or more automakers will likely be willing to play ball.
5 Google's search ad business reaps the rewards of several moves
Though not the flashiest part of Google's empire, the company's AdWords search ad business remains by far its biggest profit engine. And beneath the surface, Google has been tinkering a lot with how this profit engine works.
After many years of relying just on the keywords entered during a search session to target ads, AdWords now also relies heavily on user data such as search history, browsing on third-party sites and e-mail addresses shared by advertisers. Google has also gotten much better at figuring out when search ads lead to offline sales, and how different types of online ads impact a user's buying decisions.
There have also been efforts to use machine learning to optimize ad bidding by predicting how an ad campaign is expected to perform. And to partner with retailers such as Walmart (WMT) and Target (TGT) to create a more seamless shopping experience when users click on the retailers' mobile ads. Collectively, these efforts should help AdWords continue defying the law of large numbers, in spite of the headwinds posed by Amazon.com (AMZN) and its very popular mobile app.
6. More cloud acquisitions are made
From all signs, the Google Cloud Platform (GCP) grew at a very strong pace in 2017 and further solidified its position as a top-3 public cloud platform. But GCP's revenue is still believed to be well below that of the top 2 players, Microsoft Azure and Amazon Web Services (AWS). Especially AWS, which is closing in on a $20 billion revenue run rate and maintains an unmatched feature set and ecosystem.
Though GCP is strong in fields such as machine learning services, container services and raw cloud computing performance, it still has a lot of catching up to do relative to AWS. Google has been using M&A in recent years to help narrow the gap, striking deals to buy programming interface (API) management software firm Apigee, cloud app marketplace Orbitera and cloud identity management software firm Bitium. Look for more such deals in 2018.
7. Android and Pixel phones push the envelope more
Compared with Apple, which delivered big iOS user-interface changes via iOS 11 (particularly for iPads and the iPhone X), Google took a more nuts-and-bolts approach to updating its mobile OS this year. While delivering improvements such as streamlined settings menus, better control over notifications and a picture-in-picture mode (long supported by iOS), in many respects Android Oreo looks and feels much like its predecessor.
Likewise, Google's Pixel 2 and Pixel 2 XL phones largely delivered incremental hardware improvements over the original Pixels. The cameras and processors were naturally upgraded, with the rear cameras arguably best-in-class, but Google didn't join Apple and Samsung in putting edge-to-edge displays on its flagship phones. And it only placed one rear camera on them instead of two.
With Google having just spent $1.1 billion to buy much of HTC's phone unit, the stage is set for 2018's Pixel launches to yield much bigger hardware improvements. Also look for Android P (Pudding? Popsicle?) to deliver bigger UI changes, with Google potentially leaning on AI to come up with new ways to surface, organize and recommend content on a phone.
