Visa and Google – two (in)credible leaders

This is an exercise that I undertook purely to satiate and stimulate my grey cells. Visa Inc (NYSE: V) successfully concluded a mammoth $10 billion IPO, which attracted everyone’s attention; and your’s truly is no exception. Like Google (NASDAQ:GOOG), Visa is a stock that every portfolio investor would want to own. However, the comparison doesn’t end here. In fact, the two have a lot more in common than I had original thought. Both Visa and Google are the current undisputed leaders in their respective industries. While Visa has well over 50% of total volume and value share of global electronic payments market; Google has roughly 50% share of the global online advertising market. Both the companies command an absolute leadership position – Mastercard, the number two behind Visa is less than half Visa’s size; while Yahoo the number two online destination is less than one third of Google’s size.

The global payments industry is undergoing a secular shift from paper−based payments, such as cash and checks, to card−based and other electronic payments. Similarly, the global advertising industry is undergoing a major shift from traditional media, such as Radio, Newspapers, Magazines and TV, to internet and other new media. While Visa’s real competition is cash and checks, which combined represent 57% of the total global payment volume of $20 trillion; Google is trying to compete with traditional ad budgets, which represent over 90% of total global advertising of $700 billion.

Both Visa and Google are thriving on increased consumer adoption, and both are intensely consumer-focused companies. They leverage strong brands to grow their respective businesses – both are number one brands in their respective industries. From a technology stand point, Visa global payments processing platform is extremely scalable due to a centralized architecture. Similarly, Google search platform has a central architecture and is powered by the same algorithm engine globally. The combination of brand leadership and technology edge has enabled the companies to embark on rapid globalization initiative relatively seamlessly. Organizationally, both the companies are functionally aligned at a global level; however, their respective regional operations are integrated to facilitate better regional coordination and management. The result is both companies earn a large share of their revenues outside the US. Roughly 50% of Visa’s volume and about 35% of its revenue is from outside the US. In the recently concluded quarter, Google declared that it earned more than 50% of revenues outside the US.

While Google has always been an active acquirer; Visa Inc CEO, Joe Saunders, indicated in a recent analyst conference that Visa’s focus is on looking at acquisitions that will provide technology that will enable to bring some of Visa’s strategic initiatives to market more quickly or to enhance them. Clearly, this indicates an increased appetite for acquiring companies in the future.

Undisputed market leadership; favourable secular shift in their respective industries; and large international operations have made Visa and Google relatively shock-proof in the event of a recession or an economic slowdown. Further, both the companies are continuously innovating to develop and launch cutting-edge products.

However, there could be a potential area where Visa and Google may end up competing with each other. Google Checkout competes directly with PayPal in online payment solutions. Visa commands a 47% market share in online transactions, compared with 3-4% for PayPal. Yet, in one of the recent analyst meetings, Visa CEO Joe Saunders expressed that the company considers PayPal as a competitor. Further, Visa is aggressively expanding not only in online transactions but also in the mobile transactions space. With its participation in the recent US wireless spectrum auction, and project Android, Google has made its intentions clear about mobile. Only time will tell as to if, when, and how, the two giants may end up competing with each other. Watch this space!