Alphabet – Part 1 – Advertising

I’ve been interested in Alphabet for a long while as a potential investment. The business has a number of the most used products in the world, a very wide and deep moat, and earns very strong returns on its invested capital. The hard part for me is getting over the hurdle of paying a high multiple of current earnings for the business.

Alphabet’s products have inherent network effects that have resulted in its current economic moat. It all started with the high-quality search results that Google’s search engine provides. The best search results attracted users. The increase in users brought the advertising dollars. The advertising dollars were used to improve the search engine and the improvements brought more users. That has been Alphabet’s business model with almost all of its products: make an awesome product, make it free, advertise, and improve.

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