Friday, December 09, 2005

Where’s Google Going?

It seems that Google has been on the cover of just about every business magazine in the last two months. With a share price over $400, a lot of people are interested in the company. However, Google’s strategic direction is about as clear as mud. The company says that its goal is to index and make available all the knowledge in the world, which is laudable but has already gotten them into lots of trouble with book publishers, who really don’t want their “knowledge” to be given away.

Google now has eighteen different search-related services plus Blogger, Google Analytics, Picasa, Google Talk, Google Earth, Gmail, Google Desktop and Google Toolbar. Google Labs is testing twelve more services. The company also sells a search appliance for large organizations. And let’s not forget Google Adwords, the financial engine that drives the company. (Google is even experimenting with selling print advertising space to its Adwords advertisers.)

Most of Google’s services fit well with its stated goal, but services like Blogger, Google Analytics, Google Talk and even Gmail are a stretch. Further, it appears that the things that are generating the vast majority of Google’s revenue are search and Blogger. The other services and software are either being given away or (in the case of the search appliance and the pro version of Google Earth) contribute a miniscule share of revenues.

The situation at Google reminds me of Netscape in many ways (although Netscape had a far more coherent product strategy.) Netscape had a full line of servers and a suite of development tools along with its ubiquitous browser, but the vast majority of the company’s revenues and profits came from sales of the browser to commercial customers. That’s why Microsoft gave away Internet Explorer and rushed to bring it to parity with Netscape Navigator. Microsoft saw that Netscape was totally dependent on its browser for revenues; cut off those revenues, and Netscape would be crippled, which is exactly what happened.

Similarly, Google is almost totally dependent on Adwords for its revenues and profits. Microsoft is rumored to be negotiating with AOL to create a joint keyword advertising network to compete with Adwords. Would Microsoft offer its affiliates a much better percentage of advertising revenues than Google? More than likely; in fact, Microsoft might even give its affiliates 100% of its advertising revenues from their sites. Would that cut off Google’s oxygen supply? Not necessarily, but it would make Google much more dependent on advertising revenues from its own site.

Google has to start building its non-advertising revenue base, and the sooner the better. It needs to look at more effective ways to generate revenue from its services and software, and it also needs to put more emphasis on getting its products right than on constantly pushing new products into the market.  It’s easy to drive adoption when you give everything away for free. It’s much more difficult to create services and software that customers will pay for. Google’s challenge is to raise its game to the next level.

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