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Growth report: Google at age 10

This article appears in the issue June 2008, [Vol 17, Issue 6]
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Microsoft’s Steve Ballmer suggested that Google was a one-trick pony. Google won its crown with online advertising. Since the day when Google’s founders made the decision to enter the online advertising business, Google changed from a quirky search engine to a revenue powerhouse.

Today, few people remember that Google was not motivated by money grubbing. In fact, only a handful realize the extent of "influence" Yahoo’s Overture system had on Google. Finding information about the agreement between Google and Yahoo concerning that influence takes some effort. Shortly before the Google initial public offering, Google and Yahoo settled on the influence matter. Google then proceeded to run the table in online advertising. Yahoo was not able to keep pace with Google’s online advertising juggernaut. What’s interesting to me is that Google’s money machine is, in effect, a better Overture (formerly GoTo.com, the company that put the pay-for-clicks business on the map).

Google has released a large number of products and services since 2004 when it became GOOG, the publicly traded company. I can no longer keep track of Google’s innovation fire hose. Although Wikipedia’s list is flawed, I turned to it at http://en.wikipedia.org/wiki/List_of_Google_ services_and_tools. Some of Google’s most significant products, such as the OneBox API, don’t appear on the list, and I find searching Google for its products and services requires numerous queries and poking around the innards of Google’s site.

The listing of some new products and services at the Google Labs’ Web page is must reading for anyone interested in search in general and Google technology in particular. You can find a number of intriguing new products and services at http://labs.google.com. The page features a list of "graduates of Labs." They are new products and services that have moved to beta or "real" status. One of the most significant of those graduates is Google Maps.

Google Maps has diffused rapidly into the consumer and commercial mainstream. In Washington, D.C., for example, U.S. government agencies have called Google and asked to license the Google Maps technology. Google has responded, letting Google Maps "pull" other for-fee products and services into certain federal agencies. Indeed, Google’s success in the U.S. federal sector is a counter argument to Ballmer’s one-trick pony metaphor.

The uptake of Google Maps and its sister product Google Earth provides a useful window into how Google’s non-advertising products are sold. Google pushes a test out the door of its Labs. If the preview attracts attention, the fledgling product is moved to "graduate" status. At that point, the graduate must learn how to fly on its own.

Google’s approach is to rely on enthusiastic early adopters who tell their friends and colleagues about the service. Google Maps and Google Earth moved from me-too products to planet busters in less than a year. Google took its own technology and grafted it to Keyhole Corp., which Google acquired in late 2004. The acquisition was a very clever one. Not only did Google get the sizzling hot technology to display satellite imagery, Google snagged technology that Microsoft was using for its mapping product. Microsoft had to regroup. Google got its enhanced mapping product into the market in less than six months. Once Googlers made Google Maps and Google Earth available, viral marketing made the products revenue drivers. One can argue that the $350 million to $400 million in estimated enterprise revenues owe much to Google Maps and Google Earth’s pull-through marketing. Google, true to form, won’t answer my questions, nor does the company break out its revenues by product.

The approach used by Google is almost the opposite of the innovation technique at Microsoft, for instance. Microsoft tries to set a release date for a product such as Vista. Microsoft then markets the product using a variety of tactics. When the product becomes available, Microsoft ships it to customers either as an upgrade or an outright new purchase. Microsoft uses classic "push" techniques for innovation and revenue generation.

Not Google. Google diffuses products and services. If users are "pulled" to one of them, great. If not, the product just hangs there. Google management learns from user actions. Not surprisingly, Google doesn’t fit into existing cookie cutter shapes for creating new products, selling them and measuring their success by units sold. The approach might be called amplification. Each new Google product and service strengthens the company’s reputation for innovation (a good thing) and then adds thrust to Google’s viral marketing engine (a better thing). When one of the Lab grads attracts significant attention as Google’s expanded APIs have for Google Apps and Google Docs (the best thing), Google woos Wall Street "that old-time religion"—more ways to make money.

But, in terms of revenue, Google is dependent on one source of revenue—advertising. The ads come in different flavors, and there are many types of ads. They range from overlays on YouTube.com videos to the ubiquitous text ads on Google search result pages, or the ads that appear on other Web sites. The ad revenue generates 99 percent of Google’s revenue. If it walks like a duck and talks like a duck, then it’s duck. Google is an advertising outfit to number mavens on Wall Street.

I don’t want to suggest that Google’s indirect, viral and techy approach to innovation is not excellent. Google is one of the most innovative outfits in the search and retrieval game. The problem is that the dependence on ad revenue focuses attention on ad revenue. Anything that hints of a downturn in ads has grim implications for Google.

But there’s a counter to amplification. That’s attenuation. Consider these items:
ITEM. Silicon Alley Insider (http://www.alleyinsider.com/2008/3/ex_googlers_launching_startups_to_attack_mother_ship) ran on March 29 a list of Googlers who have left the company and become Xooglers; that is, former Googlers. One or two staff changes are of little interest in today’s wacky work world. Henry Blodgett provides a list of more than a dozen high-profile Googlers who have quit the company recently. One name I recognized was Anna Patterson, inventor of a series of methods that allow Google to understand the nuances of unstructured tense. More startling is Blodgett’s assertion that she has teamed with Google super-wizard and founder of AltaVista.com to create a new company using software called a "twiceler." I have no idea what it is, but it’s not Google’s technology. Also, Google’s chief information officer, Douglas Merrill, has resigned from Google to become president of one of EMI’s companies.

ITEM. Ad sales at Google no longer climb like a scrambled F-22 Raptor. "Estimates" of click activity vary widely. Data from comScore (comscore.com) and other stat gatherers suggest that Google’s ad growth has slowed. Google has asserted that any flattening is due to its actions to improve the quality of clicks on ads. BusinessWeek on March 31 starts its story with six words that make some investors’ blood run cold, "As investors fear falling ad revenue." To be fair, those six words bring tears of joy to the eyes of Microsoft AdCenter executives. The reality is that Google’s remarkable revenue growth seems to show some of the recalcitrance of a 10-year-old. There’s a future there, but maybe—just maybe—junior will go off the rails.

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