Why Google's New Products Need Not Succeed

RJS writes "There have been some industry analysts lately who have called into question Google's real success, claiming that while Google's search remains a big winner, it has missed the mark when it comes to generating profitable, secondary products. BusinessWeek has just such an article ("So much fanfare, so few hits") but others argue that success relative to the size of Google's bread-and-butter (search) ultimately doesn't matter because it doesn't cost Google much extra to keep these secondary services — like Gmail — operational: the Google grid is on and growing regardless of what services are being run on top of it."

Comments

Economies of Scale,Buliding a Brand,Marginal Cost

[Marc2k]

These are all basic principles of economics. Nothing for you to see here, move along.

Sure, they want to make money

[solidtransient]

Gmail is by far my favorite web-based email client. Google Calendar has proven to be a very useful tool as well. I use Google Local at least once a week and on and on and on. Maybe Google knows they make enough money on search and that they just want to release good, useful, user-friendly products that are miles better than the competition, even if they aren't profitable. Yahoo's gazillion ads on their email service is one reason I don't use it anymore.

Re:Sure, they want to make money

[lowid (24) _________]

Maybe Google knows they make enough money on search and that they just want to release good, useful, user-friendly products that are miles better than the competition, even if they aren't profitable.

I think that the point of them doing this is that it adds value to their brand. Maybe they aren't turning a profit with some of their niche services, but those services are driving users to the rest of google's more profitable offerings. Have you used the google text messaging service? It's incredibly useful, and probably not directly profitable for google. Often when i'm driving around and realize i need to go somewhere (for example a hardware store) i can just text google, and seconds later receive a text with addresses and phone numbers of nearby hardware stores. They haven't made any money directly off me with this service, but since I enjoy and use the service so much I'd say I'm more likely to look out for other google offerings and use other google products in the future.

It's kind of like advertising - they're just building their brand and driving more and more users to their products. Even if their new products don't "succeed," per se, as long as they're pretty neat it will help them in the long run.

Funny thing

[WindBourne]

it took google's search engine 3-5 years to overcome inertia in a relatively new arena (web search). Now, it is competing against much longer established business (e-mail has been around for multiple decades). It will not be overnight that Google services will grow, but they will grow.

Re:Funny thing

[Billosaur]

And that's generally true of any product that attempts to enter an already established market. You make an initial splash but then it takes a while to build a base beyond the initial rush. Word of mouth eventually takes over and assuming a product is useful or even desireable, eventually its acceptance rate increases (look at Firefox's steady growth).

Re:Funny thing

[Billosaur]

Nice thing for Google, is that although they are the new player on the block (vs. yahoo, aol, MS, etc), they have a superior reputation to all the other players. They just have to capitalize on that (i.e. no crap products that take their name down).

The thing that bothers me about Google is: is it too much of a good thing? Put aside quality for a moment; is it possible Google's continuing expansion will spread it too thin? Mind you, Amazon has been expanding for what seems like eons now, but their main site is starting to get cluttered and I think they've been overstepping their reach with some of the areas they've gotten into (Groceries?). I'd be afraid of Google diluting itself too much in an attempt to become universally ubiquitous.

Re:Funny thing

[zenslug]

is it possible Google's continuing expansion will spread it too thin?

I think it al depends on how Google organizes itself. If it tries to become a borg, then it will suffer from its size like all of the rest of them. But if Google can operate internally as a distributed collection of startups, all leveraging the great infrastructure they've built and minds they've collected, then I think they stand a much better chance of benefitting from economies of scale and not being dragged down by bloat.

Re:Funny thing

[cyngus]

I think that you've hit on something that makes Google unique, in that they are like a giant collection of startups. Google is organized into a variety of teams that operate in relative autonomy to the whole. They do stay in touch with the "mothership" and cooperate where it makes sense and will enhance their products, but most of their products are relatively standalone, or at least start that way. A lot of web companies (Yahoo) try to tightly integrate all their services from the get-go, if a service can't be made to drive more traffic to the rest of the portal, its a no-go. Google's products tend to start out as islands and gradually be drawn into the Google network (notice the increasing integration of Gmail with other services). I think the benefit here is then the links with the rest of the product portfolio grow organically where it makes sense rather than where people guess it will make sense or the marketing people think it'll work to drive cross traffic.

I also think that, while unstated, one of Google's philosophies with hiring is to just get a bunch of smart people together in a room, give them resources, and say, "Make whatever you want, because probably other people want it too." This requires one thing primarily, an ability to find just the right people who will use this environment and not exploit it. The key to continuing Google success is being able to find the right people.

Googles real strategy

[Anonymous Coward]

These analysts miss the point. The big win for Google is to replace Micro$oft as the default platform. As Google tools, google desktop and of course Google search as the homepage become the default start point for users, the operating system becomes less relevant.

Put another way, once people are Google-centric, they can use a Mac or a "GooglePC" or anything else. Linux anyone?

Dot-Com Mentality

[ehaggis]

If Google can't find secondary sources of income and continues to ride on excitement and enthusiasm they will fall prey to the dot-com business model. Eventually someone will build a better mouse-trap (search engine).

Re:So wait.

[Whiney Mac Fanboy]

When Google starts charging for all this free crap, and trust me they will,

Sorry, I'd rather trust Google's established business model of targetted ads than some dvorak like tro^h^h^hpundit on /.

Money, bah!

[Dystopian Rebel]

That's right: Bah! Following the example of my heroes W Buffett and W Gates III, I hereby announce that I'm giving all my savings to the Bill And Melinda Gates Foundation. I don't want any dynasty founded on my $763.84.

Google is building highly usable applications that are not OS-dependent. THAT is what is scaring the traditional software makers. The browser is the interpreter. Firefox is Google's wedge and everything they do is helping to change the way people use computers.

critical mass, similar to M$ approach

[192939495969798999]

Actually, their approach isnt that much different from Microsoft's, at least from an abstract view. They are slowly accumulating more and more useful products, and over time this will bring them to a critical mass. Once they surpass this, then more and more of their "other tools" will be the tools of choice in their specific areas, and then Google will be a monster in the marketplace. The trick will be to not then turn around and be "evil" (i.e. charge for services that were once free because you can, etc).

Exactly!

[krell]

"Windows Live Mail seems like someone tried to take Outlook and GMail and just mash the two of them together. However, Microsoft has still dropped the ball in making it easy to work with. For anyone who is part of the beta just try and delete multiple mails at the same time"

Exactly! I stopped beta-testing it because they made it so difficult to delete the spams. In the regular hotmail, you can tag-check the spams in your inbox quickly and then delete the tagged ones. In "Live", you have to right-click all of them and then left-click the "Delete" button which is too close to the "Print" button so you end up accidentally printing spams instead of deleting them. Of course, if Microsoft/Hotmail were to ever bother to put a spam filter in place, this would be much less of a problem.

Re:Exactly!

[idugcoal]

actually, i was surprised how EASY this was. you can shift-click and/or ctrl-click messages and select them the same way you can in windows explorer. it's kind of counter-intuitive to do that in a browser, but it actually works. highlight, then delete.

not to say that i like windows mail beta. it's god-awful. i use gmail.

Re:Hmmm... maybe?

[Graymalkin]

Yahoo! couldn't be popular because it is the default homepage of millions of SBC/AT&T customers who don't know any better? Nah that's silly. Yahoo! has some nice services and some are indeed better than Google's offerings but for the most part people simply stick with their ISP's default homepage.

Re:Economies of Scale,Buliding a Brand,Marginal Co

[Otter]

Well, it depends what you mean by "matters". Does it hurt Google to keep churning out one unprofitable GWhatever-beta after another? Not really, as long as they have their choice of new hires and are paying them with overpriced stock.

But if you own that overpriced stock on the premise that Google is going to keep generating new businesses to complement the only thing they have that makes them money -- then it matters whether GWhatever turns a profit or not.

Re:GMAIL doesnt cost a lot? Explain that one!

[shadowdodger]

Not as many as they'd like to I think, but then again, they can also advertise that space as being there as long as no one is using it. They may or may not do that, but if you've got enough space for 100k people to use 2gb+ and only 5k or them use that, and the rest use 100mb then you know that you can really offer 2gb+ to 20x more people. It's an airline strategy. They almost always over bok becuase they know that not everone will show up for thier flight. Trust me, google knows what percetage of people will actually use all 2gb.

Um. Yes they do need to succeed.

[washirv]

Whoever wrote this silly blogpost clearly hasn't considered the real reason Google needs their products to succeed. Google's bread and butter is their search product. But here's the problem: search growth is slowing. The only way for Google to keep growing their business at the breakneck speed that they and Wall St have become accustomed to is to find new places besides search pages that they can stick their ads on. Right now Google gets to do that using their Adsense program. Thousands of websites around the world are making Google tons of money. But the margins there will keep slipping as more competitors (Yahoo, MSN etc) come on in and offer to share higher percentages of their revenue with 3rd party publishers. This leaves Google with having to own their own "content" pages where they can stick their ads and book 100% of revenues from them. Unless their other products succeed, Google will truly become a one trick pony as far as their revenues are concerned. No responsible business can afford to become a one trick pony. That way lies death.

Re:Economies of Scale,Buliding a Brand,Marginal Co

[Xichekolas]

I think the GP's point is that all these secondary 'misses' are just another way to keep the google brand (and google search and adwords) front in center in Internet culture. One could argue that Coke wastes tons of money developing advertisements and promotions, but they have a very strong brandname and they got it because they continually push it. As soon as Google stops releasing a new beta for everyone to go gaga over once a month, they will no longer hold the spotlight, and people will take them for granted. As long as google uses new products to generate buzz, they will keep generating revenue for their ads.

An analogy would be how Nintendo used to operate... I'm sure they didn't make a ton of money on each game title, but having a good collection of games was critical to get people to buy the console in the first place. This analogy isn't too great though, because nowdays the consoles most likely sell at a loss and the bread and butter are the games and accessories.

It's called R&D, folks

[winomonkey]

People will rail against the "spreading thin" of Google as they offer a wider variety of services. Dozens of failed or mediocre offerings, oh my. If we look at certain other fields where the drive is to innovate and create a new and powerful product we find similar, if not significantly worse, failure rates. The medical and pharmaceutical industries are full of failures and high R&D costs. However, when they get their one single success it provides a level of value that will support them to their next great hit.

Google is doing the right thing in two ways here - they are allowing their developers to think and work on their own pet projects, which will ensure retention of some of the best and brightest, and they are understanding that for every brilliant idea there will be a string of failures. If they spend one billion on R&D (made that number up for the sake of argument), drop 999 products that aren't winners and get one single product that becomes a 6-billion-a-year success, they will have done the best thing for their investors, for their developers, and for their own continued growth.