What Google's Thinking?

As several readers have suggested, I suppose another possible rationale for Writely, Gmail, and the dozens of other revenue-less, storage-gulping products Google is developing is simply a portal strategy: Get people to spend most of their time on Google properties, and they'll be more likely to use the omnipresent Google search window when they get around to searching for something.

This strategy is different than assuming that you will one day figure out a way to insert advertising into word-processing documents (or in the word-processor itself).  It also happens to be Yahoo!'s biggest competitive weapon in search: Based on some of the studies I've seen, the main reason Yahoo! search users search on Yahoo! is that they are already on Yahoo! anyway.

So maybe the point here isn't to "kill Microsoft" or "diversify revenue," but simply to protect and grow the main revenue stream.  This would reduce any impact on Microsoft to the status of (gleefully induced) collateral damage.

If this is the strategy, it still suggests gradual margin compression over time: Writely has only a handful of employees now, but if it were ever adopted at scale, it's hard to believe it would generate enough incremental searching to offset its costs, especially when Google already has 50%-plus search market share.  Too much of this, moreover, and Google would run the risk of reducing the Google=Search brand association, the same way Yahoo! did when it decided to be all things to all people (and, thus, opened the door for a dorm-room start-up called Google). This said, Google's most valuable product by far is its own search window (7X more valuable than Google-powered partner search).  Anything that induces web users to use this search window as opposed to another, therefore (even a Google partner's), is a smart long-term strategic move.

Comments

[Neal Lachman]

Henry,

As you mention, Yahoo! has done it before. AOL has done it before. Heck, MSN has done it before. What always struck me odd was that Google had just a boring homepage with a simple search box, and nothing more. If Google is to become a giant portal destination, it has a long way to go, but it is possible.

Nevertheless, Writely doesn't add value to the portal for the very reasons you mentioned in the 'Google-Writely to Kill Microsoft' post.

I still think Google is out there to kll Bill (uhmm... i meant Microsoft). In their analyst day presentation slides they even have a picture of the Space Needle with the word "competition" (see slide 22). Hint hint. Since it has little to do with portal business and search, the Writely acquisition must therefor be seen as a direct attack on MSFT. Didn't these guys mention in interviews: "Our compeition is MSFT".

On the other hand, when I look at their 70-20-10% Product Franework (slide 33) I don't see how they are going to kill MSFT. Caught in the Googleplex these guys have lost track of reality. While the Googleplex is centered around the internet MSFT is a whole different (tech) animal. Google is taking itself too serious if it thinks it can been MSFT in the tech world, and Yahoo! in the process in the social world.

This leaves me to think of a few scenarios, including but not limited to:

1. Google has purchased Writely just to annoy MSFT, and will do nothing important with it.
2. Google's real agenda is to kill Yahoo! and makes us (simple souls) believe they are after MSFT.
3. Google is trying to kill Bill, Yahoo!, and all other players in the world, grab their revenues altogether and become a $100B revenue company. (Now, don't laught!)

[Still Inside]

If the thesis is, "having a Word Processor product helps us win in the search engine market", then GOOG clearly has not thought that through on the PR front.

The problem is, anybody who believes their thesis would also have to believe that the above must also apply to MSFT, and MSFT's advantage in this regard is about ten million times bigger than GOOG's will ever be. You can make MS Word run just fine from a web page. They figured out how to do that in about 1996.

Once again, my own thesis comes back up: GOOG is convinced that Search is a commodity, and they cannot consistently win there, so they need to do other things. They are a one trick pony that is now refusing to do its one trick.

SI

[Jared Lansky]

As you mentioned earlier users of Gmail are not clicking on ads. I would assume the same with Writely.

[ndame]

The portal theory runs counter to Googles statement that their "real" competition is Microsoft.

[Henry Blodget]

Yes, it does (run counter to Google's obsessive and bizarre focus on Microsoft). Ah, well. I tried.

[Zoli Erdos]

How about simply improving the quality/ personalization of their ads?

Once we use Writely, an Excel replacement, and a Powerpoint replacement all on the Web, the data stored on Gdrive, wouldn't Google KNOW a whole lot about us? Nobody else can target ads better...

And there is always the possibility of the ultimate "evil": once we all made the move off the PC's to the Web, what prevents them from starting to charge in 2-3 years? By then it will be too difficult to move back offline.

[Jeff Smeker]

I think you exactly right here.

With all the technological changes coming up (wireless broadband, portable computers, remote computing & storage...) Goog is concerned (and rightly so) that these changes can open a window for MS for jump on their market share in the AD market. It's not like Goog has created a lot of barriers to entry, they have to stay ahead of the game somehow.

[Joe Cabella]

Henry - great insight. If spyware is a river GOOG might cross, they certainly have all the stepping stones in place today.

Perhaps they just need to see declining yields in their core monetization strategy - ooops - they are.

[Jon]

Henry et all - I read this post and couldn't stop laughing. Check out the hilarious Google Internet Memo on MrWaveTheory. It's incredible how the concept of fun at Google has been taken to the extreme by Google employees who are VIP (Vesting in Peace).

[bronxite]

I think this is getting to be overanalysis. Here we have a Novell guy, a couple of grad students, some Netscape alumni, and battle worn (with Microsoft) Sand Hill venture capitalists.

What is Google trying to do? Execute on some wacky plan developed by those described above.

It seems like Google analysers should get a life.

[sigma]

Why did Google buy Writely? And why did Google suggest so strongly that it is out to beat Microsoft? Hmm.

Let's see: It would be so foolish for anyone to think that Google is in position to attack, let alone kill, Microsoft and even more foolish for anyone to think that Writely would be much help to Google in attacking Microsoft, Windows, Office, or Word. So, everyone would just pass off this stuff about beating Microsoft and Writely helping. I mean, who in their right mind would take any such nonsense seriously? No one, right? Absolutely positively no one with any knowledge of the information technology business would make any such mistakes. There is still less chance that anyone with any insight into that business would be fooled for even a microsecond. In particular, no experienced information technology securities analyst would be distracted for more than a nanosecond. Only ignorant rubes in the flyover states who put their feet on the dinner table and use straw to pick their teeth and their fingernails to pick their feet -- or maybe use their feet to pick their teeth -- would spend more than a picosecond thinking about such things.

Nope: In fact, the 'high tech media' is all a-titter about all the really subtle intricate reasons Writely will be the scalpel that surgically severs the Microsoft Achilles tendon. During all this tittering, there are some weeks more of ambiguity that can let people continue to speculate about how now it's Google that is on the way to taking over the world at which time people will look back to dumb old 2006 when the blind fools let Google stock go for the ridiculously low price of only $600 a share.

Earlier tittering: (A) Father of the Internet V. Cerf leaves MCI and joins Google, and this must be part of a grand Google plan to take over all of Internet 1, Internet 2, control all the flows, get all the information, and take over the world, the galaxy, ....

(B) Google has gigabytes, terabytes, petabytes, exabytes, knows who's been naughty or nice, does information space tomography on everyone on the planet, and discovers everyone's secret romantic obsessions and serves up just the right irresistible ads and takes over the world, the galaxy, ....

(C) Google has servers by the rows, columns, and layers, thousands, tens of thousands, hundreds of thousands, millions of servers, filling a major fraction of all the atmosphere over California, is on the way to taking all the electrical power of the Columbia River and Hanford, and will soon have covered the Earth with servers that control everything down to when to comb the kitty cat for fleas and will take over the world, the galaxy, ....

(D) Google is based on transcendently brilliant geniuses, Stanford graduate students too brilliant and busy to waste time with trivia like writing a Ph.D. dissertation, dedicated driven ascetics, who write 10 KLOC an hour when asleep and 10 times that when awake and only sleep 2 hours a day and are on the way to taking over the world, the galaxy, ....

Microsoft? Heck, that's small potatoes. These guys will hardly even crack a smile when Microsoft falls, just any day now. First stop; the galaxy. Then it's to infinity and beyond.

When Google needs more such caffeinated cola for the tittering set, they can move to (E) 'research' where their 'research' geniuses are busy late at night all around the world stirring fuming bubbling reeking quivering pots of multi-colored goo and running high voltage electrical discharges through test tube contents and where just unbelievable fantastic galaxy-shaking innovations are on the way out of 'research' just any day now and (F) a sequence of announcements that come out at times of a Poisson process with rate parameter one each 14 days and where each announcement is of the form, "Today Google announced that they will invest U hundred people and $V million over the next W years in a leading edge new project to accomplish fantastic results X for market Y of size Z." With (E) and (F), can keep many people tittering for years.

But, still more is possible:

Is it really true that Google plans to power their next server farm with dark energy extracted from the vacuum? When will this extraction of energy cause the universe to collapse? Never: That would be evil.

Of course we have to assume that Google has achieved artificial intelligence (some Strauss music, both J. and R., please). The only question is just when they will achieve artificial God. They are almost there now: They only need to drop the 'ole' and flip the 'g' and they're there.

BTW, did you buy your personal best of Google shares today?

[Neal Lachman]

Sigma,

That was a brilliant synopsis of the Great Google Plan ;)
And now you mention AI, I ready an article a few days ago wherein some Google engineer told the reporter that they are not indexing the world's data and books for humans. They are doing it for some AI. I had to read the paragraph three times before I was convinced that was really what was written.

I'll try to find the article.

[anon]

As some of you have observed, spying on people's Web activities has everything to do with good search results.

And, good serach results are key to GOOG's survival and future propspects.

How do you get people to reveal their interests and thoughs? Use more GOOG free apps of cause.

BTW, those "Ads by Google" signs are real-time http log gathering agents for Google (i.e., spy ware with a different name tag).

[Neal Lachman]

Anon, I think that concept is not new either.

Anyway, here is the link to George Dyson's post on Google and their noble cause of indexing books for Artificial Intelligence:
http://www.edge.org/3rd_culture/dyson05/dyson05_index.html

My visit to Google? ... The mood was playful, yet there was a palpable reverence in the air. "We are not scanning all those books to be read by people," explained one of my hosts after my talk. "We are scanning them to be read by an AI."

[Chetan]

So maybe the point here isn't to "kill Microsoft" ....
Isn't it the other way round... MS's CEO SteveB swearing to KILL Google & throwing chairs around ;-)

[Neal Lachman]

Chetan, true. Stevie supposedly did so. But don't you think that was after Google caused poor Mr. Ballmer to be frustrated for some reason ;-)

[Mr Wavetheory]

Interesting headlines from Wavetheory on Google developments - trial and acquisition.

Subscribe to RSS headline updates from:
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[sigma]

Bob Costas: Here we are for the Match of the Millennium, the first match since Governor Schwarzenegger's approval of caged contests. And the first grudge tag team caged match in history. Promises to be quite a night.

Dick Ebersol: The "Thrill of victory; the agony of defeat", Bob. We stand to see both here tonight. I see Governor Schwarzenegger in the audience. Not far away is Reese, still looking radiant.

Costas: And there is Tiger. And Lance. Quite a night.

Ebersol: And, here come the contestants. First the challengers, Page and Brin with Coach Schmidt. Now for the Champions Gates and Ballmer with Coach Buffett.

Costas: Looks ugly down there already, Dick. Can we get a mike on that?

Ebersol: Yes, we've got trash talking Bob.

Costas: The audience knows that this is a fight to the finish. No rounds. A real grudge match.

Ebersol: There in the Microsoft corner I see Otellini and the Intel contingent.

Costas: And in the Google corner, is that AMD chief Ruiz?

Ebersol: You're right Bob. When you buy servers one million at a time, a penny a chip adds up. And also in the Google corner is Torvalds, Moritz, and Doerr.

Costas: Both teams came with their game faces on and ready to fight.

Ebersol: Bob, this is a classic contest between youth and speed versus heft and experience.

Costas: Yes, and that is Bonds there in the Microsoft corner. Ballmer looks bulked up, don't think, Dick?

Ebersol: Definitely, Bob. That's not all just Christmas dessert Ballmer's carrying.

Costas: Duck Dick -- "CRASH". Whew, that was a close one, another Ballmer flying chair.

Ebersol: That was quite a toss, over 100 feet up to our booth. Ballmer's fired up, Bob.

...

[Greg]

Henry - I honestly believe that what GOOG is trying to do is to disintermediate the OS. Moving from local-running apps to hosted / ajax apps decreases the relevance of an OS. The biggest threat to GOOG, besides saturation of the ad market, is a capable, easy to use, universal search function built into the OS. If you don't need the OS (or even a PC as we think of it), MSFT doesn't have a chance.

[SJGMoney]

Sigma, personally bringing the discussion to a screeching halt. Knowing how much you must enjoy reading what you write, it is scary to think what you are like when you speak!! And looks like you made a fan here with Neal, birds of a feather.....

[Neal Lachman]

SJGMoney, his writing makes it worth shifting through bogus comments.

Sigma, I couldn't stop laughing! Excellent commentary on the ongoing class of titans.. hmm correction.. titans against titanics.

Look, I am not wasting my time here or on my own blog BSing about Google or cheerleading for MSFT. I feel there is a fiduciary duty by executives to do best with investors money. Betting is something else then investing in visionairy projects or services. Vision is sometimes confused with betting, but vision can only be executed successfully if it is done in a risk-calculated fashion.

Google has made a few mistakes to date, included but not limited to:

1. Lost focus in their core business.
2. Wanting to move into hundreds of services and specialist industries.
3. Acting like a bully while it is just a new kid on the block.
4. Declared war to incumbent MSFT and not just MSN.
5. Practically declared war to Yahoo! and then went on to take a hike in a forest of non-core-business related services/products

Now, let me start blaming. Did Google not loose a gazzillion off its Market Cap because it has lost focus? Did Google maybe overplayed its cards? Has Google contributed quality significantly to its service offering in the last few months or so?

[bronxite]

"We are not scanning all those books to be read by people," explained one of my hosts after my talk. "We are scanning them to be read by an AI."

Bill Joy and Ray Kurzweil were right all along!!!

Just wait until a few nanobots escape from Google labs. WE ARE DOOMED!!!!

[Neal Lachman]

Bronxite, you are making fun of these guys. It is dead serious! ;)

Let's further analyze Google's state of mind:

1. If we could grab a little piece from all advertising, it would be substantial. There goes $10B revenue... in our pocket.
2. if we could maintain our lead in search, we can at least generate around $5B per annum... that makes $15B
3. But we are convinced we are going to grab more and more marketshare, add up to it some significant increase in adsense and adwords and you can easily double revenue.. that's and extra $5B.. adds up to $20B
4. Shit.. we still need to make $80B!

[Mr Wavetheory]

Mr Wave Theory
has posted an interesting analysis on Microsoft's online advertising strategy. The article is called "Mr. Softie has fired its first shot against Google."

[Supersonic]

Personally I think everybody analysing this Upstartle purchase is going way over the top.

How about considering that this is NOT part of some grand plan but GOOG have simply bought Writely for the technology?

The result of this buy is nothing more than 4 new employees and better editing functionality in GMail.