The ever growing Googlemonster’s feet have started stomping in new places. First it was web analytics – offering the free Google Analytics service. Google purchased one of the online leaders in that field, Urchin, to make that happen. Then it was YouTube. Then Google Pages – free web page hosting. And Google Docs. And Google Voice. And now Google is making the Wave. There are 20 or 30 other industries Google’s getting into, also.
Most people will be glad to have turn-by-turn directions on their GPS cellphones for free. I know I will use it when I get a smartphone. But I get a sinking feeling in my stomach when I think about it.
Recently a New York Times article published a bit about the new service:
But during a briefing with reporters on Tuesday, Eric E. Schmidt, Google’s chief executive, said he didn’t think of the new service as disrupting an industry. Instead, he said it is a windfall for consumers that was made possible by the increasing power of smartphones and the growing ubiquity of Internet access.
“Obviously we like the price of free because consumers like that as well,” he said.
After the briefing, Mr. Schmidt said he was not concerned that the new service would create new enemies for Google. “As long as you are on the side of consumers, you’ll be fine,” he said.
On the side of consumers.
That sounds so nice! Who pays for all this stuff? Consumers don’t? Right. At least not directly, and here’s the rub.
The people that consume the services are not the same people that directly pay for it. That’s a problem!
Google makes the vast bulk of its googley profits by this little product called Google Adwords. Advertising built into their online search – that right-hanging list of sponsored links. The problem is that businesses who want to get a start online have no choice but to participate in that. It’s the defacto standard.
Clicking once on any of those right links can add 50 cents, to upwards of several dollars to Google’s coffer.
And how are those ads placed? What determines which ads appear highest? Well, Google optimizes the placement by which ones generate them the most money. Clicks times Click-cost divided by impressions. It’s a simple formula.
What it means for a small business owner, though, is sheer hell. Or heaven. But in the end, a business can expect to give away 40 to 60% of its gross revenue….
Google can eat more than half of a company’s gross revenue….
Not to making good products. Not to employees. Not to good materials! Not to production capacity…. but to Google.
Why? Well if you and I are competing to sell mattresses, then if we want to get our site out there to people searching for mattresses, we compete against each other to see whose ad wins with optimal placement in Google Adsense. We fight against each other to see which of us will give more profit to Google. And the thing is, if I spend less than you do, I may get bumped off that precious first page entirely, and my sales will plummet. Cause for an online business, particularly a new one, almost all the sales come from Google referrals.
So Google ends up with the win here. Not me, not you. Except we get free GPS navigation on our phones! woohoo!
Google’s problem is this:
The customer that consumes their web search (the person who does google searches) is totally disconnected from the cost of placing the ad. And the ad pricing model is built to extract the most money possible out of the business.
There’s a disconnect between the consumers of the service (the search customers), and the price of the service (as offered by the company posting the ad), and Google gets the difference.
If customers would wisen up, and just stop clicking on those ads, then Google’s money supply would go dry. In the end, it’s the consumers that lose. Google is cheating you by offering you all of this free stuff, and at the same time, taking the money out of your back pocket in the form of added cost of doing business that you pay to the people you buy stuff from.
