Monday, December 10, 2012

Google Makes Another Smart Business Move.

The Cloud and Google are about making
money on the web and this is a good thing
Things happen for a reason in business.  This week is a classic illustration of that maxim.  Google announced that they were going to start charging for its online application suite which includes Google docs and Google drive.  This does not surprise me and I want to take some time out and explain why.

Many people outside the technology industry wonder how companies make any money building web sites and providing services.  During the first dot com boom, it was a simple strategy.  Generate lots of web traffic and buzz.  When that happens sell advertising to clients who are paying for those eyeballs.  It was a great strategy but it burned through millions of dollars of venture capital.  It also created spectacular failures like Pets.com; which generated loads of attention but lost eighty cents for each bag of dog food it sold online.  I still keep a few trinkets from the company to remind me how not to run a business.

More recently companies like Groupon have done a similar dance with death.  They have lots of attention but in doing so they have not figured out a means to make money with all that attention.  With the advent of cloud based computing and companies like E3 systems, we have turned to a different model for making money.  It is a subscription model.  Servers, technical professionals, and infrastructure cost money and in order to pay for it we charge a low monthly subscription.  Google does the same with their Ad words product and the numerous numbers of services they provide.  Now they are treating Google docs just like any of the other for-fee services they provide. 

Being a Microsoft partisan, I still think that Office and Office 365 are superior products to Google Docs.  However, if you are a business person who is struggling to pay for licenses from Microsoft then Google Docs is a good option.  What Google is doing is keeping their product in line with the Microsoft and providing another stream of revenue. 

I am not surprised by this.  Google became the 600 pound gorilla of the web by providing and fantastic search engine and charging customers using the old model of revenue during the glory days of the dot com bubble.  Then something changed.  They started diversifying with their Android mobile phone system.  The Chrome browser is now an accepted standard on the web and they have made tentative steps into social media with Google plus.  What this creates another means to generate revenue and sell advertising.  Google Apps are different because there was no really good means to sell advertising.  So they could give the product away as a means to destroy Microsoft or they could charge a nominal fee and increase their profits.  If I am Larry Page, I know what I would choose and that would be more money for my organization. 

So what you are seeing is business people using the web in a much more sane fashion than during the dot com days.  Gone are the lavish parties and millions of dollars in corporate losses replaced with slow and boring revenue growth as more people use the web as the backbone of their business.  As someone who owns his own business and is following that model, I think this is a positive development. 

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Until next time.