Google Is Worse Than Free / 03.31.08
It started with a question. How could someone create an effective ad network that didn’t take any revenue away from the publishers that participated in it? This question was brought up almost a year ago over at ReadWriteWeb in their entry Google’s Potential Vulnerability - An Open Ad Network. I have always pondered this question off and on because the idea of an ad network fascinates me. So much that Tyme and I have had indepth conversations on the topic.
One solution that I came up with that really pleased me was the idea of an ad network that allowed you to keep all the money publishers charged their advertisers. It was free. The business model rested around the type of stats that was offered to the publishers and advertisers. Everyone got a basics stats package, but “pro” users got a more indepth stats package that gave them a better analysis of their ads and how to improve them. I didn’t get much farther than that so I can’t provide the details, but I liked the idea because “free” is a wonderful tactic to take out the competition. Notice that free is used as a tactic and not the actual business model.
Then Google stepped in and introduced Google ad Manager, which is a free ad publishing service for any site. They make their money by allowing publishers to use AdSense for any inventory that doesn’t get served. They can do this because the cost of bandwidth and storage to them is virtually zero. The same reason you can get unlimited storage on Gmail.
This is what makes Google dangerous to a lot of companies. Because they control their own ad inventory they can provide their services for free and place their ads on the services and receive 100% of the revenue. If they need more pages to fill with ads they can simply create another free service like they have with Ad Manager that appeals to publishers. Google’s problem isn’t going to be running out of ads, it is going to be running out of places to serve them.
What is to stop them from creating an eBay competitor that takes zero money from sellers because they can post ads up along the listing pages? Even better they wouldn’t have to post ads, but make Google Checkout the focal point of payment around the site. What about all the online storage companies that people rave about? As noted before storage and bandwidth is nothing to Google so what is to stop them from creating a similar service and offering it for free? Gmail is essentially a storage service with an email interface.
Now by no means do I advise companies to just pack it in because Google may potentially come in and wipe them out overnight, but some thought should be taken into what happens if a company arrives and offers what you offer for free. The ad network idea isn’t toast because Google came up with Ad Manager, it just forced me to think of ways that Google can’t compete against a similar offering. Business Basics 101 essentially. Remember that although Google has the potential to offer a ton of services for free, that doesn’t mean they can specialize in all of them effectively.
The eBay example is a good point. eBay works due to its strong community that takes a lot of work to keep up. When Google Base launched it seemed to be both an eBay and Craigslist killer, but a couple years later you rarely hear anything about the service. Although you can automate a service it doesn’t mean people will flock to it. Trying to beat the community around eBay and Craigslist will take a lot more than free and these are things that businesses must think about it. Think about how YouTube beat Google at the free online video market.
Free has never been the problem for companies. The problem occurs when a company can’t compete beyond free by offering something valuable that free can’t compete with. If your selling point involves commodity technology that can be priced at almost zero then you might need to go back to the drawing board. Or maybe you can pray that Google buys you up.
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Google vs. Amazon: Free vs. Paid » Expert Idiot // April 2nd, 2008
[...] seems the idea of Google offering everything under the sun for free is catching on as Dave Winer chimes in with the idea of free web services similar to what Amazon [...]