Some industry analysts have been saying that Google has a problem. It’s hard to believe, given the search engine’s popularity with its users, but it’s true. It’s even harder to believe when you consider that Google’s stock premiered slightly under a year ago for $85 per share and, as of this writing, is trading at around $300 per share; after all, it’s hard to argue with success, and Wall Street rewards success. Even Wall Street has been wrong before, as those of us who remember the dot-com boom and bust learned the hard way.
I spoke briefly about Google’s problem in an article last month covering the would-be class action lawsuit against the search engine giant filed by Click Defense. Click Defense, an online marketing company that helps firms determine whether they have become the victims of click fraud, has been accused of using the suit as a publicity stunt. I’m ambivalent about Click Defense’s possible motives for the lawsuit, but at the same time, it does raise certain points that can’t be ignored.
Google’s revenues last year came to more than $3 billion. About 99 percent of that came from advertising. That’s a pretty tightly focused revenue stream; so tight, in fact, that it should make Google’s stockholders a little nervous. Through a combination of in-house expertise and carefully-made purchases, the company has diversified its technology and services, branching out into news groups, email, blogs, photo sharing, specialized searches (Froogle, satellite maps), and other areas that might not seem directly related to search. But it has not diversified its sources of income.
For many companies, after they have been around for a while, it can be a good thing to diversify. It gives them an element of security if one revenue stream begins to dry up. If advertisers become unhappy and take their dollars elsewhere – and admittedly unlikely but still possible scenario – Google could find itself out in the cold. Surely the powers that be at Google are aware of this problem; after all, they’re stockholders too. So the question is, what is Google doing about it?
Browsing the Internet via mobile phone hasn’t exactly taken off. The relatively miniscule size of the screens in comparison to desktop and laptop computers poses a real obstacle. There are ways to deliver content that is matched to the capabilities of the device; a recent Google beta takes advantage of this.
Dubbed Google Mobile Web Search, the service looks for sites that use XHTML to deliver content to mobile phones. XHTML combines HTML, the common markup language of Web pages, with extensible markup language (XML). Used together, they allow a Web server to deliver content formatted in a way that the accessing device can handle.
This service will probably take a while to catch on in the U.S. and Europe; in those areas of the world, less Internet content has been formatted for mobile phones than in, say, Asia. Google’s director of products, Deep Nishar, seems to believe there is real potential for growth. “In general, we believe mobile devices are a very important interface for our user base to access content,” TechWeb has quoted him as saying. As with most Google services, though, this one is free.
A deal Google made in late June with T-Mobile might provide more potential revenue. Up until recently, T-Mobile handpicked websites that users of its mobile service could visit. Thanks to partnering with Google, T-Mobile users now have Google as their home page and can surf the entire Internet from their cell phones. According to T-Mobile board member Ulli Gritzuhn, “With the Google homepage we want to tell our customers from the first moment that they are carrying with them the Internet they know from home.”
The new service is dubbed “web’n’walk,” and will be available on four different cell phone models. It was launched initially in Germany and Austria, with plans to reach Britain, the Netherlands, and the Czech Republic later this year. T-Mobile expects hundreds of thousands of subscribers to use the service by the end of next year, and plans to generate about $12 per user per month of additional revenue through the service, according to a report from CNNMoney. It was unclear, however, whether Google would be receiving any share of this new income.
It’s very rare, but sometimes Google does something that leaves people scratching their heads. I’m not talking about getting into Web-based email, or letting users customize their view of the Google home page; those steps make a certain amount of sense, when you look closer. In this case, I’m talking about releasing something cool that’s more or less already available elsewhere in almost exactly the same form.
At least with Web-based email, Google did it differently, and arguably better. But why would Google release a toolbar for the Firefox browser when there is already an open source version available? Google has offered its own toolbar for use with Microsoft’s Internet Explorer browser for more than four years. Users of Firefox who wanted the same features had to turn to GoogleBar, an independent project that emulates Google Toolbar features. The Google toolbar for Firefox is available in 10 languages and designed to work with Firefox versions for Windows, Linux, and Macs. It includes the same features as the IE toolbar, except for software that Firefox has built in and IE doesn’t, such as a pop-up blocker. Could this simply be a reaction to Google’s competitor Yahoo releasing a Firefox version of its own toolbar in February?
Another recent move by Google is more understandable. Starting in April, the company invited users to upload video into its index. Now Google has a video viewer that will stream these videos through IE or Firefox browsers. The video viewing software, only 1 MB in size, will only stream Google videos, so it does not compete with the multimedia players available from Microsoft and RealNetworks. While all of the available videos are free at the moment, Google plans to eventually charge for some of the content.
It might be able to drum up a new revenue stream that way. The topics currently available cover a wide range of interests, from breakdancing and gardening to how to advertise on Google. While Yahoo also offers videos, they are streamed through multimedia players made by other companies. Google’s video player might give it more control over the process, which could be useful for its plans to charge for some of the content.
Despite the control Google is maintaining over its index of videos, the company is known for being very open about certain things; it is a friend to open source and open source programmers. A recent beneficiary of this attitude is anyone who wants to play around with its Google Maps service. A number of programmers have been interested in overlaying maps and map-related information from other sources, thus making the information more useful. Now, thanks to Google opening up programming interfaces for its Google Maps service at the beginning of July, they can create these overlays. (Yahoo did the same thing, just one day later, for its Yahoo Maps service).
While it’s true that Google will, in effect, get free product prototyping from this move, it was more than likely pushed to do this because many Web developers were already creating their own “mashups.” Google Maps product manager Bret Taylor joked that “We are doing this because they were already doing it.” He added that “Frankly we like new and innovative solutions. We expect new and creative ideas to come out of this that we haven’t thought of yet.”
So far, even before Google opened the Maps API, useful mashups included ones that layer craigslist housing ads onto Google Maps, a map that shows exactly where various crimes were committed in Chicago, and an annotated walking tour. Google lets users host their own map hacks (unlike Yahoo, who insists on hosting the hacks itself), but reserves the right to place ads next to the maps in the future. Google might consider offering hack creators the option of having Google actually host the hack; popular ones might find themselves receiving a lot of traffic, which could chew more bandwidth than even a creative Web developer can afford. If Google charges a nominal fee, this could become another source of revenue.
With one of Google’s recent investments, one wonders whether the company has been thinking along those lines – or at least along the lines of getting into the broadband provider business. According to a story in the Wall Street Journal, Google, Hearst, and Goldman Sachs collectively invested roughly $100 million in start-up company Current Communications Group. Current said it would use the investment to expand its deployment of broadband service. That in itself is not unusual – but Current offers broadband over power lines, which has so far been slow to catch on.
That just might change. Current has partnerships with several power companies that will allow it to roll out services to customers in Ohio, Indiana, and Kentucky. Still, progress is slow; power companies are not in the communications business, so they need to make a mental leap. “It takes some time to introduce a concept and overlay our equipment on their power grid,” observes Scott Bruce, managing director for Current.
If Google gained even partial ownership of a broadband company, particularly one that offers a combination of voice, data, and video services (as Current does), this might go some way toward solving its problem of lack of diversity in its revenue stream.