How Google Could Commoditize (Nearly) Everything

Dec 6th

Is Google just a large ad broker with a search service they can target ads against? Or how might they commoditize many markets? The current trend at Google is that software and storage want to be free. As technology gets cheaper so will Internet access and other forms of communication. Google offers free VoIP and ties it into Gmail, they mentioned making cell phones free via mobile ads, iPods holding all the world's TV in 12 years, and are offering media companies packets of cash to keep it on the web.

Google's main point of profit at the moment is ad sales, which is both highly inefficient and a fraction of what they could do.

Google Checkout:

Google leveraged search as a wedge against which they can sell targeted ads. Right now they are leveraging those ads to try to become a big online payment processor, by including Google Checkout buttons and $10 off coupons in the ads.

They think they can make payment processing faster and more efficient. Ads which have less slippage have greater value. But I seriously doubt that Google would want to stop at just making their ad network more efficient. Why would they?

Google has already launched a coupon program to tie together online and offline marketing, but what if they also attacked the online and offline divide via payment processing? The reason they started online is because that is where they already have leverage. Google talked about not competing with Paypal, but they offered a free month of service to try out Google Checkout for the holidays, and have already extended that holiday promotion another year.

Going Offline:

After they get enough lock-in, don't be surprised if they create a way to track offline transactions.

Most people in the US (and probably around the world) are in debt. Imagine if Google offered a coupon card or credit card. How many people would be willing to use a Google credit card if they offered the lowest interest rates or had other ways they could add value?

How Could Google Add Value?
After a period of charging an initial low interest rate (say 0%) Google could add value by providing health related precautions, related product recommendations, price comparisons, and reviews.

Health Information:
When Google created their Co-op they got many health authorities to participate. What if at the consumer level I could also input data, or I could sign into it when I signed my medical paperwork?

Related Product Recommendations:
Some of Amazon.com's recommendations are spot on. Imagine if Amazon had all their current customer purchase information, recent customer transactions, and were able to add your search history and add media consumption history to that.

Your purchase history, media consumption history, and search history paint a vivid personality profile which must be easy to target ads and product recommendations to.

Price Comparisons:
What if cell phones had product scanners on them? Read John Battelle's the transparent (shopping) society.

Reviews:
Google

  • already offers a web comments plugin

  • structures data via Google Base, Google co-op, inline suggestions, and Google OneBox
  • pulls reviews from other sites for vertical search sites like Google local and Google movies, and
  • could probably just gather reviews directly if they wanted to.

Lock In:
If Google gets enough vendors to lock in they will also have the most complete database of where to find things, which will only grow with time due to network effects.

RFID & Inventory Management:

In the video Epic 2014 they sell the case of a Google Amazon tie up, but I think Google will prevent themselves from carrying physical goods (as noted in August 2009: How Google beat Amazon and Ebay to the Semantic Web.), because they do not need to have them to influence the markets, and actually having physical goods may limit their ability to collect market data.

Before locking in consumers with all those features they will try to get many merchants to commit as well. Imagine if Google offered virtually free RFID tracking and inventory management software which helped automate restocking. And, imagine how well they could recommend competing suppliers and offer ads which looked like discounts.

A True Market Maker:

Google could influence what information we are able to find, what ads we see, what publishers are paid for creating content, and grab a cut from any and every point in the supply chain, charging whatever rates they felt comfortable charging. If they could gain that much information they could even use it to trade commodities and derivatives. Who better to trade commodities than the business which is able to turn so many things into commodities?

Published: December 6, 2006

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Comments

December 6, 2006 - 6:01pm

Sooner or later Google's honeymoon period with the consumer will end. That will be around the same time their stock takes a dive.

I predict 2 things will happen in the future. Google will dominate every vertical on the web or the US & EU will force a break up of Google into separate companies.

seopractices
December 6, 2006 - 6:16pm

Amazing how Google is like an octopus getting smartly its tentacles every where in the WWW, they have the power of telling people how or what the world is like... Does this sounds familiar to you? "Seeing the world through the eyes of GOOGLE..."

December 6, 2006 - 6:20pm

Either that Jeremy or future generations will be born from Googlepods and fed with Googlejuice during the gestation period. All families will be required to have a picture of Larry and Sergey on the living-room wall !

Great article Aaron - and somewhat doomsday / bigbrotherish in its predictions. Im still convinced that Microsoft will sort their act out before this kind of scenario happens and we get to a commoditized data monopoly, although I know that from previous posts you probably dont agree with me.
Paul

December 6, 2006 - 8:35pm

Another great doomsday controversy by Aaron which is simply unrealistic. No country can allow itself into such a stranglehold. If they did, Microsoft or Walmart would own us by now (I mean literally own us). Sherman Anti-Trust act and similar acts in Europe were simply designed to prevent these doomsday scenarios. You should also have seen MSNBC's doomsday predictions on Yahoo this morning on TV. The guest analyst was commenting on the new shakedown of its top executives. He commented that Yahoo might take as little as a year to be put on the chopping block. And its number one candidate for buy out - you guessed it, Microsoft. Talk about a showdown.

Russ
December 6, 2006 - 8:44pm

Doomsday how, exactly? Seems perfectly reasonable to me, given G's current ability to positively turn their hand to anything that has significant mindshare on the web. I don't think we'll ever see them as some great, all-encompassing corporation because they're *so much better* at marketing / selling their 'experiences' than anyone else.

December 6, 2006 - 9:01pm

I've had a thought for quite awhile now, and some of your thoughts on why they wouldn't want to get into physical products and where they might gain presence in the offline world really brings those thoughts to a new level.

Google has taken the "information age" to a new level. We've all known it is the information age for a long time and that viewing business from this point of view and dealing in this information was where the power was. Scary and brilliant at the same time, it would seem that Google has taken this from the abstract and viewed it literally. A far greater power than anything else will be the one who holds all of the information, or considerably more than anyone else.

Forget anti-trust... in many ways they are able to access this information both directly and indirectly, through their own services and information gained through offering services and partnerships with other businesses. And much of it, in a way that is free. Imagine governments trying to step in and say, "No, you can't offer this or that for free. You must charge people to use this." Talk about an uprising! I guess we can all hope that the motives are all as altruistic as we hope, otherwise, we may all wake up some day and wonder what the heck happened. Doomsday theories, perhaps. But every now and then you need to examine the far out, crazy theories just to keep everything else in check.

DanMan
December 6, 2006 - 9:14pm

Google cellphone w/scanner = google untethered - the ultimate consumer device!

Imagine the ability to scan the barcode of any product in your home or at the store and get reviews, nutritional information, availability, warranty, price comparisons...with the ability to order it on the spot.

Or, How about an iPod scanner accessory for the pending WiFi portables, with the same functionality...

That's the Google gravy train to get on!

Alex
December 6, 2006 - 10:35pm

Am I missing something or is Google nothing but a search engine with advertising clipped on?

Yes, of course they're super dominant right now but I really don't see too much in the way of 'barriers to entry' for someone (or others) to take them on at their own game. The internet is still very young so let's not forget that.

It won't be easy but it's not impossible either.....

PS. What about if MSFT gives its new OS (not Vista, the one after that) away for FREE and builds the internet so tight into it MSFT becomes like a black hole, ie there's little you can do to escape.

December 7, 2006 - 3:27am

Hi Alex
I don't think that would go too far with Microsoft...that would be like an AOL. Why Google does so well is they make it seem as though we are in control and they brand their relevancy as some sort of democracy. If Microsoft tried controlling the web they would be called out on it. Google does so well because they have so much leverage and few people see / realize the extent of it.

December 7, 2006 - 6:21am

Aaron.... excellent point. Google is cleverly employing the same strategy that perhaps most of our mothers and housewives of generations past have employed for eons....

the best way to control and get what you want is to let the other half believe they are in control and it was their idea to begin with.

pat
December 7, 2006 - 9:41am

Google is an innovative source that does alot of good, they are beggining to convert the suns rays into electricity but they are missing out on a truely untapped source of energy, webmaster frustration.
If some how they could capture the energy of the whines, moans, and swearing of webmasters they could really make an impact.

hsmauberley
December 7, 2006 - 11:14am

Google is searching millions of pages put up there by millions of people. It would be a step forward if they were to add content themselves or possibly reward others for doing so giving the net superior content and some direction. The book project is good, that kind of thing...great swathes of new information, an engine that actually produces something.

December 7, 2006 - 11:40am

Hi hsmauberley
But as they add their own content they scale out costs, and create internal customers which could make them more inefficient and make it harder to make relationships with copyright holders and content producers.

Google wants to influence the markets without having to take on all the costs of actually being a physical market participant in all the markets.

Hi Pat
nice troll comment :)

December 7, 2006 - 2:14pm

I can't believe how much negative emotion has now shifted from Microsoft to Google. I almost find folks now getting sympathetic for the Microsoft’s and EBay’s of the world.

In particular I like the first comment that Google's honeymoon is almost over and their stock will then fall. First, I sure wish I had a 10-year honeymoon. Too bad I don't have that much vacation built up. Secondly, consumers not using Google to search is like saying Madison residents will now only use side roads to get to work. Not gonna happen. And as long as we continue to use the beltline (HWY 12/18) to get to work, the billboards will continue to have prime advertising value.

Google's stock is safe, my friend. Worst case scenario: they'll do a stock split like Microsoft, at which time MSFT's stock hasn't moved for years. Then again, that just may coincide with Google's entrance into their markets ;=)

December 7, 2006 - 6:12pm

I agree that Google has to much power these days. But then again I think about how it was before I started to use Google. Now I live in Norway, so it might be that the situation was different in the US but here is how i remember it from 1997:

MSN: Crappy search engine, slow (probably because of the connection :-).. ) but gave me result that was not related to the search.

Netscape: Same as above

Altavista: Back then i used Altaviste a lot, since they powered the local serach engines in Norway. Such as: Kvasir.no, Sol.no, start.no etc...

Yahoo: Got really popular because of the free email, but didn't really break through in the Norwegian market.

But with Google, a new era started. Just after a year, most of the searches in Norway was done with using Google. Why? Because, it was simple to understand and use.

Since the beginning Google has always developed and done thing differently. They have added new features to the search that was missing before. They have gone from being an underdog to become a leader in the market.

And due to their market position I believe that more and more people will start to pick on them. But I really love the idea behind Google, that the information should be free, and that the technology has now boundaries.

From a marketer point of view, Google is developing to an "one stop shop". But I don't think they will have this position for ever. Technology is getting cheaper for every day, and there is always room for other players that can offer and do thing differently.

December 7, 2006 - 6:15pm

But information fused with ads is not the same as free information.

December 7, 2006 - 6:23pm

"There ain't no such thing as a free lunch". We had the free lunch for a long time. And now it's Googles time to get their money back.

I don't think the debate should be on whether Google should use ads to make money or other commercial activities. But the concern should be "how much of the information is free, and how much of the information will be free in future".

December 7, 2006 - 6:27pm

My point is not just how much is free, just that it never was free and never will be. As ad servers (we call them search engines) get better at collecting data the blend of ads and content will only get more aggressive.

December 7, 2006 - 7:03pm

Google’s story will be interesting once it is finally written….

In one version, I see a company imploding on itself after a series of bad stories, which would most likely involve something along the lines of Google and the Patriot Act or Google using the information it collects in a way that creates distrust between it and the public (the Big Brother scenario). Or the stories could revolve around an onslaught of lawsuits for copyright violations due to its recent acquisition of YouTube.

In a second version, Google actually does well and turns itself into the next Microsoft (okay, for all of you saying it is already the next Microsoft then I would refer you to the Pets.com, or any other stock during that period, prior to the bubble bursting). If Google can keep itself out of hot water then it might have a chance.

In the third version, Google falls somewhere in the middle and joins the ranks of Yahoo and is just another player on the front.

In my opinion, the story on Google is still largely unwritten. It’s “don’t be evil” mantra was already challenged in China (opinions vary on how the company handled the situation), and in many ways that very mantra could be its downfall. People love Google. A couple of grad kids that took a company from their dorm room to Wall Street, and they made billions in the process. But the love they experience today could turn cold tomorrow.

Let’s face it, two guys developed a better mousetrap based on what was relatively a simple concept that any grad, med or law student knows, but these guys applied that concept first to a search engine. And I salute them for it! But, now as the honeymoon seems to be expiring it is going to be extremely interesting to see what happens.

Will Google know our every move by evaluating our click streams? Or, will it get blown out by the next kid on the block? Don’t think Google can’t get blown out….remember, there was a day that AltaVista was going to be IT, Netscape was going to be the King of the Internet, and the countless other stories of “this time it’s different.”

Now, with regard to Google’s stock price, it is my understanding that they did not make a lot of friends with their debut on Wall Street between their initial filing and auction process (not to mention the problems during the quite period). However, I also understand that their P/E is not in bad shape (actually, my understanding is it is pretty good right now). The problem is that if people stopped using Google (if you say it couldn’t happen then I would caution on never saying never) then ad revenues drop and the stock tanks. Maybe the win the race and have other revenue streams to fall back on that can support the current stock price and allow it to continue to climb, but that’s just speculation.

But one thought…if Google’s users pull back for whatever reason what happens to that P/E, and in turn, the stock price?

Don’t know how this is going to turn out, but it sure is going to be interesting to watch.

Danny

December 7, 2006 - 8:03pm

"But information fused with ads is not the same as free information."

I'm not sure I'll side with you on this one Aaron - either that or you didn't elaborate enough. I don't pay a dime to Google if I don't want to. The information is 100% free to the end user who is searching for a new pair of shoes, for example. Unless of course the ISPs continue trying to dig into Google's pockets - then we will all pay.

Are you looking for "separation of search and ads"? I wouldn't see the point in such a business model. Google is like a super highway, and as I mentioned, such adjacent real estate is valuable. I'm not going to put a billboard ad on some dead end country road, now am I?

December 7, 2006 - 8:15pm

I hear ya Danny, my friend. The PE isn't bad at all right now. And unless folks stop finding what they need on Google, their earnings will only go higher. Now, that isn't to say that the bidding process will peak at some point in time. I mean, there are only so many words and phrases in the dictionary, and as the bidding continues to rise, the smaller kids will start heading over to Yahoo! and MSN. Makes sense - that will result in CPC's declining in Google due to less competition, and folks will once again go back to their Google campaigns. I liken it to having multiple credit cards - we all are familiar with the balance transfers each year from one card to the next because of the 0% introductory APR. Well, we've also seen the Big Three giving out anywhere from $50 - $100 when you open an account with their advertising platform. Folks are running where the deals are, and in the meantime Yahoo! and MSN will only continue to improve and rates faster than Google will innovate.

Parity will probably come sooner than later.

December 7, 2006 - 8:27pm

Hi Allen
I am not talking about a separation just between content and ads.

I am also talking more about
- preventing certain types of content from being financially viable to create
- killing off certain business models
- creating and reinforcing a framework which encourages certain types of formatting and certain biases
- teaching publishers to blend ads in content
- ad automation and targeting which heavily plays off of inherent human psychological flaws and triggers

December 7, 2006 - 9:01pm

Allen,

You make a great point with the smaller kids going somewhere else to play. If Google has about 1/2 the traffic, but I can capture the other 1/2, at a lower price, using a combination of MSN and Yahoo then from a small business perspective I have just gained the same viewing share at a reduced costs. In short, the same amount of traffic/exposure for less money.

I agree that you could very well see a situation where Google, Yahoo, and MSN customers play off the engines to get the best deal.

For example, if I see that Google and Yahoo are at each others throat and the deals are there then I've put my resources in front of about 75% of the traffic. If it is an MSN/Yahoo war I go there. In other words, I can swtich back and forth with where I find the best deals.

Aaron,

Great post...you got people thinking and talking!

Danny

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