I got to spend some time with Eric, Larry, and a dozen other journalists yesterday after the amazing keynote.
The story everyone wanted to talk about--and Eric and Larry didn't--was Google going into the operating system, deskop computer, and office suite business (let's call those three things "Google Desktop" for simplicity).
Eric kept saying the Google vision is to index the worlds information, but we all know that is a smoke screen. Google's business is to make money from targeted advertising (i.e. AdSense).
Let's look at the facts:
1. 99.9% of Google revenue comes from Adsense.
2. Google search is not necessarily the most efficient carrier of Google Adsense (content based websites and applications are very good at carrying Adsense as well)
3. Google is doing projects like Google Pack, GTalk, Orkut, and GMail that have NOTHING to do with indexing the worlds data--these projects are all carriers for Adsense.
4. Google has built the largest grid computing networking in the world with hundreds of thousands of computers--extending this to a desktop OS would be a cake walk.
5. Google has hired folks who worked on Open Office.
6. GMail's WYSIWYG is 90% of Microsoft Word. Everyone and their brother is making web-based word processors and spreadsheets today.
7. Google is about to launch a calendar according to reports. That's a no brainer since they have contacts and email already.
7a. Email, contacts, and calendar=Outlook. Outlook=Microsoft Office. Office=Microsoft's main revenue stream.
8. Most folks are fine with web-based applications now. AJAX has made web-based email competitive with desktop email--case is closed on that issue.
9. Google's server network is the only one in existence that could handle a hosted office suite--GMAIL has proven that.
10. Google is getting involved in the light $100 laptop project--which is really close to the Google Desktop concept.
11. Bill Gates himself said that there will be a huge market for advertising-based software, and Microsoft is making a web-based version of Office a major priority.
12. Tech CEOs lie through their teeth all the time--they have to. Steve Jobs said that he would never make a video iPod for two years--then he did. I would task Eric's comments that they are not interested in making a desktop OS, Office Suite, etc. with a grain of salt. If they were interested--and i know they are--they would never tip their cards.
Now, I don't think Google will make a PC. I think Google will:
a. launch calendar and office suite in the next six months.
b. by the end of the year they will come out with a Linux-based OS and offer it for free to PC makers. Those PC makers will love Google for giving them a free OS and Google will love extending the reach of their money maker: google Adsense.
The big win: Google can offer PC makers something they have never had: reoccurring revenue. Not only can Google give a free OS and office suite, they could offer them 10% of the Google Adsense revenue of that computer/user--FOR LIFE!
Can you imagine if Dell or Compaq could not only sell a computer for $500 with $50 in profit, but also make another $25-50 a year in Adsense revenue? The person keeps the computer for another two years and Dell makes more from the Adsense than the computer.
The Google Desktop is the greatest growth opportunity for Google right now, and Google needs to find growth if they are going to live up to their valuation. For those reasons I think this is a done deal. Thoughts?
Epilogue: Almost eight years ago Bill Gross pitched me on this idea and started a company called FreePC. Your PC came with a banner fixed to the bottom of the screen. Bill Gross also created Overture--the original version of Google Adsense. When Google launches their free PC or free OS/office suite they will have taken two of Bill Gross' ideas to the bank. Somewhere Bill Gross is feeling pretty darn good about himself (I always thought the guy was brilliant).
CES analysis: Why I know Google will do an office suite and a desktop OS in 2006.
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(Page 1 of 2)3. While hardware companies like Dell would like a free OS that consumers would accept, an AdSense rebate would not be free. Due to market pressures, the cost of a computer would drop by approximately the amount that could be recouped by AdSense revenue. So a $500 computer that could generate $25 a year for 3 years would drop to $425 plus the administrative cost and interest cost of handling the income over the three years. Which means that in order to put the "free" Google Desktop on a computer, Dell would need to bulk up its finance and administrative departments to handle the additional workload. I doubt they look forward to that scenario.
Posted at 11:53PM on Jan 7th 2006 by Tom Davis
4. Why all the hate? I personally think Jason is right. CEOs need to lie through their teeth, and Jason's explanations sound much more reasonable than what other people are proposing Google do. On the whole "Yahoo and Microsoft won't stand still" comment: That's what will make the whole thing interesting. Competition is good. And if you had the choice of a Google OS and stripped down version of Windows, what would you choose? Hmmmmmm.
Posted at 12:03AM on Jan 8th 2006 by Daniel Nicolas
5. Maybe a Online Basic type Office never a PC Apologies for the length If Google released was to release a PC sponsored with the Adsense program, you would end up splitting the fragmented computer user experience even further. At present we have the Windows, Apple and Linux users and the mud throwing at each other for who has the best operating system. Bring into the discussion the Microsoft Xbox and the Sony Playstation and we have another form of computational experience. It was only a matter of days from the release of the Xbox 360 and people were getting Linux boot discs operational on it much to the dislike of Microsoft. If a PC were to be released with high power specifications and subsidised by Google and the Adsense program it will make my next upgrade very cheap. I for one would instantly be looking at finding a way to get Windows up and running on it. I would then start trying Apple OS and thirdly Linux. I know I would be hacking this to bits to be able to use the computational device in a manner that I choose to operate it. Computers and the continual growth that has been created by great pieces of software over the years is what has driven this growth. If you lock down an OS to be even more limited than the current offerings it will fail, and fail quickly. I can already see a BartsPE disk using the Microsoft PE and Linux combination having a role to play here. I can see a point in here that it just not Geeks who use computers and projects like the $100 laptop project make a Google OS a great idea except do we really want to send 'Viagra' ad's to the heart of Africa on such devices. In the end if the consumer wants a device like a FM radio and does just that it will do it. If you want your computer to be able to be creative a Google OS would fail miserably because you cannot change anything. The internet is realistically only a part of the computer world and not the whole computer world.
Posted at 1:11AM on Jan 8th 2006 by Stephen Edgar
6. I'm not a believer in the Google OS or 'Google Office'. Google has not shown that it's any good at apps -- with the sole exception of Gmail. Orkut succeeded in Brazil, but that's about it. What else, other than search/adsense and Gmail has been a kick-ass app offering out of Google? Yahoo has plenty of app-style offerings that are WAY better. That's something Yahoo does very well, but historically, we haven't seen the same level of play out of Google in the app category. AdSense, on the other hand, is absolutely brilliant, and where I agree is the key insight that AdSense is the center of gravity for everything Google does, and everything they do ought to be viewed through this lense. Would they love to AdSense-ify your entire desktop? Absolutely. Will they try? Yes. Agree there. But I do not believe they will succeed. I think it will suck. It's just not in their DNA to get apps right -- much less an Office clone or an OS.
Posted at 3:26AM on Jan 8th 2006 by Mark Jeffrey
7. You give G far too much credit when you write: "Google's server network is the only one in existence that could handle a hosted office suite--GMAIL has proven that." I have full confidence that AOL and Yahoo! have server networks capable of hosting office suites. About the only thing lacking from either of those providers is the word processing/spreadsheet aps which are easy acquisitions.
Posted at 5:40AM on Jan 8th 2006 by Shawn
8. Well there maybe some mileage in this theory for the simple reason that Google always build parallel strategies. Adsense is their only revenue and 50% of that isn't even coming from Google. So they must be a little worried about that and need to have another strategy in place. So the "parallels" in your theory is based around Adsense and broadening its reach beyond search. And Matt Cutts is dipping his toe in the water asking his audience what they would like to see Google do next. Personally i see Google's future in TV and getting its advertising message out that way, as the OS market is still with Apple and Windows and the Mac is about to go multi-platform shortly with the Intel processor.
Posted at 9:33AM on Jan 8th 2006 by Jon Wright
9. Jason, Well, I respect your analysis but beg to differ. You are making an assumption that Yahoo and Microsoft will stand still. I feel Yahoo understands this marketplace much better than both Google and Microsoft. Yahoo has noth the content and a fierce strategy to provide a seamless user experience between PC, Mobile device and TV. The future computing platform will not be PC as we know it today. It will be some other device (or maybe devices). As far as your comment that Hardware manufacturers will love free OS. Yes, they will but, how many of them have leveraged the free Linux in consumer space? None. Consider a scenario - Google spends all its time and energy to capture OS market and then next month Microsoft decides to offer a stripped down Windows for free! That will be an instant death of Google OS Strategy. Google, to me, now is smelling (and lately behaving) more and more like and average Tech company. If Google Pack and Google Video are two big announcements for Google then I am getting convinced I need to cash my Google shares. Google Pack is a joke and Google Video is like cable provider in internet era. I expect a lot of "value creation" from Google - I did not see any at CES.
10. While I agree that the time is right for Google's expansion onto the desktop - indeed for many personal and business applications to become web based - I do not yet think that they have sufficient capacity or skill to make a significant impact in 2006. Although Google as a company is technologically advanced, the usability of some services leaves a lot to be desired. Gmail is almost famously 'unpolished', which is great for techie users but not so good for the general public. Microsoft on the other hand is the 'polishing king' - making even very simple services look very slick. In terms of capacity, look at Google Analytics. Yes, the issues are being resolved, but this is one web application that is still a case of over-demand, under capacity, and will be so well into 2006.
Posted at 2:56PM on Jan 8th 2006 by Paul Fisher
11. Aren't you leaving tech support out of the equation? Would the money generated by AdSense for Dell or other computer makers be sufficient for them to take on the added headache of supporting their customers on the OS? It seems to me that if it doesn't, then Google's going to have a big problem. Google's reputation for customer support is spotty, to put it charitably. Either Google will have to rachet up its support mechanisms to the nth degree, or it will have to provide a considerably larger piece of the pie than you're envisioning to its partners. I don't see either as being particularly attractive options for Google.
Posted at 7:08PM on Jan 8th 2006 by mcubed
12. Hardcore windows fans use windows because they are accustomed to getting work done with it. The same applies to Apple users. But no one leaves their OS, just because the other one is "cool". Of course manufactuers, will love the idea of residual income, if it catches on and Google handles the fraud complaints. But without the contextual element, Adwords publishers will hate the idea.
13. I think you mean both AdWord and AdSense when you talking about AdSense. I believe Google makes more money from AdWord than AdSense now.
Posted at 2:55PM on Jan 9th 2006 by Roy
14. I think google should make some inroads into the office suite directly. One way would be to expand the google footprint onto the office suite. We make an RSS reader that supports the Google ad-model within office quite nicely. IP pending :)
Posted at 5:57PM on Jan 9th 2006 by nick gogerty
15. The only thing flawed in your assessment is the revenue target. I recall reading something suggesting Google makes closer to $10 per user per year, which translates to an almost meaningless bonus for the computer users in a bundling strategy. Couple that with all the support emails asking, 'why won't software app X work with my PC?' and the OEMs will be running scared begging Microsoft to sell them copies of Windows Vista.
Posted at 12:36AM on Jan 10th 2006 by Jake Ludington
16. Correction to my last comment - should have read almost meaningless bonus for the computer manufacturers. Doh!
Posted at 12:39AM on Jan 10th 2006 by Jake Ludington
17. Just to make a clarification: AdSense is a subsidiary program within AdWords. Overture was the precursor to AdWords, not AdSense. Google earns its revenue from AdWords, the overarching program paid into by advertisers. As far as I know, Google does not break out AdSense earnings.
18. I'm not sure it can really be said that "projects like Google Pack, GTalk, Orkut, and GMail ... have NOTHING to do with indexing the worlds data". Whilst perhaps Google Pack is more a branding excercise than anything more - GTalk, Orkut and Gmail are exactly about indexing data and observing statistical paterns in information exchange that can be used to improve search. It seems much of the underlying justification for these would be exactly to gain access to vast sample sets of statistical data tracking relationships, current concepts and so forth. Even branding excercises would come under this analysis - as the more googles services are used - the larger and more diverse their sample set for monitoring information use - and building up statistical tools to improve search performance.
19. I think Google will innovate faster than you guys can pretend to analyze.
Posted at 2:24PM on Jan 10th 2006 by moogle
20. Google may want to organize the world's information, but they also want to monetize it. That's not a bad thing, necessarily, but that's their objective. Google seems to be looking for two things right now: 1) Data that they may not be able to monetize right now but which they find interesting and 2) Content they can monetize. A desktop or similar app would provide quite a bit of both. How would you like to be halfway through a note to your SO about taking a trip to New York when you start seeing ads like "Save on Getaway Weekends in New York"...
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1. Was going to leave a comment, but it was getting too long. My response is here: http://www.ensight.org/archives/2006/01/07/will-google-do-an-office-suite-os/
Posted at 9:32PM on Jan 7th 2006 by Jeremy Wright