The Myth of Google being a “One Trick Pony”


I just saw a Post that talks about Google launching it’s Android Operating System’s latest version 2.1 on older devices like the Sidekick.

Here is what is fascinating about this discussion. While Google’s revenues are largely advertising based, unlike other firms that have experienced such hyper growth who typically saturate a market, Google continues to have plenty of runway in growing their ad revenues. The percent of ad revenues that Google has is still fairly low.

In fact, one could foreseeably see Google having a single search based revenue stream comprising 80 to 90% of their revenues while maintaining aggressive growth rates.

Why does this matter to consumers? And to business for that matter?

The reality is that as long as Google continues most of it’s growth from advertising, the rest of the innovations drive search based advertising and they don’t come under pricing pressure, and rather can be a massive disruption force for the incumbents.

For example, they don’t need to sell more devices in the mobile phone business. That’s not their incentive. They don’t want to make money selling a mobile OS, they want to have more people get on the web so that they drive more search based revenue for Google. What this does is allows them to add massive value at a fraction of the cost as someone like an Apple or RIM or any other mobile provider who only make profits as long as customers fork out hundreds of dollars buying new devices every 18 months. So Google could continue to disrupt markets.

They disrupt Windows over the long run by commoditizing the OS with Chrome, or disrupt Office by commoditizing prouctivity tools with Google Docs, or Exhange Server by commoditizing email servers with Gmail in the cloud that appears as an Exchange server to Outlook for a fraction of the cost of Exchange.

What is even more important is that disruption can be at small numbers to start with. Take 10% of the market share and you start approaching tipping points for a net new ecosystem that further boosts search based advertising revenues.

This gets to be a very hard game for others to compete in. They can’t beat Google at advertising given the network effects there and it is hard to compete with good innovative technology for free that develops faster than most due to it being opensource.

For those who think Google can’t succeed because it is a one trick pony, I would submit exactly the opposite. It is because they can diarupt every market they enter because their revenue stream primarily depends on advertising, which it is also disrupting, is the reason they stand to beat and disrupt others with a greater degree of probability. And the consumer does win ultimately.

Those who can disrupt Google are more the Facebook and Twitters rather than Microsoft or Apple.

Remember also that it doesn’t mean Microsoft goes under. It just means that it might continue to need to play catch-up and the profit pool they largely rely on could shrink on aggregate as more revenues and profits from those industries shift to advertising.

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