7 ms·

Google's new business model

139 points by ben336 13y ago

chippy 13y ago
Hmm, I didn't quite get what the new business model was from the article. I got it that they were diversifying and I can understand it as an investment for the future but that doesn't explain what the new model is. Could someone help?
- monkbent 13y ago
  See the previous article: http://stratechery.com/2014/business-models-2014/ http://stratechery.com/2014/business-models-2014/
- cromwellian 13y ago
  Selling you stuff directly. You pay, instead of advertiser pays. Namely, you pay $$$, and fancy electronic consumer device arrives at your doorstep. B2C consumer electronics.
- deleted 13y ago
  [deleted]
evv 13y ago
Google clearly has an unprecedented (well, maybe except for sun..) set of technologies on the horizon. Between network infastructure, mapping, energy, robots, and now home automation, their dominance in the future is easy to forsee. However, there was no mention about Google's rise to power being centered around a focused set of high-quality web services. And now they are starting their "3rd business model leg" of consumer devices before they have truly mastered their second, the SaaS market. I find it funny how the OP quickly glances over Apples unprecedented focus, althewhile highlighting and admiring Google's unwarranted diversification. The obvious question is: can Google get away with it all, or will they fail without focus? They have managed to stay cohesive so far, but as the author rightly points out, Google's true diversification has only just begun.
- Silhouette 13y ago
  The obvious question is: can Google get away with it all, or will they fail without focus? It will be interesting to see how Google handles quality and customer service if it increases its efforts to sell consumer devices. You can get away with a lot of ignoring people unhappy about the quality of your service if you're giving away that service for free in return for showing them advertising. Their only option is to stop using your service and go somewhere else, which doesn't cost you much if they're still a small proportion of your user base. However, you can't get away with a lot of ignoring unhappy people if you sell them expensive consumer gadgets that don't work properly. They'll do things like returning the item (substantial overheads for you even if it's in resaleable condition) or charging back the purchase fee if you don't make a return reasonably easy (more immediate overheads, and if you develop a pattern of this happening it's going to hurt your long-term overheads with the card companies as well). I'm a little surprised Google aren't going for the huge-value business model that the linked blog overlooks: being the on-line distributor/middle man. This position typically rakes in much of the profit while taking on relatively little risk and doing relatively little work to create the underlying value, and it always has; see: record labels, book publishers, app stores, cloud hosting, and of course the granddaddy of them all in the Internet age, Amazon.
  - cpeterso 13y ago
    > I'm a little surprised Google aren't going for the huge-value business model that the linked blog overlooks: being the on-line distributor/middle man. This position typically rakes in much of the profit while taking on relatively little risk and doing relatively little work to create the underlying value Google has the platform to implement something like Gumroad, but Google hasn't had much luck with consumer services like Checkout.
  - krakensden 13y ago
    > However, you can't get away with a lot of ignoring unhappy people if you sell them expensive consumer gadgets that don't work properly. They'll do things like returning the item (substantial overheads for you even if it's in resaleable condition) or charging back the purchase fee if you don't make a return reasonably easy (more immediate overheads, and if you develop a pattern of this happening it's going to hurt your long-term overheads with the card companies as well). People keep saying that, but is it really true? People buy lots of things from companies famous for terrible customer service all the time. I understand wanting it to be true, for sure...
spacemanmatt 13y ago
This article shed credibility in the 1st paragraph, calling the Motorola purchase a patent and panic-driven deal. Au contraire, it was a heck of good deal for Google. It's not clear that Google panics about anything. Forbes put it like this: http://www.forbes.com/sites/timworstall/2013/10/22/motorola-mobility-isnt-a-disaster-for-google-it-only-cost-them-1-5-billion/ http://www.forbes.com/sites/timworstall/2013/10/22/motorola-...
- cromwellian 13y ago
  Much like the "panic" supposedly over Facebook at Google. Unless it isn't clear by now after Facebook's IPO, the apocalypse of social search/ads eating Google's lunch didn't materialize, and if Google has anything to worry about, it's not Facebook, but mobile's screen size and drive towards native apps hurting the web driver ad business.
- Steko 13y ago
  This tax "analysis" doesn't even pass the smell test and appears to be based on the assumption that Motorola losses will continue at the Q3 '12 record level and makes hay of the $700 of reduced taxes Google would have to pay in that case while ignoring the actual $2 bln losses a year that would pile up on the side.
  - ZeroGravitas 13y ago
    The tax analysis is based on past losses not future losses, that's why the tax expert says they'll get them up until 2019, rather than indefinitely.
- pinaceae 13y ago
  The Motorola deal happened due to the loss of the Nortel patents to the Rockstar consortium. Defensive patent move by Google.
psbp 13y ago
Maybe I'm imagining, but weren't there rumors that Google's new business was taking small fees from online and real world purchases? Especially those expedited through Google hardware and software? It certainly would make Google Shopping, Glass, and self-driving cars seem like legitimate business decisions.
deleted 13y ago
[deleted]
- deleted 13y ago
  [deleted]
notatoad 13y ago
>That is why I ... am inclined to give them the benefit of the doubt with regards to Nest data. What is with the paranoia over Nest's data? Yes, google is a data-hungry company. but Nest doesn't collect any valuable data that google doesn't already have. Sure, the motion sensors in a nest thermostat can sense when somebody is in your house, and what the temperature is. But Google already has your cell phone, they know where you are at all times, that's a hell of a lot more valuable than knowing whether somebody is currently inside whatever building where you installed your thermostat in. I suspect that the nest acquisition is about finding new uses for all the data they have, not about collecting more data. Google already knows, without installing sensors in my house, when i leave for work. they know when i'm heading home, and when i go on holidays. That all seems like information that a home automation system would love to have access to.
- toddmorey 13y ago
  The paranoia fascinates me as well--I feel it, too. I was surprised by my own disappointment in the Nest acquisition. I think there was a time earlier when I would have been tremendously excited. There seems to be a tipping point for a company when people move slowly from cheering for you to against you. I think it's both a combination of size and behavior. I do fell that Google's push with G+ has harmed their brand in some respects. It was one of the first times personally that I felt that my wants and needs were no longer aligned with theirs. Then the Gmail changes, less room for organic search, etc. I am not saying no one is rooting for Google. I am saying their brand is in a new, unfamiliar area of public opinion and there's something more behind it than their ravenous ambition.
  - FigBug 13y ago
    I find it fascinating to watch how companies reputations and image changes. Apple was considered 'beleaguered' for a long time after they were making tons of money. They are still considered to be 'about to fail' by many. Lots of people used to be pro Microsoft, then they were the evil empire, now they are in the process of trying to change their image. Google could do no wrong for a long time, now everything they do is wrong. It'll be interesting to watch how Google handles this in the coming years.
cracell 13y ago
Completely ignores Google's aggressive acquisition of robotics' companies. I'm not sure how those two fit together but unless this is two branches of Google moving in different directions I think they must both fit into the same vision.
- dclara 13y ago
  Interesting comment. Can you please elaborate or offer some reference about Google's vision on these two hardware effort or any of these two?
jmillikin 13y ago
This submission links to the blog's top level. The article's permalink is http://stratechery.com/2014/googles-new-business-model/ http://stratechery.com/2014/googles-new-business-model/
snowwrestler 13y ago
Oh, this is the proof of the new business model? Not the Motorola purchase, which was far more money for a far bigger consumer device company?
- hrkristian 13y ago
  As the author explains, and I agree, Motorola gave Google a large amount of patents and a way to enter the phone market. The latter lets Google have more influence in how that market expands, in order to tie it even more with their existing services. Nest doesn't offer either of these, I see the potential to tie in with Google devices and services, but not the other way around; drastically different to acquiring a phone company. We'll definitely see Google Now cards saying "Heaters turned on at Home, expecting your arrival", I very much doubt we'll be seeing articles about thermostats posting feed updates to G+. ...or will we?
  - snowwrestler 13y ago
    Sure, everyone thought the point of Android was to protect Google's ad business on mobile, and therefore they needed Motorola's patents for defense. But what Ben is proposing here is that Google is actually adding a separate, additional business model that generates profits directly from product margins. If that is his thesis, then it's practicially intellectually negligent to rest on the conventional wisdom about the Motorola purchase. Only one of these can be true: 1) Google is adding a products business model - If this is true, then everything we thought about the Motorola deal needs to be re-examined. It wasn't just about patents. 2) Google is not adding a products business model - If this is true, then the conventional wisdom is right about Motorola, but Ben is wrong in this article.
wturner 13y ago
From what I've read they've also entered the defense industry through Boston Dynamics and are now (I guess) "officially" in the business of war.
- Thirdegree 13y ago
  You've read incorrectly then. Google had said they will honor Boston Dynamics current contracts, but will not take new ones.
  - wturner 13y ago
    Well, I stand corrected then.
uptown 13y ago
This post reminds me a lot of Benedict Evans' post from October. http://ben-evans.com/benedictevans/2013/10/27/simplicity http://ben-evans.com/benedictevans/2013/10/27/simplicity
ZeroGravitas 13y ago
Two of the references given seem incredibly sloppy: 1. "a surprisingly large amount of Google’s ad revenue is driven by just a few adwords." links to an inept infographic pie chart organized by volume (so "keywords" that earn more money can have smaller slices) and the "keywords" are actually "keyword categories", The authors of the infographic do make the claim he repeats, they just don't seem to present any evidence to support it, since they snip the long tail of the data and are more interested in selling software to those who want to make money on the high CPC terms. 2. suggesting that Google's revenue and profit will peak when the growth rate of internet adoption peaks seems odd enough that without further explanation I'd assume basic innumeracy as the cause. The source suggest internet growth until 2040 which seems a bit more positive for those betting on the internet and/or Google given the article's premise that they're linked. 2.b Also, that growth is a binary use/don't use metric, it takes no account of e.g. someone with a laptop buying a web enabled phone, or simply using either device more.
corresation 13y ago
Analyses such as this suffer from an overly simplistic model that is wholly detached from actual business reality. One where every company collapses down to one single thing they do. But that has never been the case for Google, or pretty much any company for that matter. This isn't "new", and Google has always been diverse. Do people remember what Google's original "business model" was (meaning "how can we scramble to pay the bills on the technology we've built")? They sold search appliances for business: You could buy little rack mount units that would build a search corpus of your network and allow in house searching. The search engine was largely just a demonstration that Google knew search. They grew from there. Over the years they've sold virtual machines, mail accounts, backup storage, computer cycles, smartphones, entertainment units, laptops, smart glasses, and eventually self-driving car technology and robotics. The Nexus line started as developer units, but it grew into a mainstream set of technologies that clearly Google wishes was much more successful and lucrative. Recall the ill-conceived Nexus Q. Because they're a big, diverse company. They want to make money however they can. While the common sentiment on the Motorola purchase is always the "for patents" line, is it not possible that they wanted to start benefiting more financially from Android, getting directly in the business that Apple was make so much money in? Success or failure is irrelevant, Google's actions have spoken loudly that they want Motorola to succeed as a device maker, benefiting Google in the long run. There is nothing new here. Company wants to leverage their strengths to make money. In the same way Apple has never been only a smartphone or computer hardware company -- they want to make a little coin on that app you purchase, the software you buy, the movies you watch, the music you listen to, the services you use, and even the ads they feed you. In the real world businesses tend to be like that.
- andrenotgiant 13y ago
  |Over the years they've sold virtual machines, mail accounts, backup storage, computer cycles, smartphones, entertainment units, laptops, smart glasses, and eventually self-driving car technology and robotics. All of these account for less than 3% of Google's Revenue, many probably operate at a loss. What this article is saying is that Google is finally putting together a SERIOUS challenger to their Ad revenue business in the form of consumer devices. The diverse products you listed were more about Google swimming in money, being open to new ideas, and having lots of clever and creative people.
Torn 13y ago
OP URL isn't a permalink, for future viewers: http://stratechery.com/2014/googles-new-business-model/ http://stratechery.com/2014/googles-new-business-model/
eitally 13y ago
In all honesty, Google's apparent predestination as the world's preeminent data corporation has me strongly considering looking for employment with them. So many opportunities, so many potential benefits, and a fantastic way to hedge one's bets against ever being unemployable. Working for Google allows exposure to just about any interesting technology, whether it be robotics/AI/NLP, health/genetics, knowledge mapping & information organization, general web services, infrastructure, hardware design, sensor tech, consumer products, automotive, geographic mapping, mobile devices, media, marketing & communications, social networking, ... the list goes on and on.

139 points by ben336 13y ago

Hmm, I didn't quite get what the new business model was from the article. I got it that they were diversifying and I can understand it as an investment for the future but that doesn't explain what the new model is. Could someone help?

monkbent 13y ago
See the previous article: http://stratechery.com/2014/business-models-2014/ http://stratechery.com/2014/business-models-2014/
cromwellian 13y ago
Selling you stuff directly. You pay, instead of advertiser pays. Namely, you pay $$$, and fancy electronic consumer device arrives at your doorstep. B2C consumer electronics.
deleted 13y ago
[deleted]

evv 13y ago

Google clearly has an unprecedented (well, maybe except for sun..) set of technologies on the horizon. Between network infastructure, mapping, energy, robots, and now home automation, their dominance in the future is easy to forsee. However, there was no mention about Google's rise to power being centered around a focused set of high-quality web services. And now they are starting their "3rd business model leg" of consumer devices before they have truly mastered their second, the SaaS market. I find it funny how the OP quickly glances over Apples unprecedented focus, althewhile highlighting and admiring Google's unwarranted diversification. The obvious question is: can Google get away with it all, or will they fail without focus? They have managed to stay cohesive so far, but as the author rightly points out, Google's true diversification has only just begun.

Silhouette 13y ago
The obvious question is: can Google get away with it all, or will they fail without focus? It will be interesting to see how Google handles quality and customer service if it increases its efforts to sell consumer devices. You can get away with a lot of ignoring people unhappy about the quality of your service if you're giving away that service for free in return for showing them advertising. Their only option is to stop using your service and go somewhere else, which doesn't cost you much if they're still a small proportion of your user base. However, you can't get away with a lot of ignoring unhappy people if you sell them expensive consumer gadgets that don't work properly. They'll do things like returning the item (substantial overheads for you even if it's in resaleable condition) or charging back the purchase fee if you don't make a return reasonably easy (more immediate overheads, and if you develop a pattern of this happening it's going to hurt your long-term overheads with the card companies as well). I'm a little surprised Google aren't going for the huge-value business model that the linked blog overlooks: being the on-line distributor/middle man. This position typically rakes in much of the profit while taking on relatively little risk and doing relatively little work to create the underlying value, and it always has; see: record labels, book publishers, app stores, cloud hosting, and of course the granddaddy of them all in the Internet age, Amazon.
- cpeterso 13y ago
  > I'm a little surprised Google aren't going for the huge-value business model that the linked blog overlooks: being the on-line distributor/middle man. This position typically rakes in much of the profit while taking on relatively little risk and doing relatively little work to create the underlying value Google has the platform to implement something like Gumroad, but Google hasn't had much luck with consumer services like Checkout.
- krakensden 13y ago
  > However, you can't get away with a lot of ignoring unhappy people if you sell them expensive consumer gadgets that don't work properly. They'll do things like returning the item (substantial overheads for you even if it's in resaleable condition) or charging back the purchase fee if you don't make a return reasonably easy (more immediate overheads, and if you develop a pattern of this happening it's going to hurt your long-term overheads with the card companies as well). People keep saying that, but is it really true? People buy lots of things from companies famous for terrible customer service all the time. I understand wanting it to be true, for sure...

spacemanmatt 13y ago

This article shed credibility in the 1st paragraph, calling the Motorola purchase a patent and panic-driven deal. Au contraire, it was a heck of good deal for Google. It's not clear that Google panics about anything. Forbes put it like this: http://www.forbes.com/sites/timworstall/2013/10/22/motorola-mobility-isnt-a-disaster-for-google-it-only-cost-them-1-5-billion/ http://www.forbes.com/sites/timworstall/2013/10/22/motorola-...

cromwellian 13y ago
Much like the "panic" supposedly over Facebook at Google. Unless it isn't clear by now after Facebook's IPO, the apocalypse of social search/ads eating Google's lunch didn't materialize, and if Google has anything to worry about, it's not Facebook, but mobile's screen size and drive towards native apps hurting the web driver ad business.
Steko 13y ago
This tax "analysis" doesn't even pass the smell test and appears to be based on the assumption that Motorola losses will continue at the Q3 '12 record level and makes hay of the $700 of reduced taxes Google would have to pay in that case while ignoring the actual $2 bln losses a year that would pile up on the side.
- ZeroGravitas 13y ago
  The tax analysis is based on past losses not future losses, that's why the tax expert says they'll get them up until 2019, rather than indefinitely.
pinaceae 13y ago
The Motorola deal happened due to the loss of the Nortel patents to the Rockstar consortium. Defensive patent move by Google.

psbp 13y ago

Maybe I'm imagining, but weren't there rumors that Google's new business was taking small fees from online and real world purchases? Especially those expedited through Google hardware and software? It certainly would make Google Shopping, Glass, and self-driving cars seem like legitimate business decisions.

deleted 13y ago

[deleted]

deleted 13y ago
[deleted]

notatoad 13y ago

>That is why I ... am inclined to give them the benefit of the doubt with regards to Nest data. What is with the paranoia over Nest's data? Yes, google is a data-hungry company. but Nest doesn't collect any valuable data that google doesn't already have. Sure, the motion sensors in a nest thermostat can sense when somebody is in your house, and what the temperature is. But Google already has your cell phone, they know where you are at all times, that's a hell of a lot more valuable than knowing whether somebody is currently inside whatever building where you installed your thermostat in. I suspect that the nest acquisition is about finding new uses for all the data they have, not about collecting more data. Google already knows, without installing sensors in my house, when i leave for work. they know when i'm heading home, and when i go on holidays. That all seems like information that a home automation system would love to have access to.

toddmorey 13y ago
The paranoia fascinates me as well--I feel it, too. I was surprised by my own disappointment in the Nest acquisition. I think there was a time earlier when I would have been tremendously excited. There seems to be a tipping point for a company when people move slowly from cheering for you to against you. I think it's both a combination of size and behavior. I do fell that Google's push with G+ has harmed their brand in some respects. It was one of the first times personally that I felt that my wants and needs were no longer aligned with theirs. Then the Gmail changes, less room for organic search, etc. I am not saying no one is rooting for Google. I am saying their brand is in a new, unfamiliar area of public opinion and there's something more behind it than their ravenous ambition.
- FigBug 13y ago
  I find it fascinating to watch how companies reputations and image changes. Apple was considered 'beleaguered' for a long time after they were making tons of money. They are still considered to be 'about to fail' by many. Lots of people used to be pro Microsoft, then they were the evil empire, now they are in the process of trying to change their image. Google could do no wrong for a long time, now everything they do is wrong. It'll be interesting to watch how Google handles this in the coming years.

cracell 13y ago

Completely ignores Google's aggressive acquisition of robotics' companies. I'm not sure how those two fit together but unless this is two branches of Google moving in different directions I think they must both fit into the same vision.

dclara 13y ago
Interesting comment. Can you please elaborate or offer some reference about Google's vision on these two hardware effort or any of these two?

jmillikin 13y ago

This submission links to the blog's top level. The article's permalink is http://stratechery.com/2014/googles-new-business-model/ http://stratechery.com/2014/googles-new-business-model/

snowwrestler 13y ago

Oh, this is the proof of the new business model? Not the Motorola purchase, which was far more money for a far bigger consumer device company?

hrkristian 13y ago
As the author explains, and I agree, Motorola gave Google a large amount of patents and a way to enter the phone market. The latter lets Google have more influence in how that market expands, in order to tie it even more with their existing services. Nest doesn't offer either of these, I see the potential to tie in with Google devices and services, but not the other way around; drastically different to acquiring a phone company. We'll definitely see Google Now cards saying "Heaters turned on at Home, expecting your arrival", I very much doubt we'll be seeing articles about thermostats posting feed updates to G+. ...or will we?
- snowwrestler 13y ago
  Sure, everyone thought the point of Android was to protect Google's ad business on mobile, and therefore they needed Motorola's patents for defense. But what Ben is proposing here is that Google is actually adding a separate, additional business model that generates profits directly from product margins. If that is his thesis, then it's practicially intellectually negligent to rest on the conventional wisdom about the Motorola purchase. Only one of these can be true: 1) Google is adding a products business model - If this is true, then everything we thought about the Motorola deal needs to be re-examined. It wasn't just about patents. 2) Google is not adding a products business model - If this is true, then the conventional wisdom is right about Motorola, but Ben is wrong in this article.

wturner 13y ago

From what I've read they've also entered the defense industry through Boston Dynamics and are now (I guess) "officially" in the business of war.

Thirdegree 13y ago
You've read incorrectly then. Google had said they will honor Boston Dynamics current contracts, but will not take new ones.
- wturner 13y ago
  Well, I stand corrected then.

uptown 13y ago

This post reminds me a lot of Benedict Evans' post from October. http://ben-evans.com/benedictevans/2013/10/27/simplicity http://ben-evans.com/benedictevans/2013/10/27/simplicity

ZeroGravitas 13y ago

Two of the references given seem incredibly sloppy: 1. "a surprisingly large amount of Google’s ad revenue is driven by just a few adwords." links to an inept infographic pie chart organized by volume (so "keywords" that earn more money can have smaller slices) and the "keywords" are actually "keyword categories", The authors of the infographic do make the claim he repeats, they just don't seem to present any evidence to support it, since they snip the long tail of the data and are more interested in selling software to those who want to make money on the high CPC terms. 2. suggesting that Google's revenue and profit will peak when the growth rate of internet adoption peaks seems odd enough that without further explanation I'd assume basic innumeracy as the cause. The source suggest internet growth until 2040 which seems a bit more positive for those betting on the internet and/or Google given the article's premise that they're linked. 2.b Also, that growth is a binary use/don't use metric, it takes no account of e.g. someone with a laptop buying a web enabled phone, or simply using either device more.

corresation 13y ago

Analyses such as this suffer from an overly simplistic model that is wholly detached from actual business reality. One where every company collapses down to one single thing they do. But that has never been the case for Google, or pretty much any company for that matter. This isn't "new", and Google has always been diverse. Do people remember what Google's original "business model" was (meaning "how can we scramble to pay the bills on the technology we've built")? They sold search appliances for business: You could buy little rack mount units that would build a search corpus of your network and allow in house searching. The search engine was largely just a demonstration that Google knew search. They grew from there. Over the years they've sold virtual machines, mail accounts, backup storage, computer cycles, smartphones, entertainment units, laptops, smart glasses, and eventually self-driving car technology and robotics. The Nexus line started as developer units, but it grew into a mainstream set of technologies that clearly Google wishes was much more successful and lucrative. Recall the ill-conceived Nexus Q. Because they're a big, diverse company. They want to make money however they can. While the common sentiment on the Motorola purchase is always the "for patents" line, is it not possible that they wanted to start benefiting more financially from Android, getting directly in the business that Apple was make so much money in? Success or failure is irrelevant, Google's actions have spoken loudly that they want Motorola to succeed as a device maker, benefiting Google in the long run. There is nothing new here. Company wants to leverage their strengths to make money. In the same way Apple has never been only a smartphone or computer hardware company -- they want to make a little coin on that app you purchase, the software you buy, the movies you watch, the music you listen to, the services you use, and even the ads they feed you. In the real world businesses tend to be like that.

andrenotgiant 13y ago
|Over the years they've sold virtual machines, mail accounts, backup storage, computer cycles, smartphones, entertainment units, laptops, smart glasses, and eventually self-driving car technology and robotics. All of these account for less than 3% of Google's Revenue, many probably operate at a loss. What this article is saying is that Google is finally putting together a SERIOUS challenger to their Ad revenue business in the form of consumer devices. The diverse products you listed were more about Google swimming in money, being open to new ideas, and having lots of clever and creative people.

Torn 13y ago

OP URL isn't a permalink, for future viewers: http://stratechery.com/2014/googles-new-business-model/ http://stratechery.com/2014/googles-new-business-model/

eitally 13y ago

In all honesty, Google's apparent predestination as the world's preeminent data corporation has me strongly considering looking for employment with them. So many opportunities, so many potential benefits, and a fantastic way to hedge one's bets against ever being unemployable. Working for Google allows exposure to just about any interesting technology, whether it be robotics/AI/NLP, health/genetics, knowledge mapping & information organization, general web services, infrastructure, hardware design, sensor tech, consumer products, automotive, geographic mapping, mobile devices, media, marketing & communications, social networking, ... the list goes on and on.