Aqute Research Blog

New blog for Google competitor intelligence

I have started a new blog for competitor intelligence focused on Google. Competitor intelligence is what I know best and love doing the most. Although there are many excellent blogs about Google and the internet industry already, I have not yet found one that covers my fetish for 100% coverage of everything Google. Things like:

• All the news. Even good aggregators like Google News, Factiva and Moreover do not cover everything. I do not know why, since they monitor thousands of sources, but they still have gaps.
• Facts you just cannot get elsewhere. I have the details of thousands of Google employees, dozens of Google datacentres, many international and departmental revenue breakouts, various team org charts and so on, that I have collected over time. This blog will be a good focal point around which to aggregate all that kind of information.
• Standardised coverage of secondary sources. Some things are not difficult to find - for example, Google's official blog posts, or the videos it uploads to YouTube. But there is no single place where you can get all this. You still need collect all the information manually. Probably there is only a small audience for such meticulous attention to complete coverage, but it matters to me.
• Events. Again, I have not yet found one comprehensive source of all the upcoming events at which Google will be speaking, or which it will be sponsoring. This new blog will have that kind of detail.
• Job details. Interesting new jobs, job counts, etc.
• Anything else under the general premise of bringing all the facts about Google into one location.

The blog will also support a new competitor intelligence subscription service we have started, again aimed at people to whom monitoring Google really matters, which includes more detail, analysis and primary research than I can put on the new blog.

What the blog will not really do, will be to break stories about Google (especially since I do not live in Silicon Valley). And we will only occasionally have detailed analysis of Google's strategy. For both those things, there are many brilliant blogs already, which of course I read.

You can visit the new blog here, and subscribe to the feed here. I hope to see you there!

YouTube and iTunes partner for song downloads

I think this is new: you can now download songs from YouTube via a link to iTunes. This could well be the way that YouTube finally makes money. Like many others, I use YouTube mainly to listen to music, and having no desire to steal music, will be using this feature often. There are dozens of songs on my YouTube favourites list alone that I can now download from iTunes, so that's maybe £50 of revenues from me right there. Well...assuming the iTunes link is available for all videos, which is far from being the case. Still, a first step in an excellent direction.

As an interesting aside, the implied weakness in iTunes is discoverability, meaning that Google has again proven its strength at search, and its weakness at monetisation.

On a more tactical note, YouTube should allow users to listen to videos without watching them, saving itself a lot of bandwidth costs.

Turning the real world into a database

I was going to write about the compass on the Google mobile phone but Seamus has already done so (another of his very perceptive posts).

This is a big deal, as they say in the land of the free.

Other phones will have compasses; the interface itself may come and go. But this is another step by Google towards integration of the real and virtual worlds. Ten, twenty years from now, we will perceive the boundaries between the real and virtual worlds much less distinctly than we do now (it's no longer all that rare to find people who equate looking at pictures of a place on Google Images or Flickr with visiting it physically; and Eric Schmidt was only half joking when he said he didn't have to travel to see the Himalayas because he can see them on Google Earth). And suddenly, mobile advertising becomes orders of magnitude more significant than today's text links.

Adding a compass to a mobile phone may not be all that difficult. But few companies other than Google have the vision to work towards this half-virtual-half-real world (Microsoft, maybe Nokia). Apple may have the imagination but is likely to partner with Google. At this stage, only Google can pull together the data, the consumer-generated content, the mapping, the search elements, the devices and whatever else you need. And by the time it becomes obvious to other companies just how important this will be, Google will have a decade's head start. When the physical world becomes a platform on which Google can build, having fought over the desktop operating system will seem childish in comparison.

Does localisation to developing countries cost Google money?

Google's proposed satellite coverage for developing countries makes me wonder what Google's economics are in localising for the poorer countries. The big advertisers are in the developed countries, as are their customers. For example, US advertisers will target consumers located in the US; but they will also:

• ...target global consumers who visit google.com - which will be of interest to brands such as Nike. Take a Zambian consumer clicking on a Nike ad. If this Nike ad is on Google Zambia, the click will cost Nike a minimal amount, as there are few other advertisers with whom to compete. If the click comes from the same Zambian consumer, but on google.com, Nike will have paid a lot more. So Google loses revenue by directing that google.com traffic to its Zambian website.
• ...forget to geo-target at all, and therefore reach all consumers who visit google.com. In this case, Zambians visiting google.com will click on ads for a US company that did not want to target them. If this Zambian had stayed on Google Zambia, Google would not have earned that revenue (or almost any revenue, given the paucity of ads on Google Zambia). Google would argue that serving irrelevant ads to consumers is bad for business, but I am not sure if that applies in developing countries where the revenues to be lost are so small and where consumers may not have many useful alternatives anyway.

These are inefficient situations, but inefficiencies are an important contributor to Google revenues (hence the lack of a cost-per-action product, for example; or the lack of AdSense revenue split transparency; and so on).

The calculation will not be this simple (other factors include, for example, the need for overflow websites as google.com has amassed more advertisers than it can serve), but localisation to the developing world may well cost Google money.

Schmidt will have retired before cloud computing beats Windows

Following the launch of Chrome, Sergey Brin has been looking forward again to the day when we abandon the operating system and do things online (abandon the PC operating system, that is). It's not a new vision at Google - it goes back to at least 2006 (and has its roots much earlier, in Schmidt's days at Sun).

But in this industry, you can't make predictions about something and then say "I told you so" if it happens twenty years later . Just the one decade is a long time (Google itself is only ten years old - happy birthday on September 7th). I love Google's long term vision and patience - it's a major strength - but it still helps to have a time estimate. If nothing else, for cloud computing it helps you decide when to buy all that storage, which gets cheaper every day. So, when will more people use cloud computing than use the old fashioned operating systems of which Brin speaks? (I'm talking about consumers here - enterprises are a discussion for another time - and I'm talking about hardcore use, not some broad notion that even eBay is cloud computing).

Some data:

• Google Docs has zero users. Google claims ten million users, but once you subtract Google's exaggeration (for example, Google often counts all the individuals within an organisation even if they are not all users), inactive users (I've got eight Google Docs accounts, I use none of them), students who have Google Apps forced on them, IT workers in California... you're not left with much.
• The closest example to what Google wants is Firefox (a completely different proposition, but also not different). Firefox has taken four years to reach 20% penetration. It's not unreasonable to assume that it would take a decade to reach 50% (assuming there is no ceiling). And that is just a browser. Brin wants people to stop using Office, and then stop using Windows. Yes, you could talk about accelerated adoption as the network effect takes place, but you could also talk about the diminishing returns of big numbers - all this is approximate anyway. So, a decade, and that's to replace an existing application like-for-like.
• Let's say cloud computing has the kind of supposedly crazy adoption curve that Facebook had (I'm using Facebook because adoption curves for other things like broadband or PCs could be too old to be valid comparisons). Facebook has taken four years to reach 17% penetration in the US (36 million out of 215 million) and 9% worldwide (132 million out of 1,464 million). So, again you could say 50% penetration in ten years. A decade, and that's for a web service that does not involve trusting someone else with your life.
• For consumers to leave their thick PC operating systems, they're going to need to have spent a good while getting used to online file storage services. Flickr is perhaps the most cloud-like service in mainstream use, given that YouTube is not really about storage. In four years since creation, Flickr has acquired 30 million members - or about a quarter of Facebook's adoption rate.
• Perhaps not so relevant, the iPod has taken seven years to sell 200 million units, or 3% penetration (lots of caveats ... the whole world isn't a target, but then many people have multiple iPods). And in 14 years, the Playstation has sold 250 million across all variants, or 4% penetration (again, caveats).
• Google's $1 billion Dell deal was meant to get Google Toolbar on 100 million computers by 2009. It was by far Google's biggest deal, but I know of about 30, going back to 2002, including Firefox. Let's say Google Toolbar gets 200 million installs, by 2009, so in seven years, that's 20% penetration. Although Google will not be able to pay PC manufacturers enough to remove Office or Windows altogether, because Microsoft has the cash to fight that (and Google does not want its fight with Microsoft to come down to who has more money anyway).

So cloud computing will not replace 50% of even Office use within a decade, let alone Windows (which incidentally, makes it more likely that if cloud computing is to take off, it will be driven by Microsoft). Anyway, let's say that twenty years from now, Windows and cloud computing will be on a par as far as normal consumers go. By which time both Ballmer and Schmidt will be in their 70s.

I am completely sold on the idea that cloud computing will happen. I yearn for it to happen. It's an important area, it's critical to Google's and Microsoft's long term survival, but let's keep it in perspective.

Browser extensions could damage Google search revenues

When Google wanted to weaken Microsoft, it brought the fight to Microsoft's home territory (early speculation raged about a Google browser, Google made sure that Firefox was a success, Google launched Google Toolbar and Google Desktop, etc). Google spent a lot of money fighting Microsoft on its own turf. And Google has always been interested in tempting developers away from Windows (which has long ceased to be a sexy platform for which to develop).Seeing itself as the incumbent, Microsoft has not yet done the same. Microsoft still believes the place to fight battles is on Microsoft land. Not just Windows - Live Search is Microsoft bringing the Google fight to Microsoft territory (alas, territory that no one visits).

As we spend more time online, including with growing Firefox market share, and with growing Google/YouTube market share, the platform that users most interact with will become Google land, not Microsoft land. And when cloud computing does take off, even if that takes another decade or two, Windows will become irrelevant (incidentally, android suggests that Google is not philosophically opposed to client-side operating systems, it's just easier to promote cloud computing than to replace Windows). Consumer mindshare will belong to the hardware, the browser or the websites (or perhaps the access provider if ISPs manage to replicate the success of mobile operators). Google already beats Microsoft in web mindshare, is catching up in browser mindshare if you count the once-Google-in-disguise Firefox, and through One Laptop Per Child has shown its interest in hardware. It is not a coincidence that one of the effects of Chrome's interface is to minimise the way it looks like an application through which you view the internet - thus reducing the importance of desktop applications altogether.

So how can Microsoft bring the fight to Google's doorstep?

Firefox has become a development platform (through Greasemonkey and various add-ons). Extensions such as Customize Google (remove AdWords ads, add links to other search engines, etc) and Google Preview (preview thumbnails of the websites listed) let me customize the Google search results page to be quite different from the way Google intended it. And if Google is right that its design is perfectly tuned to maximise search monetisation, then these extensions must be costing Google money (they are unlikely to be increasing monetisation - Google's the expert at that, not small-guy Firefox developers).

For example, here is a normal Google search results page:

And here is the same page using the above two extensions:

These extensions are using Firefox as a development platform, and more specifically Google. They are adding features to the Google search page in ways that surely Marissa Mayer would rather they did not.

Now, it may not be a good idea for Microsoft to launch its own browser extension that removes AdWords (I think the IE8 feature is not quite the same thing), but even extensions with genuinely useful features (such as the two above) could unbalance the Google search results pages. And Microsoft could not only develop those for Firefox, which is still the minority browser, but enable them on Internet Explorer. Microsoft could drive the adoption of such extensions beyond the geek crowd.

Firefox also provides command-line capabilities. Unlike most users, I don't access Google Images through the Google homepage, because I've set up a search keyword that I enter directly from the Firefox address bar. For the same reason, I no longer go through Google to access Wikipedia, IMDB, eBay, Amazon or YouTube. If Microsoft popularises the use of address bar search keywords (a genuinely useful feature), Google could lose important chunks of traffic. And if part of Google's intent through Chrome is to change or tap into the actual behaviour of web browsing, then models such as Ubiquity (which adds even more command-line functionality to Firefox) become even more relevant to Microsoft. Thinking of the browser, and Google.com, as the new Windows (in real terms, not just as an academic discussion) could help Microsoft weaken Google's control over its own search revenues.

AdSense less important with each passing day

AdSense ("Google network" revenue) accounts for less and less real revenue with each passing quarter. If this continues, at some point, it will cease to be of significant monetary value to Google. Here is the baseline data:

(click to enlarge)

Comparing revenue from Google owned websites, to the money that Google can actually keep from its network (i.e. minus TAC) leads to:

(click to enlarge)

In percentage terms, retained network revenues now account for 5% of total revenues, compared to 17% in 2004:

(click to enlarge)

Almost amusingly, AdSense is set to be a less important source of retained revenue than the "licensing" category which has traditionally been a bucket for Google's pie-in-the-sky projects. And in the "turnover is vanity, profit is sanity" world, AdSense is even less important than Google-owned revenue, as it has a higher cost base than Google serving ads on its own websites.

Will the day come when Google should abandon AdSense? Mathematically perhaps, but in reality no. AdSense has other advantages - it contributes to the perception of Google's omnipresence, it corrals revenue and publishers away from competitors, it offers some marketing distribution to the Google brand, etc.

But some weaknesses may come to surface:

• As AdSense contributes a declining share of profit, Google will have less flexibility to play around with the payouts it makes to publishers. Previously, there was little value in Microsoft offering high payouts to publishers, because Google would simply have increased its own payouts. In fact when publishers complained about the lack of transparency in what percentage of revenues they received, Google's response was that they were getting a lot so it didn't matter what the percentage was. Now the AdSense universe becomes a little more cash-strained and the kind of unhappiness being felt in Google's canteen may spread to publishers.
• Should Microsoft decide to engage in a bidding war for publishers' wallets, Google has less cash firepower. Yes, price wars ring warning bells for everyone, but Microsoft would love to fight a price war rather than any other kind of war. Google has always said how a major competitive advantage was that the free nature of its products meant Microsoft could not outspend it. But publishers are not free and they are costing Google more and more.
• It may be that with this decline in revenue contribution, Google will have less stomach for fighting over this sector. Unlikely but although Google will fight hard, there may be a tiny ray of light for a wounded, desperate competitor with few other options, if the incumbent starts to assess the situation rationally. And the retort that if this is not a good business for Google, it won't be a good business for anyone else is not relevant - because the "anyone elses" don't care at this stage - they just want to get their hands on anything they can.

Microsoft, Google ramp up European infrastructure

In its recent FY2008 earnings call, Microsoft reminded investors that it intends to spend heavily to beat Google. Some of this spend is coming to Europe for Microsoft's new European Search Technology Centre - announced a couple of months ago, and now recruiting. Google has long had its own search development centre in Zurich, but that wasn't really focused on European search. And Google does have a mobile development centre in London, which was supposed to be focused on Europe but has turned out otherwise (as shown by the lack of European mobile search product announcements, and the inevitable shifting of resources towards Android).

Meanwhile, Google is recruiting for its own datacentre acquisitions.

On a not completely related note ... one day, both these companies will be strong candidates to supply the kind of outsourced datacentres that LloydsTSB's James Gardner thinks will be the norm. In the excitement of the Google Apps launch announcement last year that Procter & Gamble was a charter client, some people thought Google would be a shoo in for this type of outsourcing. Now, with Google Apps proving far from popular with enterprises, and Microsoft-heavy Procter & Gamble disappearing off the Google Apps quotations page, that is not such a foregone conclusion. Of course you should never write the "not so cool" companies such as Microsoft, IBM, Sun etc from the enterprise space. And in any case, as James Gardner points out, this may all be twenty years away, when the internet will be completely different. In the short term, Google and Microsoft are bringing the search datacenter arms race to Europe.

Google Map Maker sortof comes to the UK

Google Map Maker, which lets users edit Google Maps and add details of locations such as hospitals or schools, has been available since last week for the Isle of Man. Here is a screenshot from the capital, Douglas:

 

You can add map elements from a predefined list:

 

As a user, you can subscribe to updates for a particular neighbourhood.

Microsoft, Google compete for online attention around elections coverage

I have expressed before my yearning for a UK media company to take on the mantle of "online elections website" in the UK, much as YouTube is already doing (all the way to the head of state).

Well, the space isn't getting any less crowded (Digg Dialogg is the latest addition to the game) and as the US elections develop, we're going to see more online political initiatives from Google. Most recently, a mobile website for elections updates. Hardly a game changer, but "every little helps" is often Google's mantra, especially when your competitors aren't doing much themselves. Google is also charming the press bloggers, helping them cover the Democratic and Republican Conventions (pictures). Not least, Google is providing a free facility for uploading coverage videos to YouTube.

So, in the UK, political analyst Iain Dale wonders what benefits can UK bloggers expect? Not many, presumably, given that no party representative has outlined any blogger-friendly initiatives in response to Iain's post. Guido Fawkes believes that Microsoft is making at least a bit of an effort. Unlike in the US, though, I am not sure how influential UK bloggers are - pure UK political bloggers are not widely read by ordinary folk.

Coincidentally, Microsoft is also behind this US initiative allowing US voters to register (although not actually vote) via their Xboxes.