12 July 2009

The Google Revenue Equation, and Why Google’s Building Chrome OS

11 07 2009 - It’s only been a few days, but it feels like weeks since Google announced Google Chrome OS and stirred up the blogosphere and the imagination of techies and Microsoft haters everywhere. The response, the analysis, and the debate has been constant ever since.

The battle between Microsoft and Google, focusing on areas where the two companies compete. Almost everyone has framed Google Chrome OS as a direct competitor to Microsoft Windows. But I am about to argue that this is the wrong way to view Chrome OS.

Google’s goal isn’t to have the majority market share. The goal is to force you on the web more and for longer. Why? It’s all part of Google’s simple equation to monetize the world.

Video: It’s not about how Google makes money, it’s about where

Google generated about $21 billion in revenue last year. The vast majority of that revenue, well over 95%, comes from advertising via its search engine and its AdSense program, which places ads on millions of websites.

You probably already knew that, though. The key to understanding why Google is building an OS based off Chrome though isn’t about how it generates revenue, it’s about where. The answer’s simple: anywhere on the web.

View a YouTube video? That’s revenue for Google. Visit ? Google makes money. MySpace ? Search? The New York Times? In almost every instance in which you spend time on the web, Google is able to generate click revenue, impression revenue (primarily via DoubleClick), and is able to collect data on your browsing activities to better target ads that will interest you.

The Google Revenue Equation

Thus, while Google has a lot of complex algorithms that go towards improving its revenue, it really has one overarching equation and correlation that always holds true. I have faith that you’ve guessed it by now. Here it is:

Revenue = Amount of Time on the Web

Since nearly every website holds a Google ad slot, every impression and every second you spend on the web is revenue for Google. Every second you’re playing a desktop game, using Microsoft Office, or using AOL Instant Messenger, that’s unrealized potential revenue. The equation may be obvious, but that doesn’t diminish its importance.

Its product releases are a clear indication of this trend. Nearly every Google product is designed to get you on the web. Gmail is integrated with Gtalk online, Google Docs exists in the cloud, and most of all, Google Chrome is designed to get the world to rely on web-based applications more. The video above explains why they built Chrome: faster load times, increased use of web apps by users, and freeing up user time so they can browse the web more.

Each and every one of those improvements means increased time on the web, which, if you remember the Google Revenue Equation, means more money.

Chrome OS: Keeping you on the web

Google Chrome and Google Docs have not only increased web-based use, but they have spurred their competitors to build products that bring users onto the web more and for longer periods of time. In fact, it’s rumored that Microsoft Office is coming to the Cloud very soon. Google Docs changed the game, and Microsoft reacted.

Google hopes for the same reaction from Microsoft and Apple to Chrome OS. Its biggest selling points, directly from Google, are that it will “get you onto the web in a few seconds,” that “most of the user experience takes place on the web,” and finally that “all web-based applications will automatically work and new applications can be written using your favorite web technologies.”

This doesn’t sound at all like Google’s trying to build a competitor that users will choose over Microsoft. Instead, it sounds like its goal is to get people onto the web faster and for longer. Getting you to spend more time on the web is why Google based its OS on Chrome. You can expect that Microsoft and Apple will incorporate the best features of Chrome OS in their future iterations. That’s exactly what Google wants (and by the way, since Chrome OS is open-source, Google’s making it easy).

As long as you’re on the web, Google wins. So we need to stop framing the Google-Microsoft battle in the context of “Chrome OS vs. Windows,” because Google will not win a straight up battle. And guess what? That’s not Google’s goal. We need to frame it in the larger context of the Google Revenue Equation and how much time we spend on the web.

Chrome OS is just another step in getting us online, both directly and indirectly. If you view the battle with this in mind, then you realize that Google will almost certainly succeed. Google will have won once again.


1 comment:

Angelos Karageorgiou said...