It is easy to understand how Amazon and Apple make money. They sell books, computers, software, apps, electronic gadgets, consumer goods, electronic books, music, video, and so on. For Amazon, another branch of their business sells cloud computing and storage services.
In contrast, Google gives away things for free. For example,
- Search engine, email (Gmail)
- Maps (Google Maps)
- Cloud-based apps (Google Docs)
- Video hosting and sharing (YouTube)
- Photo sharing and organisation (Picassa)
- RSS reader (Google Reader)
- Blogging tools (Blogger)
- Language translation (Google Translate)
- 3D modelling software (SketchUp)
- Operating systems (Android, ChromeOS).
Some of them used to have a price tag until Google came along and gave them away for free (e.g. Google Maps). Indeed, you can bet a lot of company’s business models were disrupted by Google’s ‘generosity’.
Since these things cost Google big sums of money to develop and maintain, how can Google give them away for free? Or let’s put the question another way: Can Google (which is already highly profitable) increase their profit further by either charging for their free products or even closing them down? Either way, won’t they make even more money than what they are already making now?
Indeed, when they first started out 10 years ago, their ‘generosity’ was met with suspicion. Perhaps Google’s strategy was to give away their products for free until one day, when they monopolise the market and consumers are so addicted to their products, that they can price gorge?
Those who think along this cynical line do not understand the underlying philosophy of Google’s business model. To understand Google’s philosophy, we must first take a look at this article written 6 years ago,
We are not even a decade into the digital millennium and already the battle lines have been drawn. Two camps have emerged, each with widely divergent views on the nature of information, who owns it and how it should be distributed.
The forces are at this stage evenly matched, and it is not apparent from the day-to-day squabbling which side will emerge victorious. But one side must, because their views are diametrically opposed and can’t coexist in the long term.
On one side are those who believe information is a commodity that can be owned, bought and sold, and its distribution controlled. This naturally leads to a restrictive view of information. This group comprises most of the music, publishing and film industries, and most hardware and software companies.
On the other side are those who believe that information by its nature should be free, and that its distribution should be uncontrolled. This viewpoint naturally leads to an expansive view of information.
Obviously, companies like Amazon, Apple and Microsoft belongs to the side that believes that information is a tradeable commodity. That implies making information artificially scarce. In the case of electronic books, digital music/video and apps, they are essentially digital information that can be replicated at zero cost. Naturally, there is no scarcity when it comes to digital information. But companies like Apple and Amazon introduces artificial scarcity to digital information by applying Digital Rights Management (DRM) on them. For example, if you download an electronic book to your Kindle, that book can only be read on your Kindle. If you copy it to my Kindle, I wouldn’t be able to read it. It is scarcity that gives information the value that they can sell.
Google, in contrasts, belongs to the side who believes that information should be freely available and abundant. They make great effort to ensure that information remains free. Not only that, they give away information products and services for free. So, how do they make money?
To understand this paradox, you have to understand what exactly is Google selling. In fact, Google is so dependent on free and abundant information that if they become scarce, Google’s business model will collapse. That means that Google, unlike Microsoft, Amazon and Apple, is not in the business of selling information. So, what are they selling?
To understand exactly what Google is selling, here is a crucial point to understand: in Google’s ideal universe, information (collectively) is free and abundant, but consumers’ attention (for each individual information provider) is scarce. Each feed of one another in a positive feedback loop—to attract the attention of consumers, businesses are forced to give more and more information away, which in turn causes information to be more abundant (collectively), which in turn makes consumers’ attention even more scarce (for each individual businesses), which forces businesses to give yet even more information away. And by the way, the fact that you are reading this for free is testament to the fact that I’m trying to attract your attention.
And here is the crux of Google‘s business model—it sells access to consumers’ attention. By using Google’s free products, your attention is captured by Google. Then it sells your attention to businesses in the form of advertisements (e.g. paid advertisement in search engine results page, blogs, your emails if you’re using Gmail). That is why Google is so busy giving away whole integrated suites of interesting products and services. The whole purpose is to capture your attention which they then sell. To put it simply, Google, at it core, is an advertising company.
That’s why Google will never charge for the free stuffs that it is giving away. By doing so, you can bet they will lose a lot of the attention of consumers. As a result, they will then less attention to sell. You can also bet that Google will do all it takes to ensure that information will never be scarce—from lobbying governments to giving away more things for free.
So, now that you understand that underlying philosophy of Google’s business models, how does it relate to their crusade to eradicate junk content from the Internet and their fear and panic at the rise of Facebook? Well, the answers to these two questions will come soon in future articles. If you want to be notified when they are published, I encourage you to subscribe to our FREE Insight and News Updatesand get a FREE report as well.