Has cash flow been demoted? Is audience the new king?

I was talking back and forth with someone I’ve begun working with on a few projects and he asked a great question about Google’s future: are they going to take over the world?  How can they give analytics away for free?  What does the future look like?
I was writing a reply when I realized this might be an interesting thing to explore here.  From a business standpoint, what’s going on here?  Are we seeing a shift in how businesses, even publicly-traded ones, treat cash flow? Google seems to make a lot of questionable profitability decisions.  But should we really care?
I think we’ve seen Google consistently give away products that support their key revenue sources.  They know that paid search works wonders, so providing a tool like analytics on a search stipend is a smart move – it’s a tool that proves the value of search with increased depth, and allows customers to compare search ROI to other channels that compete for budget. Also, Google is right to think that people have a right to understand what’s happening on their web sites for free.  It will get thousands of SMBs to consider and test marketing [that Google knows will be like crack for them] spends to increase their traffic and sales.  Without a free option to measure, it’s likely that significantly fewer business would take that investment risk. Plus, it builds on the friendship model: people love your brand, so your brand will thrive. And, of course, there is an upsell opportunity for Urchin.
Culturally, Google was founded on free tools without any real plans to monetize something the guys thought would make the world a better place.  Shortly thereafter, text ads were put in use and the rest is history, from a business standpoint. 90% of their revenue comes from paid search, but this hasn’t changed their roots that providing the internet the best tools for free will keep people around.  And one of Google’s key differentiators is that, from the moment they began, their pace of product creation and innovation has not slowed or been stymied by the business’s needs to find profit models to fit every line of work.  Asking Google to monetize their other products would be like asking the Friends writers to monetize every line in the script.  They know they don’t have to do it because their product has so much gravity, it will support other, more natural revenue sources that don’t risk ruining the fabric of that attraction in the first place.
If anything, pace has increased as Google labs has put out / bought / refined tools that permeate our day-to-day more and more.  This is why gmail became so dominant over Yahoo mail.  While Yahoo was busy figuring out how to sell display ads and make weather and news partnerships to layer on their very good mail service, Google stripped it down to the basics and made an online client that gets out of your way.  Once they did that, they made it better and better at a pace Yahoo found impossible to match.  And all of these gmail users are now using Google, and in many business’ case, about to subscribe to Google’s enterprise mail and calendaring systems.  Potentially a big attack on Microsoft and an eventual move into enterprise-level data management, sourced storage, SaaS hosting, etc. solutions?
I guess the point is that Google realizes that they don’t have to over-think the business side of things so long as they maintain / grow their audience with that gravity.  While it’s true that at their scale, basis points mean millions of dollars, I think they’ve realized that the process that goes into the management of basis points affects the quality and pace of their output, representing an enormous opportunity cost in terms of audience.
While I don’t know if this represents a phase shift in pushing Wall Street’s juice-squeezing mentality to the curb, I do think that an extreme, corporate value-creation mentality would be the beginning of the end for Google.  Trying to talk to a creative programmer about profitability is like trying to talk to a banker about creativity.  They both think that if they build it, people will come.  And while they’re both right, the age we’re in is siding with Mark Zuckerberg, Steve Chen, Jeff Bezos, Jack Dorsey and other people who are creating incredible magnetism on the internet, perhaps with some disregard to how they’re going to pay the rent. While you might argue that Bezos is a hell of a business person, you might also argue that his focus on business hasn’t interfered with his focus on what made Amazon important in the first place.

I was talking back and forth with someone I’ve begun working with about Google’s future: are they going to take over the world?  How can they give analytics away for free?  What does the future look like?

I was writing a reply when I realized this might be an interesting thing to explore here.  From a business standpoint, what’s going on here?  Are we seeing a shift in how businesses, even publicly-traded ones, treat cash flow? Google seems to make a lot of questionable profitability decisions.  But should we really care?

I think we’ve seen Google consistently give away products that support their key revenue sources.  They know that paid search works wonders, so providing a tool like analytics on a search stipend is a smart move – it’s a tool that proves the value of search with increased depth, and allows customers to compare search ROI to other channels that compete for budget. Also, Google is right to think that people have a right to understand what’s happening on their web sites for free.  It will get thousands of SMBs to consider and test marketing [that Google knows will be like crack for them] spends to increase their traffic and sales.  Without a free option to measure, it’s likely that significantly fewer business would take that investment risk. Plus, it builds on the friendship model: people love your brand, so your brand will thrive. And, of course, there is an upsell opportunity for Urchin.

Culturally, Google was founded on free tools without any real, concrete plans to monetize something the guys thought would make the world a better place.  Shortly thereafter, text ads were put in use and the rest is history, from a business standpoint. 90% of their revenue comes from paid search, but this hasn’t changed their roots that providing the internet the best tools for free will keep people around.  And one of Google’s key differentiators is that, from the moment they began, their pace of product creation and innovation has not slowed or been stymied by the business’s needs to find profit models to fit every line of work.  Asking Google to monetize their other products would be like asking the Friends writers to monetize every line in the script.  They know they don’t have to do it because their product has so much gravity, it will support other, more natural revenue sources that don’t risk ruining the fabric of that attraction in the first place.

If anything, pace has increased as Google [labs] has put out / bought / refined tools that permeate our day-to-day more and more.  This is why gmail became so dominant over Yahoo mail.  While Yahoo was busy figuring out how to sell display ads and make weather and news partnerships to layer on their very good mail service, Google stripped it down to the basics and made an online client that gets out of your way.  Once they did that, they made it better and better at a pace Yahoo found impossible to match.  And all of these gmail users are now using Google, and in many cases, about to subscribe to Google’s enterprise mail and calendaring systems.  Potentially a big attack on Microsoft and an eventual move into enterprise-level data management, sourced storage, SaaS hosting, etc. solutions?

I guess the point is that Google realizes that they don’t have to over-think the business side of things so long as they maintain / grow their audience with that gravity.  While it’s true that at their scale, basis points mean millions of dollars, I think they’ve realized that the process that goes into the management of basis points affects the quality and pace of their output, representing an enormous opportunity cost in terms of audience.

While I don’t know if this represents a phase shift in pushing Wall Street’s juice-squeezing mentality to the curb, I do think that an extreme, corporate value-creation mentality would be the beginning of the end for Google.  Trying to talk to a creative programmer about profitability is like trying to talk to a banker about creativity.  They both think that if they build it, people will come.  And while they’re both right, the age we’re in is siding with Mark Zuckerberg, Steve Chen, Jeff Bezos, Jack Dorsey and other people who are creating incredible magnetism on the internet, perhaps with some disregard to how they’re going to pay the rent. While you might argue that Bezos is a hell of a business person, you might also argue that his focus on business hasn’t interfered with his focus on what made Amazon important in the first place.

I’d never say that we should stop worrying about monetizing business lines, but I do think that Google might be on to something that many businesses can learn from.  It might just be okay for successful businesses to do great things for their customers and prospects to increase loyalty, reach, and brand love without any direct attempt to derive a return. And I’m not talking about giving away pens, golf towels, shirts, USB drives or notepads. Why shouldn’t BMW visit your city and teach owners and non-owners alike how to drive race-ready cars for a weekend, for free?  Because they’re giving up profits.  But I would gladly give up today’s profits for tomorrow’s, if today’s were sufficient.  BMW, are you listening?  This is a really good idea.


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One Comment

  1. Garrett

    I’m not sure that Google is worried about cash flow – cash from op activities has been increasing anywhere from 40-60% over the last couple of years and they’re currently sitting on almost $12bil. If I was a shareholder I’d be pretty pissed…

    Posted October 7, 2009 at 11:41 pm | Permalink