9.24 Google Services

Google Inc. is an American multinational public corporation offering Internet search, cloud computing, and advertising services. Becoming equally well known are the many services Google provides — maps, tools, — many of them free. Why does it pay Google to provide these services, and what is Google's long-term policy?

Value of Networks

Google seems to increases its network partners as though its global value depended on the volume traffic between all those partners. {3} A little theory.

By Metcalfe's Law, the value or utility of a network is held to be proportional to the square of the number of its members: an approximate, empirical law that was much invoked during the Internet boom by companies going all out for market share. (Metcalfe's intention was to find a cost-value crossover point or 'critical mass', beyond which networks start to pay. The man, incidentally, was well-qualified in networks: he developed the Ethernet protocol, founded the networking company 3Com Corp., and became in turn publisher of the trade periodical InfoWorld, an influential high-tech columnist and venture capitalist.)

Consider a network with 10 members (n=10): there are 90 different possible connections that one member can make to another. Double the membership to 20, and the number of connections grows to 380, i.e. roughly quadruple. Suppose further that, once the network reaches 100,000 members, it generates one dollar per member. If that network now doubles in membership, the total value of the network will be worth $4 million.

But Metcalfe's Law is a rule of thumb, and the value may increase by some other expression, say n log( n ). If that were the case, the value increase of 200,000 member network would be much more modest, only to $2,100,000. In fact the value of a broadcast network is believed to grow linearly, a relationship called Sarnoff's Law after the pioneering RCA television executive and entrepreneur David Sarnoff. An important point made by Briscoe, Odlyzko and Tilly {4} is that members are not all equal, and that traffic between some members will be much heavier than traffic between others. Metcalfe's Law also flies in the face of experience. Were the Law correct, telecom companies would be rapidly merging, and they're not.

So what's the truth of the matter? Google, employing some of the best minds in the business, are not likely to be following a flawed model.

An answer may lie in a paper by Tongia and Tilley, {5} who turn the problem round and look at the costs of exclusion from a network. The treatment is too detailed to be summarized here, but their conclusions are that:

1. Costs of exclusion become exponential in time.
2. Costs are imposed on those within the network as well as those excluded.
3. Those excluded will resort to alternative, parallel networking.
4. These conclusions apply to all networks: populations, transportation, healthcare provision, etc.

Google are therefore not pursuing advantage so much as seeking to avoid disadvantage: they are expanding their services before some other company does. With that in mind, we can look at Google services, which are very extensive.

Google Services

Google currently provides some 50 tools or services. Some of the more important, and the advantages to Google ( besides simply increasing the size of their network):

Service

Nature

Pricing

Advantage to Google

Internet Search

Internet

search

engine

free

Other side of

' two-sided matching

market' for Google Ads.

Google Analytics

analysis

of website

traffic

free

Better understanding

of potential customers.

Google Apps

business

services

commercial

Part of cloud computing

service and increasing source

of revenue.

Google Earth

global

topographic

3-d coverage

free

Loss-leader for

commercial service.

Gmail

email

service

free

Increases market

for Google Ads.

Google Books

access to

sections of in-

print books

and entire

out-of-print

books

free

Paid $125 million

for rights to sell out-of-

print books and place ads.

Probably commissions

to booksellers & publishers. {13}

Google Translate

view a

web page in

any language

free

Public image

Google Cloud

cloud

computer

services

commercial

Increasing source

of revenue.

Google AdWords

advertising

commercial

Google's

prime source

of income.

AdSense

affiliate

advertising

Google takes share

Increases market

for Google Ads:

second most

important source

of income.

Google Mobile

provides

add-ons for

Android

smartphones

free

Access to

mobile phone

market

Orkut

social media

platform

free

Competition

to Facebook and

MySpace

Blogger

blogging

platform

free

Increases market

for Google Ads

Google Scholar

locates paper

or article fast

search free

Public image

Google News

news summary

and mash-up

free

Public image

Google Youtube

photo-sharing

service

free

Increases market

for Google Ads

Google Patents

access to

7 million

US patents

free

Public image

Google Chrome

browser

free

Improves

Google services.

Google Plus

Google's

Facebook

free

Increases market

for Google Ads.

Google Checkout

ecommerce tool

from 1.9% + $0.30

Sales commissions

Google Acquisitions

Google is often seen as an innovative company, but its skills lie in search engine technology. Its expansion into other markets has been by aggressive acquisition. The larger/more significant acquisitions: {8}

Acquisition & Date

Acquired Company Business

Price

( US$

million)

Merged with/became

Applied Semantics.

April 2003

Online advertising

102

AdWords

& AdSense

Current Communications

Group. July 2005

Broadband

Internet access

100

Internet

Backbone

5% AOL

Broadband

Internet access

1000

AOL's White

Label search engine

dMarc Broadcasting.

January 2007

Advertising

102

AdSense

YouTube. October 2006

Video sharing

1,650

YouTube

Endoxon. December 2006.

Mapping

28

Google Earth

Marratech. April 2007

Video

Conferencing

15

Google Talk

DoubleClick. April 2007

Online

advertising

3,100

AdSense

FeedBurner. June 2007

Web feed

100

FeedBurner

Grand Central. July 2007

Voice over

Internet Protocol

45

Google Voice

Postini. July 2007

Communications

security

625

Gmail

On2. August 2009

Video compression

l07

WebM

& YouTube

Admob. November 2009

Mobile advertising

750

-

Picnik. March 2010

Photo editing

5

Picasa

BumpTop. April 2010.

Desktop

Environment

30

Android

Invite Media. June 2010

Advertising

81

DoubleClick

TA Software. July 2010

Travel technology

700

-

Slide. August 2010

Social gaming

182

-

Jambol. August 2010.

Social gold payment

70

-

Like. August 2010

Visual Search Engine

100

Boutiques.com

BeatThatQuote.

March 2011

Price comparison

service

38

Google Adviser

PushLife. April 2011

Service provider

25

-

Admeld. June 2011

Online advertising

400

DoubleClick,

Invite Media

Motorola Mobility. August 2011

Mobile phones

12,500

Android

Zagat. September 2011

Restaurant reviews

151

Google Maps

DailyDeal September 2011

Deal a Day

114

Google Offers

Meebo. June 2012

Instant messaging

100

Google +

Sparrow. Jukly 2012

Mobile apps

25

Gmail

Wildfire Interactive. August 2012

Social media

marketing

450

Google +

Viewdle. October 2012

Facial Recognition

45

Android

Buffer Box. November 2012

Package delivery

17

Android

Channel Intelligence. February 2013

Ecommerce

125

Google Shopping

Wavvii . .April 2013

Natural language processing

30

Google knowledge graph

Google Traffic

Similarly, contrary to appearances, Google buys in much of its traffic. {3}

Firefox. Google finances 85% of Firefox in exchange for having its search engine embedded in its browser. (60 million users in 2006.)

Dell. By a 2006 partnership agreement, the Google search engine appears by default on Dell computers.

iPhones. By a 2008 partnership agreement, the Google search engine appears by default on Apple iPhones. (13 million units sold by October 2008).

Adobe. By a 2006 agreement, the Google toolbar is installed as part of Adobe's Shockwave package.

Sun. Sun have been installing the Google toolbar on Java packages since 2005. (20 million downloads monthly.)

AOL. Google acquired 5% of AOL in 2005. Google became AOL's White Label search engine. (20 million subscribers at time of purchase.)

Threats to Google

Threats to Google lie in: {9}

Antitrust suits

1. In 2007 Microsoft called for regulator action to stop Google acquiring DoubleClick
2. In November 2008 regulator action stopped negotiations between Google and Yahoo.
3. In February 2009, Sourcetool, a B2B search engine, filed an antitrust suit against Google, accusing it of unfair pricing.
4. Google has settled antitrust issues with Federal Trade Commission, but the matter is not entirely closed. {15}

Copyright infringement suits

1. In May 2007, Viacom sued Google for 'intentional copyright infringement', asking US $1 billion.
2. In May 2008 a group of Belgian newspapers sued Google for making copyrighted material available free: they asked €49 million.
3. In October 2008, Google paid US$125 million to settle various publishers suits arising out of its Google Books service.

Privacy concerns

1. Google's widespread acquisition of data on all Internet users is raising concern in libertarian groups.

Points to Note

1. Google's dominance in the search engine and online advertising markets.
2. Large advertising profits invested to a. expand networks and b. diversify into other markets.
3. Increasing concern about Google's antitrust and privacy violations.

Questions

1. What is Metcalfe's Law, and what has it been superseded by? What is their importance to Google services?
2. Briefly describe ten Google services and explain how Google benefits from them.
3. How does Google get its traffic?
4. Give a reasoned history of Google acquisitions, suggesting the underlying strategy and commenting on the acquisition price.
5. What are the current threats to Google, and how seriously should the company take them?
6. Do you agree with Google's Library Project? Who are the main beneficiaries?

Sources and Further Reading

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