Technology

Making a bundle on a button

Google made three key announcements this past week.  First, it unveiled Google Pack, a free software package.  This plays into its software bundling strategy, which puts it in direct competition with Microsoft.  Google Pack offers the following software programs free of charge: 
  • Adobe Acrobat Reader 7 
  • Ad-Aware SE Personal
  • GalleryPlayer HD Images
  • Google Desktop
  • Google Earth
  • Google Pack Screensaver
  • Google Talk
  • Google Toolbar for Internet Explorer
  • Mozilla Firefox with Google Toolbar
  • Norton AntiVirus 2005 Special Edition
  • Picasa
  • RealPlayer
  • Trillian

Many of these programs are Google products.  Notable exceptions include Adobe’s Acrobat Reader, Lavasoft’s Ad-Aware, Mozilla’s Firefox browser, Norton’s AntiVirus, and RealNetworks’ RealPlayer.  Google had already shown its penchant for bundling free software when it released Google Desktop, so its newsworthiness is debatable.  What strikes me as most significant is that Google Pack’s release underscores that other software companies allied with Google are now joining Google in its bundling strategy.  It shows that other companies are willing to link part of their futures to Google’s free software bundles.  It’s likely that recently formed alliances with companies such as Sun Microsystems and AOL will lead to enhanced Google software bundling.  Just as Amazon.com runs online storefronts for retailers such as Target, so too will Google become a conduit for other software companies’ products.  External software programs bundled in Google Pack such as RealPlayer are already free, but the future will be different.  It’s very likely that software that consumers now pay for will eventually be offered free of charge.  Rather than licensing software for a fee, software companies that align with Google will earn revenue through alternative means such as subscriptions or revenue sharing arrangements.

 

Google also announced that it will launch Google Video Store, a marketplace to download pay-per-view video content.  According to MarketWatch, it will initially offer content from Sony BMG, ITN news network, and the National Basketball Association.  It’s unclear when the service will launch.  While the online video-on-demand market is nascent and many media companies are focused on developing business models for this nebulous development, Google hopes to get an early lead.  Reaction to this news has been lukewarm, although it makes sense for Google to jump into this market as it continues to stretch the boundaries of search.  The jury is still out as to whether this service will be successful.

 

The third announcement is that Motorola plans to release cell phones with a "Google" button.  When pushed, the button will take mobile users directly to Google’s search engine on the cell phone screen.  Cellular phone real estate is extremely valuable, so it is very significant that Motorola will devote an entire button to Google’s search engine.  If successful, it will position Google to dominate the mobile search market as wireless service providers ask other handset makers to adopt the "Google" button.  In the past two years, Motorola has transformed itself from an also-ran in the handset market into one of the hottest cell phone manufacturers.  Its innovations will be closely scrutinized by competitors such as Nokia and Samsung.  During the tenure of CEO Ed Zander, a Sun Microsystem veteran, Motorola revived its cell phone division by turning out sizzling products such as the Razr.  The fact that Zander is a Sun veteran was likely a major factor in Motorola’s decision to team up with Google.  At the same time Motorola announced its alliance with Google, it also announced that it would include digital icons to give Motorola handset users easier access key Yahoo! features such as mail.  It’s noteworthy that Motorola will not include a Yahoo! button on Motorola handsets, nor did it choose Yahoo! Search as its primary search engine.  That is an incredible vote of confidence for Google Search.

 

So which of these announcements, if any, is most significant?  The button.  The cell phone button creates another avenue of standardization for Google to exploit.  Much like Microsoft Windows dominates the computer desktop, the Google button could quickly become ubiquitous on cell phones.  As cell phone technology advances and become increasingly multi-functional, the cell phone will supplant the computer as the tool of choice for many common functions, including search and mail.  Google is extremely wise to assert itself as the early mobile search engine standard.  It may never win the desktop war with Microsoft, but mobile search is a more promising growth market for Google.  One little button will make Google a bundle.

GoAOLgle?

In September, I criticized Microsoft’s MSN for pursuing an investment in America Online (AOL), a division of Time Warner.  I argued that AOL is a fading brand that adds little to MSN and that Microsoft would be better off investing the money it would have spent on AOL into research and development in order to improve MSN Search.  I also mentioned the market buzz that Google could also be a potential suitor.  Now that Google appears to be the likely winner of the AOL sweepstakes, should I come down hard on Google for investing in AOL?
 
Yes and no.  First of all, I reiterate that it is preferable that Microsoft not invest in AOL.  It is a strategy Microsoft has tried before with modest success.  Rather than disbursing the $1 billion saved in a shareholder’s dividend, Microsoft needs to capitalize on the moment to improve its homegrown search engine.  It also needs to focus on building its own brand rather than add AOL to its roster.  Google’s share of the search market continues to grow unabated, as evidenced by its ever-climbing stock price ($430.15 per share as of Friday’s close).  MSN Search faces a difficult battle in the search arena even without worrying about linking MSN and AOL.
 
When one considers the fact that AOL’s share of Google’s revenues shrunk from 12% in 2004 to about 8% in 2005, spending $1 billion to retain AOL as one of its primary customers does not make much sense for Google.  Google has about $7 billion in excess cash to spend, and spending 1/7th of this horde on AOL makes less sense than spending it on adding new services or extending its market reach.  However, when faced with the prospect of losing one of its primary customers to one of its main rivals, MSN, it makes sense for Google to invest in AOL.  As a defensive measure, it makes more sense because Google is still very reliant on generating revenues from search.  Losing 8% of its revenues would be disastrous to its share price in the short term.  In contrast, MSN and Microsoft are far less reliant on search.  Google also gains further access to Time Warner’s media content, and it can marry its beta Google Talk instant messaging program with AOL’s popular Instant Messenger.  For a younger, smaller company such as Google, these moves are more valuable than they are to a large, cash-rich company such as Microsoft. 
 
Would Google’s money be better spent elsewhere?  Of course.  It seems as if each week Google announces a new beta program or feature in an effort to become the nerve center of the Internet.  $1 billion would be enough to develop one or two new, potentially lucrative Google products.  Still, in light of manuevering by Microsoft and other technology companies to divert one of Google’s revenue streams, Google had little choice but to invest in AOL.  I only hope that the Google-AOL combination, which I affectionately call "GoAOLgle," won’t distract Google from building on its search capabilities. 

Microsoft sees the light

News coming out of Redmond, Washington today makes me wonder whether Microsoft executives actually read my MSN blog and heeded to what I wrote in September when it was featured on MSN Spaces.  The news reported today that Microsoft and Yahoo! will team up to link their instant message programs, both called Messenger, globally.  Also today, news reports speculated that Google and Comcast will both buy stakes in America Online (AOL).  Earlier reports surmised that Microsoft would buy a stake in AOL, primarily to replace Google with Microsoft’s MSN as AOL’s primary search engine.  That does not appear to be the case now.
 
On September 17, I wrote that Microsoft should forego purchasing a stake in AOL and focus on further developing and marketing its own products, namely MSN Search.  It seems that Microsoft has seen the light and will do just that.  It is possible that Microsoft could still buy into AOL, but a Google and Comcast investment now seems more likely.  Instead, Microsoft is teaming up with Yahoo to take two competing products and make them even better and more ubiquitous.  I think this is a smart move by Microsoft.  As I mentioned in my earlier blog entry, I think the company should also further press AOL to link its instant messaging program, AIM, with MSN/Windows Messenger.  It does not need to take an equity stake in AOL to achieve this goal.  Global instant messaging would be a healthy move by the technology industry.  If cell phones can text message seamlessly, why can’t computers?
 
Do I think that Google should buy a stake in AOL?  It’s debatable.  It should if it wants to keep AOL as a customer.  I think Google sees the investment as more than a way to stop Microsoft from supplanting Google as AOL’s search engine.  In recent months, Google has made announcement after announcement indicating that its business model is starting to converge with Yahoo!’s.  Not content to merely manage Internet search, Google is now scanning books and offering maps, photos services, chat, groups, E-mail, online shopping, you name it.  Google is fast becoming more like Yahoo!, which in and of itself may not be the best move for Google.  If it does become more a content provider like Yahoo!, rather than a content deliverer, then a stake in AOL (a division of Time Warner), makes sense.  I think that Google should focus more on content delivery, such as offering Sun Microsystem’s Star Office in a free Google software package, rather than on building content.  Google is much too far behind Yahoo! to directly compete with Yahoo! as a media company.
 
I don’t know whether any decision makers at Microsoft read my September 17th blog entry.  Nevertheless, they got the message.
 
Note to MNMikeD:  I’m not an economist, but I am an optimist.