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What Business is Google In?

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February 25, 2010

What Business is Google In?

By Gary Kim, Contributing Editor

'Google (News - Alert) is a global technology leader,' the firm says. And information technology analyst Dennis Byron says it is wise to think about Google as it thinks about itself. Google does not believe it is a consumer software company, an advertising company or a media company. It doesn't think of itself as a search provider.

Instead, Google sees itself as an enterprise software company whose logical competitors are IBM, Microsoft (News - Alert), Oracle and SAP. I suspect most of us would not generally come up with that positioning. And, in fact, most of the time it might not matter what we think Google is, or what business it is in.

It probably does matter to firms that Google competes with, or for firms that want to emulate its business model.

Google indexes information and Web sites in order to facilitate free Internet searches that help Google “sell” enterprise applications. That's the way Byron might put it.

The reason most of us would not necessarily come up with that description is because Google makes most of its money from advertising, not software license fees and maintenance contracts.

'But Google is still an enterprise software company,' Byron maintains. I suspect many of us would disagree, arguing that a company's actual business, no matter what its mythology, is the way it makes its money.

But Byron argues Google Adsense and Adwords applications are examples of enterprise apps used by advertising agencies and content owners or retailers that market over the Internet. It is just that the form of payment winds up being page views and clicks, not software licenses.

Some of us might call that a stretch. Google makes $20 billion a year on consumer-driven advertising. It might make $100 million a year from enterprises licensing its search software.

Perhaps it is evidence of Google's uniqueness that we have so much trouble trying to figure out 'what' it is and against whom it competes. Rather like Apple (News - Alert), Google has created a whole new business category.

In fact, try the same exercise for Apple: what business is Apple in? If you look at where its revenue is, you would have to conclude it is a consumer hardware or appliance company. But that wouldn't quite capture it.

For most Google-watchers, 'what' Google is is important, because it might provide clues as to what its business strategy is, and where it might go next. Enterprise software just does not quite resonate. Perhaps it is logical, though elliptical, to argue that Google is an enterprise software company that just happens to monetize its software by advertising.

I tend to prefer Occam's Razor: the simplest explanation is the preferred explanation. Google makes its money from advertising. What other kinds of companies do this? Media companies. Google does not want to say that because it might stir up even more concern from media companies that Google is a competitor in the media space. And that is not helpful to Google.

But Google is complex, as is Apple. I suppose that is why we have so much trouble figuring out what they 'are.”

Gary Kim (News - Alert) is a contributing editor for TMCnet. To read more of Gary’s articles, please visit his columnist page.

Edited by Patrick Barnard

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