Google is an Internet Tax…

if I had a euro for every post written about Google’s business model, I would be very rich.  Actually, if I had a euro for everytime Nick Carr writes about Google I’d be well off.  Writing about Google and Wikipedia seem to be occupational hazards of blogging. 

Anyway, his latest post made me jot down something I’d been thinking about for a while.  He talks about Google’s model revolutionising the IT industry.


It’s pretty amazing to think about what a company can now get for $10 a year:

A complete, web-based IT infrastructure for its business

A custom corporate portal/intranet for its employees

Corporate e-mail service

Corporate instant messaging

Calendar software and services

Web-site design software

Web-site hosting

And, by incorporating some other free Google services, the company also gets:

Word-processing software

Spreadsheet software

Web-site analytics

All the necessary storage, data backups, security, maintenance, and related services are included in the $10 price.

This is surely enough to strike fear into anyone wanting to “sell” software?

But Google  isn’t free.  The company is on track to do about 10 billion dollars in revenue this year, and someone is paying for it.  I have never written a cheque to Google, yet somehow as one of the 1 billion Internet users,  I’m  paying for the pleasure of using their search tool, although very indirectly. Actually I’m paying whether I use the tools or not.

Google’s money comes almost entirely from advertising. Advertising is paid by those companies selling stuff to you. Google’s fees are now clearly part of the cost of bringing a product or service to the market, and you end up paying for it.

It is a brilliant business model.  The more “free” applications we use, the more exposure the adverts get, and the more Google can charge the buyers of advertising.  The more applications we use, more information Google has to provide even more targeted services, again at a higher price.  

In an earlier post, Nick discusses how Google manage a float.

Better than any other company on earth, Google knows the power of very small amounts of money. Collect enough nickels and dimes and quarters and dollars, and you can make billions. The $100 AdSense hurdle may seem like a little thing, but it’s making Google some serious money. At the very least, I bet it pays for the cafeteria at the ‘Plex.

Google’s model depends on the advertisers continuing to believe that they get value for money. As long as that continues, Google will continue to impress. Funny, I don’t ever remember clicking on an adsense advertisement and then buying something, but someone must be.

At the moment Google is a tax I’m happy to pay.  If we spread Google’s revenue over all the internet users, it works out about 10$ each.


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