What next for Google?

The Google search for new expansion and services included Google Space, an experiment on internet access and use conducted at Heathrow Airport

Keeping up with the growth of Google can be bewildering. Since its quiet inception in 1998, the company has expanded its business model to offer a variety of services that encompasses everything from web-based email to satellite views of the Earth, as well as its all-important search engine.

Each year brings fresh expansions and a flurry of new announcements. The past 12 months alone have seen several high-profile investments, from the $1.65bn (£811m) acquisition of YouTube last October to July’s purchase of security firm Postini at a cost of $625m (£309.7m).

At present the search giant is wrestling with watchdogs at the European Commission to secure a $3.1bn (£1.55bn) buyout of online advertiser DoubleClick. If the deal is approved, it is estimated that Google would control 80 per cent of all online adverts in the UK, according to a claim by Microsoft.

Advertising remains the key source of income for Google, a source that primarily relies on its status as the world’s leading search brand. Maintaining the top position is key to the company’s long-term plans, says Ovum analyst David Bradshaw.

“Google has two core strategies, which occasionally work together,” he says. “The first is to reinforce its existing revenue base, to keep pushing ahead and avoid being outflanked by newcomers. The second is to find new revenue streams, and this is why we see it experimenting, pushing ahead to find that next big source of income that it needs.”

Current speculation suggests that the next big thing will grow out of Google’s interest in the auction of wireless spectrum, under way in the US.

While the exact nature of the organisation’s wireless intentions is far from clear, it is likely that the established global network of Google users will play a major role in all tactical considerations.

So it is interesting that a significant number of the company’s recent activities have been based around the renovation of its key services, particularly regarding search.

Spearheading the overhaul was the launch of Google’s Universal Search strategy, unveiled in May. Under the initiative, the standard Google search engine has been revamped to include a wider variety of formats in its results lists, encompassing videos, images and news feeds, as well as the traditional links to relevant web pages.

According to Peter Norvig, the company’s director of research, Universal Search is the most logical way for Google to respond to the growing variety of media on the web.

“Universal Search is important from an ease-of-use point of view. For some users it was simply what they expected ­ to be able to see videos and pictures in the main results without clicking on a tab or altering their query,” he says.

“For others, universal search offers the chance to find something unexpected: someone might be conducting what they thought was a standard search, but unexpectedly, there’s a video of a lecture that provides the information they want.”

On the surface, Universal Search is just another step towards improving the range of Google’s search capabilities. However, the umbrella effect of the new search service is also symptomatic of a wider tactic to build links between Google’s various tools and services.

The iGoogle scheme, launched at the end of April, extends the integrated approach in a number of ways. Primarily, iGoogle acts as a personal homepage that can be customised via the addition of ‘gadgets’ ­ miniature applications offering everything from weather reports to news feeds, all of which can be rearranged as the user sees fit.

While many gadgets were developed by Google itself ­ providing built-in links to YouTube and tools such as the Maps service ­ the open nature of the project means users can set the applications to receive information from unrelated services, such as BBC news or independent blog feeds.

The increased availability of information has helped to make iGoogle one of the search giant’s fastest-growing products, says Jon Steinback, product marketing manager for search.

“A lot of our users want a more personal breed of information on their homepage,” says Steinback. “If, for example, you happen to search for a weather forecast every day, it makes sense to have a box that displays that information on your homepage. We’re finding that we can move away from a ‘pull dynamic’, where you have to pull information towards you, to the push dynamic, where you can set that data to be directed straight to you.”

From a strategic perspective, the push dynamic also has the result of encouraging users to remain logged in to Google’s services. Whereas in the past a surfer might be tempted to go elsewhere for their news, the relevant plug-in will deliver that information to their homepage.

The user is able to create a personalised portal that caters to their needs, while Google maintains high figures for people viewing its content ­ the core ingredient to its advertising business.

Personalisation has also played a large part in Google’s efforts to build a user base within the enterprise market via its Apps suite, which offers bespoke versions of the company’s email, calendar and chat applications.

While Googlemail in particular has long been viewed as a powerful consumer rival to products such as Microsoft’s Hotmail, it’s clear that Google wants Apps to compete in the corporate sector ­ and the $625m (£309.7m) purchase of Postini is a clear indication of the goal, says Gartner analyst Peter Firstbrook.

“Postini is the first acquisition that fits squarely into the enterprise m arket,” says Firstbrook. “The fact that Google paid a premium for an established company, rather than buying a startup, shows it is fairly serious about its intentions here.”

Aside from the appeal of the increased security provided by Postini’s email screening services, the acquisition has the added benefit of bringing in an established range of business clients.

“Postini already had dealings with a number of small-to-medium-sized customers that were at least partly disposed towards the outsourcing of infrastructure,” says Firstbrook.

“These are exactly the kind of businesses that Google is now looking to attract to its Apps suite.”

The Postini acquisition could mark the first of many purchases designed to boost the reputation of Apps as a business tool. However, Google’s promotion of the suite in the educational sector could be equally as important for attracting the next generation of corporate movers and shakers.

For many universities and colleges, Google Apps is a tempting alternative to traditional webmail packages. The service, first of all, is free ­ and because Google hosts the entire operation on its own servers, institutions are saved from the headache of hardware management.

Students, meanwhile, have the benefit of an academic email address that can be retained after graduation.

But it is Google itself that benefits most of all from the arrangement, since an early introduction to its services can only encourage long-term loyalty to the brand.

As with iGoogle, the strategy aims to forge a personal link between the user and the product, to create a working environment that can be remade and remodelled to fit the changing needs of each individual.

By building links between its applications, and through allowing people to customise tools in a manner that pleases them, Google maintains a constant flow of users to its properties.

Ultimately it is the supply of users that fuels the organisations’ ability to innovate and diversify, through advertising revenue and the provision of a large market, primed to accept whatever direction the company explores next.

Regardless of what the next few years hold for Google, it is certain that this will play a central role in its strategy.

Wireless agenda
At the start of next year, the US Federal Communications Commission (FCC) will hold an auction for control of radio spectrum in the 700MHz bandwidth.

In July, Google announced it was prepared to bid $4.6bn (£2.3bn) for the spectrum on the condition the FCC would force the winning bidder to act as a wholesaler, selling chunks of the bandwidth to third parties.

While stopping short of entirely embracing such demands, the commission has agreed to ensure that a large section of the bandwidth remains open to consumers, allowing for a wide range of devices to use the spectrum.

Google treated the news as an understated victory, yet the company’s true intentions regarding the spectrum remain something of a mystery.

The search specialist has styled itself as one of the key advocates of the Net Neutrality concept, which argues that everyone should have equal access to data on the internet.

Were a single company to buy the entire 700MHz spectrum, it would risk the creation of a two-tier internet, with dominant organisations restricting public access to its rivals’ sites.

But as many critics have been swift to point out, the $4.6bn Google spectrum bid represents something far more serious than a public relations gesture.

“There are two ways of considering what Google might want out of the auctions,” says Jan Dawson, analyst for Ovum. “The first possibility is that it wants to become a wireless carrier itself. The other prospect is that Google simply wants an insurance policy against the existing carriers, who might block people from accessing its services.”

If Google emerges triumphant from the 2008 auction, the $4.6bn investment would represent the biggest single purchase in the company’s history.

Dawson believes that it would not make sense for the company to spend this kind of money for the sake of becoming a wireless operator – a move with comparatively limited revenue potential.

“Google’s business model is based around serving things to customers that it can advertise around, so it can deliver much better value to its shareholders by sticking to its core businesses, rather than entering a market where valuations and profits are much lower,” he says.

But if Google does not intend to become a wireless operator, it stands to reason that there are other plans afoot for the mobile arena. Google has already released a search engine designed for mobile web content; the efforts to ensure open access to wireless frequencies could be laying the groundwork for similar expansions, says Gartner analyst Andrew Frank.

“Google certainly has its eye on the mobile sector, and not just as an advertising medium,” he says. “If you read between the lines, it is clear it wants to broker mobile content and get into areas such as micro transactions and micro payments, possibly using the Checkout service. If it could get its payment system into the mobile channel, that could be an important revenue stream for the company.”

What the experts say about Google

It clearly doesn’t make sense for Google to buy wireless spectrum from a public relations standpoint, because there’s clearly a lot else you could do with $4.2bn (£2.1bn). If it is seriously considering going through with the purchase it must have something solid in mind, whether it’s opening up a platform for third parties or something else entirely.
Andrew Frank, analyst, Gartner

As with any big-name American brand, there’s a kind of universal appeal that Google is trying to transmit across all its borders. From a consumer point of view, the constant rate of expansion means it is very easy to find yourself spontaneously wrapped in Google products and services.
Alexandra Bosnjak, analyst, Ovum

We want to get away from the idea that a user types in three words, we give them 10 URLs and then they choose one. We need to do a better job of understanding our users. Our intention is to increase the dialogue between us, to get a better understanding of exactly what it is they want.
Peter Norvig, director of research, Google

The Google Apps suite is still a tiny business compared with the revenue gained from advertising. While it’s great for Google to have such widespread s uccess, it is also worrying that advertising remains its largest source of capital. Looking ahead we’ll see it continue to experiment, in an effort to find that next big revenue stream that the company needs.
David Bradshaw, analyst, Ovum