Over at the WSJ, Kevin Delaney looks at how Google is quickly dominating new markets by offering products for free. By subsidising with AdWords, Google is able to wipe-out competition by offering products, such as wi-fi in San Francisco, for free.
Google’s announcements in recent weeks indicate that the company’s online advertising network could have a far-reaching impact on companies whose businesses are outside Google’s traditional turf. In effect, the tremendous revenue stream Google enjoys from ads subsidizes its entry into new lines of business, which in turn can generate more ad revenue. Some industry executives point to voice calling, cellphone service, console videogames, premium TV programming packages and digital music as areas where Google or its partners could supplant fee-based services with free, ad-supported ones.
It’s scary to think that Google could have ads on just about every communication or technology service in the near future. According to the search giant, it’s a planned strategy.
“There are times when advertising does a better job than traditional business models at monetizing” services, says Marissa Mayer, Google’s director of consumer Web products. She describes the simple calculation, which Google did early in its existence, as to whether a company can generate more revenue from advertising than it can from charging fees to its users. In Google’s original business, it estimated the potential revenue from ads far outweighed what consumers might be willing to pay annually for its Web search services. Now, Ms. Mayer says, Google is trying to help book publishers, video content owners and others tap online ad revenue and make similar calculations.
For me, I’ll certainly use a free service, if it is something I don’t rely on or use heavily each day, such as using Gmail when signing-up for a newsletter. I’d still rather pay for a premium service that has not been in beta for two years. I guess it’s a number game.