The Next Target For Google: Corporate IT Budgets
There's an old debate in the Valley about whether Google (GOOG) is really a media company or a technology company. In a sense, it is a silly debate, which is mostly a matter of semantics. A better question is this …
Context & Ripple Effects
This piece arrives in the middle of a stretch where Google keeps widening what kind of company it is. The acquisition-and-funding question dates back years — what Google might buy next and its friction with venture capitalists in late 2005 — and by September 2007 it had formalized a venture-investing role of its own. In May 2008 it confirmed plans to put display ads on Google.com itself, stretching the ad business past search links.
March 2009 alone adds three moves in the same direction: the GrandCentral property relaunched as Google Voice on March 12 with a stated ambition to be the world's communication hub — explicitly putting it against Skype, Microsoft and mobile operators — followed by the Undo Send experiment in Gmail Labs on March 19. Against that backdrop, aiming at corporate IT budgets reads less like a new strategy than the next application of an existing one.
First-order effects
- Google's hosted apps now compete for line items inside CIO budgets at the worst moment for incumbents — the 2009 downturn gives cost-focused IT buyers a reason to trial cheap, browser-delivered alternatives to Microsoft's Exchange and Office franchises.
- The old 'media company or technology company' debate gets resolved by arithmetic rather than semantics: enterprise subscriptions would give Google a revenue base that is neither advertising nor licensing.
Second-order effects
- Microsoft is forced to defend per-seat desktop licensing against a rival that can bundle mail, documents and now voice (via Google Voice) at near-zero marginal cost, pressuring the pricing of its most profitable product lines.
- Skype and mobile operators gain a competitor whose distribution runs through Gmail and the Android platform rather than through paid subscriber acquisition.
Third-order effects
- If the pattern holds, workplace software migrates from installed licenses sold to procurement departments toward hosted services subsidized by one company's advertising cash flow — concentrating the enterprise collaboration market around whoever owns the data center and the inbox.
- A Google that sells into corporate IT stops being categorizable as either media or technology firm, forcing analysts and regulators to evaluate it on multiple fronts simultaneously.
The trend: Consumer-scale web companies are converting free hosted products into enterprise revenue, attacking the license-based software incumbents from below.