Neither Google nor its business model are trees that grow to the sky.
Advertising is a bubble. If that's a true statement, Google is a bubble too. And if that's true, many of the goods we take for granted on the Web are at risk. Let's run down some evidence.
Google has more than a million servers. The company is notoriously silent on the exact number, but I was told by a Google official that it was headed toward a million in the next couple years—and that was seven years ago. For a peek at the future, Jeff Dean of Google gave a presentation at an ACM workshop in October 2009, outlining “Spanner”, a “storage and computation system that spans all our data centers”. His “design goals” slide described a “future scale” with “~106 to 107 machines, ~1013 directories, ~1018 bytes of storage, spread at 100s to 1000s of locations around the world....”
Google's data centers are already public utilities on the scale of coal-fired power plants. Google is silent about the number and size of these as well. In March 2008, Rich Miller of Data Center Knowledge wrote, “The conventional wisdom is that Google has dozens of data centers. We're aware of at least 12 significant Google data center installations in the United States, with another three under construction.”
Those data centers serve enormous sums of traffic. According to the ATLAS Internet Observatory 2009 Annual Report, Google has reached #3 among the top ten “Tier 1” Internet backbone providers last year. Just two years earlier, Google wasn't on the list. As a Tier 1 player, Google “peers” with others on the list. That means they pay nothing to each other for data transit. Tier 1 status is more a matter of traffic rather than physical fiber backbone. Google has plenty of backbone, but where it rules is with traffic.
The greatest source of inbound traffic for most Web sites has long been search engines, where Google has a near monopoly. Consider the case of StackOverflow.com. Last year it reported, “83% of our total traffic is from search engines, or rather, one particular search engine”. Google was first with 3,417,919. Yahoo was second with 9,779.
To some big-old business categories, Google's threat is apocalyptic. Take geographic data. For many years, NAVTEQ and Tele-Atlas have enjoyed something of a duopoly in the geo-business, providing data to GPS companies, car companies, avionics manufacturers and so on. When you looked at Google Maps, you saw NAVTEQ's or Tele-Atlas' logo. That ended last October, when Google dumped Tele-Atlas, just like it had dumped NAVTEQ earlier, as a source of US map data. As it does in so many other business categories, Google is now giving its US geo data away for free—or less. Bill Gurley reports, “Google will pay you to use its mobile OS. I like to call this the 'less than free' business model. This is a remarkable card to play. Because of its dominance in search, Google has ad rates that blow away the competition.” Sound familiar? It's roughly the same thing Microsoft did to the browser business. It eliminated that business by offering Internet Explorer for free. Back then, however, the browser business was new and small. Google goes for bigger game, such as the phone business.
Android might be the most apocalyptic move ever laid on a standing industry. First, Google creates an open phone design on a Linux platform, lines up a pile of handset makers behind it and then works deals with carriers as well. I've done a lot of consulting work in the telco world over the last few years, and here's the most graphic way I've heard Google's approach to the industry explained: “Google feeds a dock rope down the gullet of the monster, waits for the rope to come out the back end, and then yanks it straight.”
Of course, the phone business needs some straightening. We're long overdue for white-box phones and data paths that look and feel like the real Internet, rather than billed phone connections. I've got no problem with Google hastening history there.
I'm just worried about the way Google makes money. Nearly all of it comes from advertising. That's what pays for all the infrastructure Google is giving to the rest of us. As our dependency on Google verges on the absolute, this should be a concern.
Think of advertising as oil and Google as one big emirate. What happens when the oil runs out?
Maybe it already is. Citing a “Natural Born Clickers” study by ComScore and Starcoma, Ad Age last year reported that “the number of people online who click display ads has dropped 50% in less than two years, and only 8% of Internet users account for 85% of all clicks...What's more, the 8% of Internet users that compose a majority of clicks is also down by half from the last study, which found 16% are responsible for 80% of clicks. The 2008 study found half of all clicks come from lower-income young adults.”
The free rides won't go on forever. There are better ways than advertising for demand and supply to find each other (including search, which is free), and more will be found. Google will be in the middle of that discovery process, no doubt. But it's an open question whether Google will make the same kind of money in a post-advertising marketplace. I'm betting they won't.