Wednesday, February 01, 2006

What Are We Really Selling?

I just finished reading Geoffrey Moore's article on Google's strategy. Moore points out that in today's world anything that gets eyeballs is media and therefore it can be monetized through selling ads.
"Obviously this is true of digitized content in virtually any form. The interesting thought is that it is also true of products and services. Word processors, spreadsheets, presentation software, live updates, back-ups, auctions, VOIP, videos; if there is a human being in the room paying any attention at all, these are all forms of media."
He also states that companies like Microsoft and SBC are in for trouble in the short run because google's advertising model allows them to give away the core products that they are trying to sell.
"Perhaps the most important implication of this strategy is that, in any competition with a product provider, say Microsoft, to pick a non-random example, or with a service provider, say SBC to pick another, Google can give away the very elements which their competitors are looking to monetize. In the past companies like Microsoft and SBC have been able to respond to the open systems challenges of competitive paradigms like Linux and the Internet by giving away the base product or service and selling customers on the upgrades. But Google can afford to give away the upgrades as well, at least for the time being. How do you compete with that?"
This is all pretty standard stuff as far as I'm concerned. However, Moore does hint at a some type of rebalancing in the future that might not spell doom for traditional vendors selling ad-free products. I've been thinking about this idea myself. I love the advertising model of offering a great product or service (or product as a service) that attracts users and creates opportunities for very targeted advertising through some combination of the data collected during registration, the individual users usage and usage patterns across groups of users. But what industry can't be cannibalized through this type of shift? Is it possible to get to a point where there aren't enough commercial products available to advertise, or that their sales are hurt so badly by free alternatives that they can't advertise? I don't know where the point of equilibrium is and I suspect that we aren't close now, but I do believe that the flood gates are opening as the recent successes of advertising based web startups more entice more entrepreneurs look for ways to offer free services.

Are ad-supported products a threat to open source in the long run? How can IBM justify 400 developer working on open source projects when they no longer have any core products to sell?

Which industries will be hit hardest? Could non-tech industries like construction or fruit farmers switch to an ad-supported model by selling billboard space on a construction site or some type of non-toxic ink sprayed advertisement on to an apple? Could traditional people oriented services industries like law or consulting go ad-supported? My first thought was no, but with recent crop of people selling their foreheads as ad space, I suppose anything is possible.

Is this just a consumer phenomena, as Moore suggests, or would business customers trust ad-supported services to their mission critical applications? I'll come down hard on this one and disagree with Moore. I think that enterprise users will be late-adopters but that SMBs may jump on ad-supported software over the next couple of years. The SMB software market is in for a shake-up as lots of startups are targeting them and I think that SMB's limited resources make free (especially hosted/software as a service) very attractive.

If you happen to stumble across this blog (and odds are you won't... check out my sitemeter) I'd love to read your comments on where this point of equilibrium is between free and commercial services. Also, does anyone of anyone else discussing this issue? I'd love to read more of anyone eles's thoughts.

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