
Google's new business model - ben336
http://stratechery.com/2014/googles-new-business-model/
======
notatoad
>That is why I ... am inclined to give them the benefit of the doubt with
regards to Nest data.

What is with the paranoia over Nest's data? Yes, google is a data-hungry
company. but Nest doesn't collect any valuable data that google doesn't
already have. Sure, the motion sensors in a nest thermostat can sense when
somebody is in your house, and what the temperature is. But Google already has
your cell phone, they know where _you_ are at all times, that's a hell of a
lot more valuable than knowing whether somebody is currently inside whatever
building where you installed your thermostat in.

I suspect that the nest acquisition is about finding new uses for all the data
they have, not about collecting more data. Google already knows, without
installing sensors in my house, when i leave for work. they know when i'm
heading home, and when i go on holidays. That all seems like information that
a home automation system would love to have access to.

~~~
meandyounowhere
Disagree a bit. Even though google knows where am I or my cell phone data I
have choice to turn off GPS, can turn off cell phone. Can you afford to turn
off thermostat ? Also, as of now they don't collect data. What is guarantee
that they won't do in future ? All they say is we have changed our terms and
conditions and don't even ask or care about whether we accept or not. Having
motion sensor that sense your presence and having that data on someone's
server is always scary. Right now Google is king, but will it always be, given
the race to top in SV ? So why won't they make further efforts to collect more
data ? Not that I am naysayer but I didn't like the news when I read it
yesterday.

~~~
kllrnohj
> All they say is we have changed our terms and conditions and don't even ask
> or care about whether we accept or not.

Well, in that scenario you can always change to a different thermostat...

> Having motion sensor that sense your presence and having that data on
> someone's server is always scary.

Is Google more scary than Nest? You signed up for that data to live on
someone's server when you bought a Nest, the only difference now is that it's
Google's servers instead of a small startup's.

~~~
cpeterso
Why does Nest need to store data on a server? I could understand an optional
network connection to download weather reports, but what user state needs to
be stored on a server instead of the thermostat itself?

~~~
kllrnohj
That's the entire selling point of the Nest, the online smart connectedness
thingy. Remote control & machine learning to avoid spending 30 seconds
programming a thermostat.

~~~
r00fus
To be fair, Iv'e considered a Nest for the main reason that my programming
changes every few weeks - weather gets colder, folks visiting, kids get sick,
etc etc. These events last several days or weeks.

I want something that learns and adapts constantly. I'd really love something
that also controlled window openings and my whole-house fan, but for now I'll
take something that controls the central air/heat.

------
evv
Google clearly has an unprecedented (well, maybe except for sun..) set of
technologies on the horizon. Between network infastructure, mapping, energy,
robots, and now home automation, their dominance in the future is easy to
forsee.

However, there was no mention about Google's rise to power being centered
around a focused set of high-quality web services. And now they are starting
their "3rd business model leg" of consumer devices before they have truly
mastered their second, the SaaS market. I find it funny how the OP quickly
glances over Apples unprecedented focus, althewhile highlighting and admiring
Google's unwarranted diversification.

The obvious question is: can Google get away with it all, or will they fail
without focus? They have managed to stay cohesive so far, but as the author
rightly points out, Google's true diversification has only just begun.

~~~
Silhouette
_The obvious question is: can Google get away with it all, or will they fail
without focus?_

It will be interesting to see how Google handles quality and customer service
if it increases its efforts to sell consumer devices.

You can get away with a lot of ignoring people unhappy about the quality of
your service if you're giving away that service for free in return for showing
them advertising. Their only option is to stop using your service and go
somewhere else, which doesn't cost you much if they're still a small
proportion of your user base.

However, you can't get away with a lot of ignoring unhappy people if you sell
them expensive consumer gadgets that don't work properly. They'll do things
like returning the item (substantial overheads for you even if it's in
resaleable condition) or charging back the purchase fee if you don't make a
return reasonably easy (more immediate overheads, and if you develop a pattern
of this happening it's going to hurt your long-term overheads with the card
companies as well).

I'm a little surprised Google aren't going for the huge-value business model
that the linked blog overlooks: being the on-line distributor/middle man. This
position typically rakes in much of the profit while taking on relatively
little risk and doing relatively little work to create the underlying value,
and it always has; see: record labels, book publishers, app stores, cloud
hosting, and of course the granddaddy of them all in the Internet age, Amazon.

~~~
krakensden
> However, you can't get away with a lot of ignoring unhappy people if you
> sell them expensive consumer gadgets that don't work properly. They'll do
> things like returning the item (substantial overheads for you even if it's
> in resaleable condition) or charging back the purchase fee if you don't make
> a return reasonably easy (more immediate overheads, and if you develop a
> pattern of this happening it's going to hurt your long-term overheads with
> the card companies as well).

People keep saying that, but is it really true? People buy lots of things from
companies famous for terrible customer service all the time. I understand
wanting it to be true, for sure...

~~~
Silhouette
It probably varies a lot with the nature of the product and the wealth of the
individual. It's a hassle to return things and someone busy might not bother
returning something that was not, to them, very expensive. Still, I suspect
it's true to a much greater extent for physical products than ad-funded on-
line services. If you spend real money on something and it really doesn't
work, I think most people I know would err on the side of returning it and
claiming a replacement/refund.

It might also be worth mentioning that many places have explicit consumer
protection laws that cover this kind of situation, so vendors/manufacturers
can't just brush their responsibilities under the carpet because providing
actual customer service people to deal with customers is expensive.

------
spacemanmatt
This article shed credibility in the 1st paragraph, calling the Motorola
purchase a patent and panic-driven deal. Au contraire, it was a heck of good
deal for Google. It's not clear that Google panics about anything.

Forbes put it like this:
[http://www.forbes.com/sites/timworstall/2013/10/22/motorola-...](http://www.forbes.com/sites/timworstall/2013/10/22/motorola-
mobility-isnt-a-disaster-for-google-it-only-cost-them-1-5-billion/)

~~~
Steko
This tax "analysis" doesn't even pass the smell test and appears to be based
on the assumption that Motorola losses will continue at the Q3 '12 record
level and makes hay of the $700 of reduced taxes Google would have to pay in
that case while ignoring the actual $2 bln losses a year that would pile up on
the side.

~~~
ZeroGravitas
The tax analysis is based on past losses not future losses, that's why the tax
expert says they'll get them up until 2019, rather than indefinitely.

------
jmillikin
This submission links to the blog's top level. The article's permalink is
[http://stratechery.com/2014/googles-new-business-
model/](http://stratechery.com/2014/googles-new-business-model/)

------
ZeroGravitas
Two of the references given seem incredibly sloppy:

1\. "a surprisingly large amount of Google’s ad revenue is driven by just a
few adwords." links to an inept infographic pie chart organized by volume (so
"keywords" that earn more money can have smaller slices) and the "keywords"
are actually "keyword categories", The authors of the infographic do make the
claim he repeats, they just don't seem to present any evidence to support it,
since they snip the long tail of the data and are more interested in selling
software to those who want to make money on the high CPC terms.

2\. suggesting that Google's revenue and profit will peak when the growth
_rate_ of internet adoption peaks seems odd enough that without further
explanation I'd assume basic innumeracy as the cause. The source suggest
internet growth until 2040 which seems a bit more positive for those betting
on the internet and/or Google given the article's premise that they're linked.

2.b Also, that growth is a binary use/don't use metric, it takes no account of
e.g. someone with a laptop buying a web enabled phone, or simply using either
device more.

------
eitally
In all honesty, Google's apparent predestination as the world's preeminent
data corporation has me strongly considering looking for employment with them.
So many opportunities, so many potential benefits, and a fantastic way to
hedge one's bets against ever being unemployable. Working for Google allows
exposure to just about any interesting technology, whether it be
robotics/AI/NLP, health/genetics, knowledge mapping & information
organization, general web services, infrastructure, hardware design, sensor
tech, consumer products, automotive, geographic mapping, mobile devices,
media, marketing & communications, social networking, ... the list goes on and
on.

------
chippy
Hmm, I didn't quite get what the new business model was from the article. I
got it that they were diversifying and I can understand it as an investment
for the future but that doesn't explain what the new model is. Could someone
help?

~~~
cromwellian
Selling you stuff directly. You pay, instead of advertiser pays. Namely, you
pay $$$, and fancy electronic consumer device arrives at your doorstep. B2C
consumer electronics.

------
snowwrestler
Oh, this is the proof of the new business model? Not the Motorola purchase,
which was far more money for a far bigger consumer device company?

~~~
hrkristian
As the author explains, and I agree, Motorola gave Google a large amount of
patents and a way to enter the phone market. The latter lets Google have more
influence in how that market expands, in order to tie it even more with their
existing services.

Nest doesn't offer either of these, I see the potential to tie in with Google
devices and services, but not the other way around; drastically different to
acquiring a phone company. We'll definitely see Google Now cards saying
"Heaters turned on at Home, expecting your arrival", I very much doubt we'll
be seeing articles about thermostats posting feed updates to G+.

...or will we?

~~~
snowwrestler
Sure, everyone thought the point of Android was to protect Google's ad
business on mobile, and therefore they needed Motorola's patents for defense.

But what Ben is proposing here is that Google is actually adding a separate,
additional business model that generates profits directly from product
margins. If that is his thesis, then it's practicially intellectually
negligent to rest on the conventional wisdom about the Motorola purchase.

Only one of these can be true:

1) Google is adding a products business model - If this is true, then
everything we thought about the Motorola deal needs to be re-examined. It
wasn't just about patents.

2) Google is not adding a products business model - If this is true, then the
conventional wisdom is right about Motorola, but Ben is wrong in this article.

------
psbp
Maybe I'm imagining, but weren't there rumors that Google's new business was
taking small fees from online and real world purchases? Especially those
expedited through Google hardware and software?

It certainly would make Google Shopping, Glass, and self-driving cars seem
like legitimate business decisions.

------
cracell
Completely ignores Google's aggressive acquisition of robotics' companies. I'm
not sure how those two fit together but unless this is two branches of Google
moving in different directions I think they must both fit into the same
vision.

~~~
dclara
Interesting comment. Can you please elaborate or offer some reference about
Google's vision on these two hardware effort or any of these two?

------
Torn
OP URL isn't a permalink, for future viewers:
[http://stratechery.com/2014/googles-new-business-
model/](http://stratechery.com/2014/googles-new-business-model/)

------
uptown
This post reminds me a lot of Benedict Evans' post from October.

[http://ben-evans.com/benedictevans/2013/10/27/simplicity](http://ben-
evans.com/benedictevans/2013/10/27/simplicity)

------
wturner
From what I've read they've also entered the defense industry through Boston
Dynamics and are now (I guess) "officially" in the business of war.

~~~
Thirdegree
You've read incorrectly then. Google had said they will honor Boston Dynamics
current contracts, but will not take new ones.

~~~
wturner
Well, I stand corrected then.

------
corresation
Analyses such as this suffer from an overly simplistic model that is wholly
detached from actual business reality. One where every company collapses down
to one single thing they do.

But that has _never_ been the case for Google, or pretty much any company for
that matter. This isn't "new", and Google has always been diverse.

Do people remember what Google's original "business model" was (meaning "how
can we scramble to pay the bills on the technology we've built")? They sold
search appliances for business: You could buy little rack mount units that
would build a search corpus of your network and allow in house searching. The
search engine was largely just a demonstration that Google knew search.

They grew from there. Over the years they've sold virtual machines, mail
accounts, backup storage, computer cycles, smartphones, entertainment units,
laptops, smart glasses, and eventually self-driving car technology and
robotics. The Nexus line started as developer units, but it grew into a
mainstream set of technologies that _clearly_ Google wishes was much more
successful and lucrative. Recall the ill-conceived Nexus Q.

Because they're a big, diverse company. They want to make money however they
can. While the common sentiment on the Motorola purchase is always the "for
patents" line, is it not possible that they wanted to start benefiting more
financially from Android, getting directly in the business that Apple was make
so much money in? Success or failure is irrelevant, Google's actions have
spoken loudly that they want Motorola to succeed as a device maker, benefiting
Google in the long run.

There is nothing new here. Company wants to leverage their strengths to make
money. In the same way Apple has never been only a smartphone or computer
hardware company -- they want to make a little coin on that app you purchase,
the software you buy, the movies you watch, the music you listen to, the
services you use, and even the ads they feed you. In the real world businesses
tend to be like that.

~~~
andrenotgiant
|Over the years they've sold virtual machines, mail accounts, backup storage,
computer cycles, smartphones, entertainment units, laptops, smart glasses, and
eventually self-driving car technology and robotics.

All of these account for less than 3% of Google's Revenue, many probably
operate at a loss. What this article is saying is that Google is finally
putting together a SERIOUS challenger to their Ad revenue business in the form
of consumer devices. The diverse products you listed were more about Google
swimming in money, being open to new ideas, and having lots of clever and
creative people.

~~~
corresation
_What this article is saying is that Google is finally putting together a
SERIOUS challenger to their Ad revenue business in the form of consumer
devices._

Google is now "serious" because they bought a company with $300 million in
annual revenue? If you must talk percentages, that is less than 1/2 of 1% of
Google's revenue. It is 1/10th Motorola's revenue last year.

That argument doesn't fly at all. Google bought Nest to continue the same
strategy they've been using for many years, which is finding ways to leverage
their technology and name[^1]. That Google makes enormous sums from
advertising doesn't diminish those attempts, nor does it undermine the
intention of the people behind them.

^1 - I've seen quite a few people talk about how "most" people are now
concerned about Nest/privacy, etc, where their most is a minuscule sampling of
their blogging and twittering peers. Among the mainstream public sentiments
are extremely positive regarding Google, and I would wager that the
overwhelming majority would see "A Google Company" on the box as a huge
positive.

~~~
andrenotgiant
Serious because they invested $3.2 billion in cash, not 20% of a brilliant
engineer's time or released a niche product for developers and techies. I'm
not trying to diminish the importance of these, I'm just trying to clarify the
difference between Google Glass (amazing technology, but not a huge investment
or profitable endeavor for Google) and Nest (huge investment, already
profitable and comparatively ubiquitous tech)

I agree, and I think the author of the article agrees that Motorola was
another step in this direction, except it also came along with an added bonus
of a large patent portfolio.

~~~
corresation
Google is currently burning R&D cash at some $10 billion+ a year. This money
goes towards developing things like smart glasses, self-driving cars, etc.
Calling these niche products or flippantly discounting them as 20% activities
misses the whole notion that Google has been diversifying, for a very large
price tag, for as long as they've been Google. There is nothing at all new in
this, doubly so given the much larger purchase of Motorola (which the article
flippantly writes off as a panic purchase for patents. I said Motorola had 10x
the revenue of Nest, when actually it has about ~28x the revenue).

Have people not seen the mainstream Nexus 7 commercials? Chromebooks are being
pitched to every-person.

There are too many write ups like this that want to take a complex and
shifting reality, melt it down, and then make clear delineations and pivot
points. The world doesn't work like that.

~~~
andrenotgiant
I think the point the article is making is that Google has, in the past, made
lots of "little" long-shot bets, (making up the $10+ billion/yr R&D you
mention.) The Nest purchase is Google pushing a LOT of chips into consumer
tech.

