What Would Google Do_ - Jeff Jarvis [41]
Google understands the value of free better than anyone. When it bought Blogger, it stopped charging for the service and added advertising. When it launched Gmail with tons of storage, it made the service free and served targeted advertising. More recently Google has set out to pull a craigslist on the $7 billion mobile directory-service business. Google made directory assistance free at 1-800-GOOG–411. My accursed mobile service provider still charges me $1.79 to find a number—and mind you, the only reason I’m looking for a number is so I can make a call using the company’s network, which I pay to do. This is like a store charging us for directions to come spend money there.
Google surely will make money on its mobile directory service with advertising. It will learn more about our behavior and needs. I can imagine it using us to create a vast repository of our reviews and recommendations about establishments (“leave your review after the tone” or “rate the restaurant using your keypad”). Google may find yet another side door to make money. Tech publisher Tim O’Reilly speculated on his blog that Google wants to gather billions of voice samples as we ask for listings. That will make its speech recognition smarter, helping it get ready for the day when phones and computers respond to voice commands. Chris Anderson, editor of Wired magazine, projected that by 2012, Google could make $144 million in fees from users if it charged for directory assistance, but by foregoing that revenue it could instead make $2.5 billion in the voice-powered mobile search market. As with newspaper classifieds, the entire industry may shrink but the winner will grab the biggest share of what is left. That winner is likely to be a new player, not one trying to protect old revenue streams and assets. By making its service free, Google will establish itself as the leader in providing local information and position the company for the coming mobile explosion. On Jim Cramer’s CNBC show, Google chief Eric Schmidt said the company anticipates making more money on mobile than desktops because mobile provides a better way to targets ads, and targeting is Google’s real strength.
Anderson, author of The Long Tail, argues in his next book that free is a business model. In a preview of FREE! in Wired, he provided a case study: Ryanair, a discount flier out of Dublin, has been selling tickets around Europe for as little as $20 and hopes to offer seats for free. The airline saves money—and who can complain at these prices?—by using less popular airports. Once it has you, it charges extra fees for priority boarding, luggage, food, and credit card handling (American airlines have started similar charges but at higher ticket prices and with spotty service). Ryanair also shows ads onboard—an ideal exploitation of a captive audience. It hopes to start onboard gambling, which could be a huge money-maker.
A favorite buzz phrase of consultants in the last few decades is “zero-based budgeting”—rethinking and rebuilding your business from scratch, without legacy structures and assumptions. Now you really can start at zero: What if your goods cost you nothing? What if you charged nothing? Where does your value exist? What is the essence of your business? What can you learn from it? How do you make money—is there a side door? Your business will likely operate at a different scale: It could be smaller but with lower costs and higher margins. Or it could be larger with lower margins, which helps it grow bigger faster with less investment and risk. But