I’m an advocate for Google. Their services deliver what I am looking for (and a lot more besides) at no material cost. The stealth tax is that of invasion; of privacy and of screen-space. Google posted a $1.4 billion Q1 profit for 2009. To amass these fortunes, Google must first become intimate with users (privacy) and then serve bespoke advertising (screen-space). Google is the quintessential American company. Reverse-engineered and consumer-focused, it first looks to gaps in the marketplace, fills them, then questions where the revenue stream will stem from. Their IPO in August 2004 put this socialist approach at loggerheads with the rigorous demands of shareholders for growth, the hallmark of capitalism. To date, few would argue Google’s success, but as the western business model unravels before our recession-weary eyes, I get a niggling sense of self-destruction in the Googleplex. The train smash may be some way down the line, but the financial world’s woes would advise prudence. Time to exercise the option to bundle and sell-off Google off-shoot enterprises, surplus to the core business model, rather than gorge on acquisition?
In practice, Google continues to diversify like wild-fire. Once a search engine built to index the web (text web-pages) and return the most relevant results to users, Google now lays claim to digital content of any form. Where there is a market for content, Google looks to take ownership, serve at a fraction of competitors’ cost, or for free, (thereby winning the user-base), and then integrate highly relevant in-line advertising at the point of consumption. Two enormous projects brought to market lately involve books and music.
The Irish times reports that in China, Google is distributing more than 1 million music tracks to its users for free. A clever tactic in a bid to unearth Baidu’s roots as premier domestic search engine, this strategic shift has greater global ambition. Google, through deals with music distribution companies, is fundamentally altering how consumers acquire music and who profits. With the music industry turned on its head by file-sharing, agencies will grasp at a commercially-viable digital distribution solution. They will have their tail between their legs however as Google’s strangle hold, though keeping them on life support, will pale in comparison to the days of golden disks.
As Fintan O’Toole argues in Google’s case of right to book publication, I caution that end-users, we the customer, stand to suffer through these apparent short-term cost benefits (free music and literature). Google intends to shrink content producers (music artists and authors) and distributors profit-pool, and transplant it to its own coffers. If the product is now free, it falls to advertisers to make up the difference. My bugbear is that there is no parallel in value between a book or a record, and whatever it is we are being spoon-fed in the ads column. Much like the property boom, sentiment enabled estate agents to sell sand castles, but as the tide turned, the grainy foundations could not support the house of cards. Consumerism drives advertising, but should economic slowdown reflect online*, which it ultimately must, a similar fate to that of the banks awaits Google; toxic debt.
If consumers turn bearish, legally smash-and-grab proprietary content belonging to Google (it is open-source after all) while ignoring the flashing lights of spam all around, advertising revenue could quickly deteriorate. Market contraction obliges scrupulous valuation. Like land to the banks, Google’s greed for content inadvertently devalues the underlying asset, the book or the song, through accessibility. As banks relied on financial packages and debt consolidation offers to fuel land prices, so Google props up the investment in literature and music with affiliate ad partners. Dilute the core product however and third-party market proposition (services/products advertised) diminishes, thus spam.
Google, once the cream of the crop, is on a slow-burn of pasteurisation and skimming to a watery grave. Worse still for all involved, the future for literature and sound looks homogeneously bleak.
[In a related media update (25.07.2009) to this article, read how publishers/authors are groggily waking up to their unsavoury circumstance]
*e-retail is bucking the economic trend with online commercial trade, such as asos, and tech stocks (Nasdaq) outperforming market averages and world indices.