Why Keeping the Bar Low May Be Good for Google

I've been struggling with the Google (Nasdaq: GOOG) model, which survived the dot-com mess, but its success seems based largely on the belief that advertising can fund everything. If the users are unhappy, well it doesn't really matter. In fact, Google's customers (the folks paying them money) and the folks they actually serve are quiet different, causing me to question the viability of many of their non-search efforts. Often we look at Microsoft's (Nasdaq: MSFT) struggle to expand out of Windows and Office and find the result troubling, but if we look at Google's attempts to expand out of search, they have been pretty much pathetic.

Last week, I focused on how Google's CEO is mismatched to the company. This week, I'm going to question Google's model. Rather than comparing Google to Microsoft, I'm going to compare it to EMC (NYSE: EMC), because the difference is even more striking. I'm also picking EMC because the two companies are fighting a war over whether "the Cloud" should be public or private. The outcome of this war may mean the difference between whether you or someone else, like Google, owns the value of your identity.

I'll close with my product of the week, an inexpensive way to make the Nintendo Wii controller even more of a fun exercise, or self-torture, tool.

Will the Real Google Stand Up?

We spend a lot of time talking about Google's various initiatives, from Android to Buzz and Wave, and pretending like they are this huge threat to Microsoft and they will drive in "the Cloud" and drive out everyone else. Yet when you look at their revenue and employee size against other giants , they are really tiny -- in fact barely more than significant.

Then, when you go and look at their revenue mix -- holy crap, even on advertising revenue, the vast majority comes from their own sites (which suggests anyone going to Google for advertising revenue is likely getting screwed).

That last chart suggests that Google has been very effective at getting money for other companies' work and goes to the core of why the folks over at News Corp. (Nasdaq: NWS) hate them so much. They kind of look like a leach. And Steve Jobs has come out and directly said they are evil. Actually, he said Google's "Don't be Evil" Mantra is Bull Sh**, but I think it means the same thing.

That seems far from the impression you get surrounding Google's press activity, which often seems focused on what it is doing with phones, free platforms and free applications. It appears to largely be expert at getting revenue from eyeballs and not from much else. Based on revenue, Google is an advertising company, and it effectively sells information created by others to make tons of money.

I think this is why Google sucks at making products.

Decoupling Revenue

I've seen this at a number of companies that seem to suddenly come into a lot of money and not know what to do with it. It seems like they have this epiphany that suggests if they don't care about cost, and therefor don't care about price, they can corner a market with free crap and can mine the people who are stupid enough to use it.

Free products have a number of problems. Take something offered by the government -- like healthcare or education. If a huge effort isn't made to focus back on quality, it degrades sharply. That's because cost is the only focused variable, and that means you don't get the best people, tools, facilities or results.

Granted, even if you pay for something, the vendor can lose its way -- just ask Toyota.

EMC vs. Google

Last week, I attended a presentation by new (well, six months now) EMC executive Pat Gelsinger on EMC's Virtual Storage Vision. Pat's an old friend, and damn if he didn't make this topic interesting. What struck me was how EMC's approach contrasted with Google's positions.

Google wants to give you access to the world's information and give the world access to yours ( note, Google has issues if you get hold of its information).

EMC, on the other hand, simply wants to improve access to the information you control for the people you want to have access to it. For Google, it's all about access. For EMC access is heavily tempered with privacy, security, control and reliability. Google is free, sort of, and EMC clearly isn't, but if you were to contrast the perceived quality of their offerings I think you'd find more than a price difference. You'd find a qualitative difference that is night and day.

This is because if EMC were to provide an unsecure or low-quality product, its revenue would tank. If Google provides a crappy product, people talk about it. That generates page views, and page views drive Google's revenue. In a way, Google may be incented to piss off users of its products, because people who are upset talk about the problems at a 20 to 1 ratio over people who are happy with the offerings.

So, Google actually may be financially incented to create crappy products that people will complain about with the only real risk being that if they piss off politicians enough, they may get slapped with a massive fine.

Revenue decoupling has other natural problems, like how do you fund sales commissions, marketing and support? Typically, these are funded out of existing and anticipated revenue. The best sales people go where the best commissions are, and they aren't from free products. This may be the major reason why Google doesn't advertise much and why Google support is all but nonexistent. There simply is no money for it.

So, EMC can successfully execute on its Virtual Storage vision by focusing down on enterprise needs and placing a high value on customer satisfaction, because EMC's reward structure drives that behavior. Google's actually drives in the opposite direction, suggesting that in a head-to-head battle, EMC should kick Google's butt anyplace product quality, privacy and reliability are important.

Fortunately for EMC, the storage market is such a segment. Unfortunately for Google's enterprise effort, the storage market is not only mostly enterprise-focused, but also consistent with other enterprise purchases.

Wrapping Up

We often think of Google as another diverse company like IBM (NYSE: IBM), EMC, HP (NYSE: HPQ) and Microsoft -- just with a different level of diversity. It isn't. It is truly a one-trick pony. Its page-view advertising incentives actually promote low-quality offerings and problem products.

Something to remember when you see folks complain about problems with Google's offerings, low quality is simply part of its revenue model. This may be just one part of the dot-com hangover we just haven't wrapped our arms around.

Product of the Week: Riiflex Dumbbells for the Wii

I think most of us, especially me, sit on our butts too much and don't exercise enough. My belly is testament to this. So I spend a lot of time looking for products that can help me trick myself into exercising.

Riiflex Dumbbells for the Wii are covers for the Wii controller that are dumbbells. You can use them with some of the exercise titles or any gaming title and, trust me, they cause you to build up a sweat. They cost about US$30 and weigh about 2 lbs. each (you get two to a pack).

Riiflex Dumbbells for the Wii

(click image to enlarge)

When I play with the Wii for several hours, I often have trouble lifting or moving my arm for a day or so. With these dumbbells, I'm that way after playing for a few minutes, and I have the feeling that if I accidently hit my wife with one of these puppies I'd knock her out.

Granted, I'd more likely win the game -- which, come to think of it, is really important -- but she'd likely wake up really pissed. But that could be good for exercise as well, as I'm sure it would take her a quarter mile to run me down and beat the crap out of me.

Because this is yet another product that helps you exercise while having fun, the riiflex Dumbbells for the Wii are my product of the week. They almost didn't make it -- I was having trouble lifting my arms up high enough to reach the keyboard.