ROI, Google, and the Revenue Imperative

June 27, 2011

I had another conversation with the owner of a Web site which has been slammed by Google’s Panda updates. Google’s cash machine is based on an idea that originated at Idea Labs’ years ago. When made its début, I was interested in the impact of paying for traffic. It struck me in 1998 that relevance as defined by the university information retrieval PhDs was a gone goose. Forget precision and recall. Sell an advertiser a click which would be displayed on the screen of an “average Internet user.” Close enough for horse shoes. Most Web searchers in 2001 when was floating its secondary offering would not know how to figure out the provenance of a Web site. A search for “car rental” was good enough if it displayed links or ads to Avis or Hertz. Easy quick and, as I said, “Good enough.”

Flash forward to the world since Google. In the US, most consumers of digital information continue to struggle with figuring out if a hit is a straight arrow or bent like a bonsai tree.


It sure looks natural, but the entire tree is artifice. The same applies to “free” Web search results and content.

You will be surprised to learn that I am not writing about Panda. I am writing about why Panda is important. Panda is designed to clean up the Google index so that ads [a] become more useful because lost in a Mississippi flood of clutter, advertisers grouse. And [b] Google is not having much success generating significant revenue from its other products and services. You don’t need me to point out that Android is predicated on Google having a bobsled run to display search results – actually ads – to the millions of mobile users. If you think determining provenance of an alleged “news story” or “white paper” is tough on a desktop device, the mobile device makes the exercise even more difficult. In fact, our work on The New Landscape of Search makes it clear that even for purpose built search systems, users are pretty inept when it comes to finding and knowing how to separate the knowledge goose feathers from the giblets. (I don’t remember who coined that memorable phrase.)

Google in late 2010 mounted a bit of an enterprise marketing effort for its Google Apps business. There have been other iron lung efforts since then, but at the Inside Search event held before the Googlers raced off to their vacations in Tibet, the Google enterprise initiative has lacked oomph. In fact, in the Page turning revolution, the enterprise sector was not elevated to the Delphic status of Googlers in charge of mobile and knowledge. That’s an important signal to me in Harrod’s Creek.

In fact, if you don’t know the “enterprise story”, you may find the “objective” Forrester white paper or report interesting. The white paper “Measuring the Total Impact of Google Apps” is available from TechRepublic. The link was not working. You can locate this and similar papers by searching for the title on Google, of course. Try this link. No guarantees, however.

The idea “total impact” is interesting. I recall reading something by that Joseph Schumpeter economist person who suggested that economics did not lend itself to “total” analysis. There are lots of moving parts, so economists take short cuts and focus on static snapshots. We know how well that’s working in the present financial climate.

The Google white paper ignores the “total” logic problem and trots out a survey and business consulting baloney to explain that Google Apps is a slam dunk, home run, hat trick winner for business. Here’s a chart that shows how much of a pay off one gets in a business from Google Apps.

google apps roi

Source: Forrester, 2010, page .5 from “Measuring the Total Economic Impact of Google Apps.”

There are 40 pages of charts, tables, and exposition. Here’s the snippet I marked on trusty iPad whist walking to nowhere on the exercise club walking gizmo this morning:

Based on these findings, companies looking to implement Google Apps as part of their messaging and collaboration  strategy can anticipate improvements in operational efficiency, end user and IT productivity savings, and additional  flexibility benefits. Using the TEI framework, many companies may find the potential for a compelling business case to  make such an investment.

In case you have forgotten your biz school buzzwords, TEI is “total economic impact.” Herr Schumpter would not award an A for this use of the word “total” I surmise. In fact, this type of marketing is interesting, but instead of making me want to buy, I ask the question, “If these assertions were accurate, why isn’t Google Apps generating really, really big enterprise revenue?

Iron lung marketing? It may have to work and fast in light of this type of headline, “Google Execs Eric Schmidt, Larry Page Threatened with Senate Subpoena.”

Now back to Panda: Panda is a big deal precisely because the Google has not been able to pump up non ad revenue in a meaningful way. The investigation of the Google for its handling of search results is a really big deal because anything that makes advertisers suspicious about the systems and methods of Google’s “relevance” ranking can submarine the Google’s cash intake.

If Google Apps and semi-orphaned hardware like the Google Search Appliance were generating billions in revenue, I could understand what appears the cavalier approach to the US government’s investigations of Google’s business practices. It is precisely because the return on investment of Google’s non ad products and services that makes this particular legal challenge one to watch.

Imagine that Google had in the last decade built alternative revenue in the manner of Apple. Would Google be on the hot seat for ad and search related allegations? Apple is probably more control oriented than Google, and Apple enjoys a comparable, maybe even greater, market dominance than Google.

Nope, Google has failed at revenue diversification in my view, and that dependence on ad revenue may prove to be a jammed parachute on the Google drag racer.

Google has not diversified or built and Apple-style ecosystem. There is in my mind a likelihood that Google figured out what Apple was doing. The difference for me is that Apple executed. The Panda push is not trivial. The disappointing revenue from Google’s enterprise unit and its other non search ad activities seems to be one of the firm’s most interesting shortcomings.

The question becomes, “Will Google be able to handle the relevance questions as those questions related to ads?”

If yes, the Googleplex will glow with more Odwalla, more projects like driverless autos, and more appearances by Tony Bennett.

If no, the Googleplex will face one of those Peter Drucker discontinuities.

Remember Google has been working to generate additional revenue streams for a decade. Even an MBA with a minor in economics from my hapless alma mater would be inclined to skepticism. I majored in medieval Latin homiletics and I sort of understand that Panda is more than ruffling the feathers of a few unscrupulous SEO experts and some soon-to-be-working-at-McDonalds’ Web masters.

Panda is a window into the Google iron lung.

Stephen E Arnold, June 27, 2011

You can read more about the Google Search Appliance in The New Landscape of Enterprise Search, published my Pandia in Oslo, Norway, in June 2011. There’s not much business school lingo in this analysis, but the notion of an “orphaned product” may be interesting to some readers.


2 Responses to “ROI, Google, and the Revenue Imperative”

  1. Google: Behind the screen | Witness This on June 27th, 2011 3:35 am

    […] ROI, Google, and the Revenue Imperative […]

  2. dbv on June 27th, 2011 3:38 am

    Another way to look at it … Pandia could also be a response to known biased relevance in previous generation of service to assuage the tricky questions coming their way from the various hearings and investigations. “Mom, Don’t ground me for hitting that kid yesterday, I’m behaving differently today”.

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