Free Business Models Case Study: Google

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This lecture looks at Google as a poster-child for the use of Free products as a way to build successful businesses.

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Free Business Models Case Study: Google

  1. 1. (Stanford BUS-21) Martin Westhead Mastering Marketing Free Case Study: Google How to make money by giving things away
  2. 2. Overview  History  Abundance Product Development  Max Strategy  Complementary Products “Free” by Chris Anderson - Free PDF / Amazon / Free Audio Book
  3. 3. Timeline  1999-2001 - Invent search that gets better with web scale  2001-2003 - Self service ads on searches  2003-Present - Services: extend reach and customer attachment - Advertize where it it makes sense
  4. 4. Google Today  Last year Google - $60M revenue - $14B income - 46K employees  Feb 2014 - 2nd Biggest company in the world $395.4B - Apple first at $463.6B
  5. 5. Abundance Product Development  “Would it be cool?”  Product ideas com from engineering - Google 20% - What can be done? - Would it be cool? - Will people like it? - NOT: Will it make money?  Sound crazy? - Maybe for GM or GE - Just way of life for Google  Monetization - Popular products are analyzed later for monetization options
  6. 6. Max strategy  Eric Schmidt, CEO Google - Max Strategy: “Take whatever you are doing and do it to the max in terms of distribution. The other way of saying this is that since the marginal cost of distribution is free, you might as well put things everywhere.”  E.g. Marketing “The Sopranos” with HBO - Facebook page - Viral videos - Extra footage - Plot updates via twitter - Website where they can learn more about the characters - Unused scenes on YouTube - Competition on which scene should have been in - Etc…  “Fill every crack in every pavement”
  7. 7. “Max” needs an monetization engine  Sopranos -> HBO  Google -> Adsense / Adwords  Your business you either: - Build your own - Leverage 3rd party - Partner - Acquisition
  8. 8. Complimentary products In economics, a complementary good is a good with a negative cross elasticity of demand. This means a good's demand is increased when the price of another good is decreased. Wikipedia
  9. 9. Google News Google products are “Complementary” to its search ads “The initial studies on Google News said that people were twice as likely to click on search ads on a subsequent search, so everyone said , ‘Great’. It a loss leader – a traffic getter. Sure it’s a service to the world and so forth, but a more sophisticated view of that is to say that the product is not Google News but Google. It’s all about engagement into Google and that if we can get you, at some point in your engagement with Google, to end up using Google for something that we can then monetize, the sums work.” -- Schmidt Google wants information to be free because as the cost of information falls it makes more money - Nicholas Carr “The Big Switch”
  10. 10. Scale  Reduces marginal costs - CPU, storage and bandwidth low and falling - Everything Google does is cheaper  Easy to trial new products - Betas - Massive customer trials - Kill failures quickly…they are cheap  Only way to grow is to increase Web usage - Free WiFi - Free internet access - More ways to use internet for more things
  11. 11. Google strategy  Build cool products - Figure out quickly if people like them - Kill off failures  Grow and audience  Think about monetization - In-house economists and biz strategists  Products - Canceled due to lack of uptake - Or not cool enough - Never because they won’t make money
  12. 12. Overview  History  Abundance Product Development  Max Strategy  Complementary Products “Free” by Chris Anderson - Free PDF / Amazon / Free Audio Book

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