Google’s Business Model

Dan Gillmor writes:

Consider the new breed of advertiser in the online world. Google’s text ads, which pop up after someone searches using keywords, cost in most cases a small fraction of what it would cost to advertise in a local newspaper or broadcast outlet.

In other words, Google and the other companies in this space are attracting ads from businesses — including businesses that are as small as one person in a home office — that in many cases never advertised before.

The potential for this is larger than most people have recognized. In theory, the Net-based advertising market is almost unlimited — extending to any one person with any one thing to sell.

Google will have all kinds of company in this expanding world of advertising. That will include, I would expect, many of the more traditional media companies that will see a chance to expand their advertising base beyond the equivalent of the blockbuster (expensive) model that now prevails.

The competitors will also include big companies that have already shown an appreciation of Net-based economics. Microsoft, Yahoo, eBay and at least a few others will certainly be among them.

Google will also find competitors, small ones, out at the edges. And some of those will be new entrants that are figuring out ways to create targeted advertising without massively centralized infrastructures. The principles of peer-to-peer file-sharing will come to the ad marketplace, too.

Google is unquestionably positioning itself in a smart way. The critical mass it’s creating may even prove unbeatable, or turn into a new kind of monopoly that sucks up an astonishing portion of all advertising dollars into its corporate coffers. (That would be a dangerous dominance if it happened.)

Today, eBay, online classified-ad sites and traditional media are the marketplace of choice for the single-item seller. Ultimately, Google and others could even go after that market.

How many dollars (and euros, yen, pesos, renmimbi, etc.) will there turn out to be in the low-end advertising market? It’s a big, big number.

What’s interesting about it is the point that Google essentially focused on the non-consumers of advertising – it was a “disruptive innovation.”

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Rajesh Jain

An Entrepreneur based in Mumbai, India.