WSJ writes about the impact of Google’s free services:
Google’s announcements in recent weeks indicate that the company’s online advertising network could have a far-reaching impact on companies whose businesses are outside Google’s traditional turf. In effect, the tremendous revenue stream Google enjoys from ads subsidizes its entry into new lines of business, which in turn can generate more ad revenue. Some industry executives point to voice calling, cellphone service, console videogames, premium TV programming packages and digital music as areas where Google or its partners could supplant fee-based services with free, ad-supported ones.
“There are times when advertising does a better job than traditional business models at monetizing” services, says Marissa Mayer, Google’s director of consumer Web products. She describes the simple calculation, which Google did early in its existence, as to whether a company can generate more revenue from advertising than it can from charging fees to its users. In Google’s original business, it estimated the potential revenue from ads far outweighed what consumers might be willing to pay annually for its Web search services. Now, Ms. Mayer says, Google is trying to help book publishers, video content owners and others tap online ad revenue and make similar calculations.