Tuesday, May 24, 2005
You Can’t Underprice Free
Bill Gates is not used to losing.
But his company and its government-sanctioned monopoly on desktop operating systems is losing big time as the world moves away from doing things on computers to doing one main thing with computers.
That one main thing being, of course, getting on the Internet.
Once on the Internet, people can read the news, visit their friends, plan trips, buy cars, order the groceries, trade stocks, get a college degree, run their business—and when they flick on their computers, what people care about is finding all that stuff quickly and easily.
What people used to care about when they flicked on their computers was using the newest versions of Excel and Word, Start-buttons and tabs and self-adding tables and insertable charts—stuff that, nowadays, is taken for granted while you're searching for something out in the real world.
And since Microsoft really excels at things like Start-buttons and tabs and self-adding tables—the stuff that's taken for granted—but does a horrible job helping people use the Internet, Google is running away with the ball.
Actually, Google is running away with the advertisers who want to reach those internet users utilizing Google to find what they want. So what we have is an internet-based company in business not to generate “eyeballs” or “reach” but to generate real revenue.
And Google generates plenty of real revenue.
Two years ago, Google’s first quarter advertising sales were not quite $250 million, while the New York Times generated $783.7 million in advertising sales.
This year, however, Google’s first quarter sales exceeded $1.2 billion. Meanwhile, the Times generated $805.6 million in sales.
In other words, Google’s sales grew almost a billion over a two year period, while the Times’ sales grew a little over $20 million.
Oh, and the Times was founded in 1851. Google was incorporated in 1998.
This is why the newspaper industry—and I have owned McClatchy, a very well-managed California newspaper chain, for many years—is in more trouble than it wants to know.
But it is also why Bill Gates is getting—excuse the word—bitchy. He’s not accustomed to losing, and his company is losing ground very quickly.
Just yesterday Gates, like a whiny rich guy—hey, he is a whiny rich guy—whined about Google at a Wall Street Journal technology conference.
Reports today’s New York Times:
“Google is still perfect, the bubble is floating and they can do everything,” Mr. Gates told the moderator sarcastically…
Meanwhile, Gates was announcing the availability of…drum roll…satellite imaging technology that would be available—as always, with Microsoft, some time in the future.
Google, of course, has had satellite imaging up and available since last year.
“There’s going to be a lot of competition in the mapping area,” Gates said, ominously. He promised Microsoft’s mapping service would take things to “a whole new level.”
What Gates doesn’t get, however, is that it’s not about satellite mapping. It’s about search. The maps—Google’s maps are far better than anything Mapquest offers—and the satellite images and the rest of what Google offers is all about keeping you on their search engine.
And since Microsoft’s basic business is encouraging people to buy computers loaded with Microsoft software which does stuff nobody really cares about any more, while Google’s basic business is providing people the best way to navigate the internet—which is what everybody cares about—Gates is probably going to be whining for a long time.
I’m not saying Microsoft will never catch up to Google, technology-wise. One thing about Microsoft—and I made a career out of shorting companies such as Lotus, Netscape, Borland and Novell after Microsoft targeted them for certain death—is they always spend the money and they always, eventually, get the technology good enough for a user to switch to the low-priced version.
But in the case of Google—as with Adobe’s PDF technology—Google is available for free. Therefore, Google has no price structure to defend, except in the advertising world. And as long as Google has the user base to attract the advertisers, Bill Gates will be hard-pressed to undermine Google’s position as the Interstate Highway System of the Internet.
Because you can’t underprice free.
I Am Not Making This Up
The content contained in this blog represents the opinions of Mr. Matthews. Mr. Matthews also acts as an advisor and clients advised by Mr. Matthews may hold either long or short positions in securities of various companies discussed in the blog based upon Mr. Matthews' recommendations.
Posted by Jeff Matthews at 9:01 AM