My View: The Google Future

October 31, 2005
My View: The Google Future
by George F. Colony








EXECUTIVE SUMMARY
Google will define the future of software.



Last year, I wrote that Google would fade. I said that search's lack of stickiness, combined with crushing competition from Microsoft and Yahoo! and a changing Internet, would mute the company's prospects.


I was wrong.


But not for the reasons that you think I'm wrong. You're reading in every business magazine on the planet right now about Google's lead in Internet advertising, the $100 billion valuation, all of the brilliant people joining the company, the company's strong financial performance, and how smart Sergey and Larry are.


All of that is true. But none of the conventional and obvious wisdom captures the real importance of Google. At the risk of sounding overly dramatic, I believe that Google will revolutionize the software business. It's a complex story, but I'll try to keep it simple . . .


Most of us use two types of computer software: 1) programs like Microsoft Word or Oracle Financials, and 2) Web files — like a corporate intranet or Amazon. You can perform many tasks with programs because they are executable; they contain millions of lines of computer code that enable you to underline words, calculate profit and loss, check spelling, etc. You pay for programs — ostensibly to defray the high cost of writing all of those lines of computer code.


In comparison, the Web files we use are like documents. When you click on a link for a site, the server at that site sends you pages of information. Web files are mostly static — they can't do much compared with programs. Their limited functions (buy buttons, search) don't execute on your computer — the server that you are connected to does most of the work.


So it's pretty simple: Programs can do things; Web pages are static documents. Here's where the plot thickens.


Forrester has predicted that Web pages will get replaced by programs — we call this executable Internet (X Internet). In the future, when you click on your bank's site, servers will download a program to your computer, not static pages. Once that program is installed, you will be able to "converse" with your bank, run financial models, analyze your net worth — do much more than you could have with old Web pages.


Google will be the company that leads this revolution. It is already writing programs like Google Toolbar and Google Desktop Search that run on your computer but blur the divide between your desktop and the Internet. And they are very powerful programs. Do a test. Search in Microsoft Outlook for an email from a friend — for me the search took 21 seconds. Then try the same search in Google Desktop Search: 5 seconds.


Google is also leading a pricing revolution. Google's programs are free, funded through advertising and syndication. This is a prescient move. I foresee a world in which even enterprise applications like financials, ERP, and supply chain software will be advertising-funded.


So here's Google's playbook: 1) have the best search; 2) have more of the world to search than anyone else through the digitization of university libraries, earth images, maps, etc.; 3) attract the most advertising and syndication; enabling the company to 4) give all of its software away for free; which enables it to 5) change the rules and economics of the software business and define the future through its pioneering work in X Internet.


What It Means No. 1: Large corporations should get Google executable Internet programs onto their corporate desktops. Google Desktop Search, Google Toolbar, and Google Maps will drive productivity. In addition, this move gets corporate IT ready for a world in which free executables will begin to proliferate. IT staffs will learn to incorporate Google's programs and application programming interfaces into corporate Web experiences.


What It Means No. 2: Google' stock price may not be insane. When you are restructuring an entire industry, your best years as a company typically lie ahead.


What It Means No. 3: Vista (formerly Longhorn) had better be fantastic, and Microsoft had better be able to re-spark its culture of derivative innovation. Bringing back stock options may be the first stop on that journey — as a way to re-attract the best and the brightest. I predict that Microsoft, under attack from advertising-funded software (and other factors like open source), will lose its monopoly-driven 25% net profits over the next several years, having to settle for 13%-15% nets (still astronomical compared with the average for most large corporations).


What It Means No. 4: The coming of executable Internet fundamentally changes the software and Internet landscape. Microsoft is an obvious loser. The closed, centralized architectures of Oracle and SAP will get a bunch of new salesforce.com-type challengers over the next five years. Amazon, AOL, eBay, and Yahoo! will be stuck with old Web-style experiences — not as easy, fast, and customizable as the executable Internet experience. That is why Google may be so dangerous for its Internet brethren — it knows programming and they don't.


In the past year, Google has proven to me that it is way more than just a great search company. It can jump into the program game — and play under a completely new set of rules: executable Internet and free. Unless Larry and Sergey lose focus and the company's charter devolves into esoteric pet projects, Google is going to change the world.


George