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Two weeks ago Google announced that they would be closing down Google Reader, and last week they launched Google Keep. The two products have nothing in common, but the timing was not what you would call perfect.
A lot of people, angry about the prospect of losing Google Reader, commented that we can't trust Google Keep to stick around either.
John Gruber wrote:
Trust your thoughts and ideas to the makers of Google Reader. Good luck with that.
Om Malik wrote:
It might actually be good, or even better than Evernote. But I still won't use Keep. You know why? Google Reader.
I spent about seven years of my online life on that service. I sent feedback, used it to annotate information and they killed it like a butcher slaughters a chicken. No conversation - dead. The service that drives more traffic than Google+ was sacrificed because it didn't meet some vague corporate goals; users - many of them lifelong - be damned.
And many others shared similar sentiments.
I get why people are saying this, and part of me agrees. Closing down Google Reader is awful because it was such a useful tool, and we simply don't have any other product that can match it. Services like Feedly are great, but the key to Google Reader was how it integrated with 3rd party services.
I understand why people are angry, I share your point of view.
But there is a much larger trend here that explains why Google Reader had to go, and why new services like Google Keep are not just yet another free service that Google might close down in the future.
It all has to do with the future of Google and the end of the free culture of the web.
For most the 2000s, the dominant culture on the internet was free, either supported by advertising, or by the vague idea that having a ton of data about people would make money rain down from the goldmine in the cloud.
In terms of data, we haven't really seen that many examples of the value of data yet. Sure, Facebook bought Instagram for one billion dollars, but that is perceived value that cannot be translated into real money outside the imaginary world of the shareholders and venture capitals.
So the whole idea of having value just because you have a ton of data is worth much less than we think. This is the world of Google Reader. It didn't create any revenue, but it was filled with data about what we followed and what we shared. This was once thought to be amazing (and most likely why Google made Reader and acquired Feedburner in the first place). But the reality is that the value of all the data wasn't that much.
So what about advertising? Well, what we are seeing are three trends:
The short version of this is that while the digital advertising market as a whole is growing, the actual money earned per ad impression is getting worse and worse. Yesterday, Frédéric Filloux of the Monday Note posted this graph illustrating the changes in the digital newspaper market in France.
The conclusion is dreadful. Not only do audiences massively flock to mobile (more visits), but people spend more time in their favorite media app (with an even greater increase in page views) but, also, each viewer brings less and less money as ad revenues grew slower than visits - by a factor of two - and slower than page views - by a factor of three.
The bottom line is that the two major factors that have kept the internet 'free' are starting to diminish and are being reevaluated. Free is no longer a viable long term business model, because the advertising revenue per view/click is dropping and the imagined worth of the data is far less that what was originally assumed.
Something has to be done, and that's exactly what Google is doing. It's moving away from free, just like everyone else is doing.
So how does that work?
Google Search is likely to always be free, monetized by advertising and targeted with data, because those three factors combined are like a match made in heaven. Search is something people do when they are looking for something. Advertising gives people something to find, and the data creates relevancy at the right time and in the right context.
So Google Search will always be free, in fact Google makes most of its money from Google Search (something like 75%). Of course, Google will also make sure that advertisers have to pay, and continue to optimize the value of those ads.
But what about the Google services that are not directly part of Google Search?
Let's start off with Google Keep. Many see it as yet another free service because you can use it without paying anything. But it's not free at all. It is, in fact, tied into Google Drive. The more notes you create, the more clipping you add, and you take up more and more space on your Google Drive account.
Same with Google+. Yes, you can use it for free. But then if you have a smartphone and you upload images larger than 2064px, those two count towards the space on your Google Drive account:
If you have turned on Instant Upload on your Android device, photos you take are stored at full size. All photos uploaded are stored privately in the cloud, which means you can access them and share them at any time. You'll be able to upload and store full size photos and videos up to 5GB. When you're beginning to run low on storage, you'll see a notification in your notification tray. If you run out of Google Drive storage quota we'll automatically switch to storing photos at standard size. You can purchase more storage space, if needed.
Same with Google Docs, which is now also part of Google Drive.
And Google Drive is only free for the first 5GB of data. To some that might seem like much, but once you start to use Instant Upload from your phone, those 5GB will disappear very quickly.
In fact, just using Instant Upload from my Nexus 4 to Google Plus, I'm using up 1.4 GB of space per month.
And Google is not a free service. It's a freemium service, with the first 5GB for free, and then you have to pay:
So when it comes to services like Google Keep, it's not even relevant to compare it to Google Reader, because it's actually a free service. Google Keep is a 'feature' of Google Drive, which is a premium storage solution in the cloud.
So what about Gmail? It's the same thing. You get 10 GB for free, but once you exceed that you have to ... yes you guessed it ... buy more space on Google Drive. Same for Gmail for businesses. Here you have to pay for both Gmail itself and for the space you use ... again via Google Drive.
You see what's going on here? Google is no longer a free service? It's a premium service where you pay for what you use via Google Drive.
And also look at YouTube. There is no need for Google to monetize that via Google Drive, but like any other service it too is challenged by the growing inventory of advertising (which leads to diminishing value per view). This is why Google is currently looking into creating YouTube Premium Channels, in which content producers can create subscription based video channels, of which Google will take a cut of the revenue.
YouTube is also moving away from free.
Or what about Google Analytics, the free analytics suite that we all use? Yep, they too are starting to talk more and more about Google Analytics Premium. Or rather, we are seeing an increased chatter about the limits of the free service and how and when 'sampling' is applied. Right now, there are only two models. Free analytics up to 10 million hits and 50,000 rows of data, and an amazingly expensive premium model that costs $150,000 per year.
Right now, that's pretty insane. But what I'm seeing here is a huge opportunity to create a number of premium plans in between this. I don't expect this to happen in 2013, but I wouldn't be surprised at all if Google Analytics will end up having a payment plan similar to Google Drive within the next five years.
And then we have music, apps, movies, magazines and books, which in the past were also based on some concept of free. But today we are channeled into the Google Play Store.
All of this points to an amazing transformation. Google is no longer a free service. Instead it's a premium service combined with an entry-level freemium model.
In fact, it's just like the New York Times. When you visit the New York Times, you can read 10 articles for free, after which you have to buy a subscription. It's the same with Google. With Google Keep, for instance, you can use it for free up until a point, after which you have to buy a subscription to Google Drive to get more space.
Just think about that for a moment, and how dramatically it changes everything.
Look at startups. Most startups today are based on the free model of Google, or rather what Google used to be in the past. It's all about getting enough to become a platform and then monetize it via advertising and the data you have collected about your users. Just like Google used to do it.
But Google realized, like many others, that the free platform model is in decline. The advertising income per user/view/click is dropping and the data is not worth that much. So the solution is to go premium.
And it's not really about the money. The real trend is the Trend of Abundance. In a world where the number of choices are growing exponentially, the value of each interaction will drop. That is simple math. 100 divided by 10,000 is worth much less than 10 divided by two.
So Google is moving away from free. And every single one of their 'spring cleaning' operations has been a part of this overall premium strategy. Google Reader, among others, was dropped because it doesn't fit any part of the new premium model.
Google Reader could not be integrated into Google Drive as it didn't take up any space. It couldn't be turned into a premium content channel, like Youtube, because it didn't have the volume for the individual channels (nor the exclusivity). Nor could it be turned into a premium model like Google Analytics because people, on average, didn't follow that many channels.
Google Reader was a misfit and it had to go. It's also why we can't compare it to Google Keep because Keep is already monetized by Google Drive, and it's part of the long term strategy for where Google is heading. That's why Google Reader had to go and Google Keep is here to stay.
In short, if we were to divide Google into how each service is monetized, it would look something like this:
Google Adwords funded services are all those that can be effectively targeted against advertising, mainly the various forms of Google Search. Search and advertising are a perfect fit.
Today, we can also find Gmail and Blogger within this monetization group, but look at Gmail on mobile - there are no ads. So Google has to find another way to monetize that.
This leads to the Google Drive monetized services. In this category we find every product or feature that takes up space.
... and yes, GMail.
This is how Google is going to monetize Gmail in the future.
Then we have the professional features with the Google Business funded services. Here we find:
All services that businesses need, and all of which are being turned into paid for services if you are a company.
Then we have Google Play, which is all about the sale of 3rd party content on Google powered devices. These are:
And that's not just via Android phones, but via any other Google powered device - even in the browser. Google Play, like Apple's App Store or the Kindle Store is Google's bid to become the favorite destination for buying content.
You shouldn't be surprised, for instance, if Chrome Web Store will merge with Google Play within the next year.
Of course, Google Play would be nothing without Google's products. Here we have:
And, in time, Google Fiber.
Then we have Google Tools. Right now this is a sketchy category, but it's all about giving people highly valuable tools that make the rest of Google more interesting to professionals. Most noticeably is the Nik Collection from Google.
This is a set of excellent tools for photographers, which when you combine that with Google+ full resolution Photos and Google Drive makes a lot of sense.
And finally, there's Google Essentials. These are free services that allow Google to continue to dominate the market. In this category we have:
All the tools and features that you need to become the dominant platform in the connected world. This is the framework that allows Google to be all the other things.
Anyone who still believes that Google is all about giving everything away for free, hasn't really paid attention to just how much Google has changed. Google is not a free service anymore. It's a premium channel.
So what is the next major Google service facing dramatic changes? My bet is Blogger. Like Google Reader it doesn't really fit into any of the above categories. Today it is largely monetized by advertising (for the few who have enabled it), but there are no ads on mobile. And a blog doesn't take up that much space, so it can't be integrated into Google Drive. And the current state of blogger makes it less interesting for brands, compared to Wordpress, Squarespace or Tumblr, so there is little future in creating 'Blogger Premium.'
I don't think Google is going to drop Blogger, but I also believe that they don't really know what to do with it right now. One possible solution is to merge it with Google Plus (a process that has already begun, albeit in the form of integrating G+ into blogger), which would benefit both platforms. But Blogger is kind of a black sheep at the moment.
You have to look at all of this as a trend. The internet is growing up, the number of choices are reaching infinity, and with this comes the end of free.
I don't mean free is going to go away (it won't), but look at most startups. 99% of them are based on free, monetized by ads. But for most apps, that concept is not going to work anymore.
Last year a startup wrote to me about an app that would locate the nearest gas station from your phone (ranked by price). It was supposed to be free, and monetized by advertising.
The idea is not bad one (although it is also somewhat mediocre), but they expected to make a living just from this app because that's what Google do (well, used to).
But the math simply doesn't add up. Let's say you have a million monthly users, each checking the app 4 times per month (4 million views). With a mobile app, where the ads are not relevant to the app itself, the click-through rates would likely be 0.06%, with a CPC of 50 cents (of which you earn 60%), and the total ad revenue per month will be $720.
And this is what I mean when I say that we are seeing the end of free. Yes, if you have a business where you can target the ads directly to the activity that people engaged in, or if you turn advertising into part of the content (Facebook promoted posts, Buzzfeed advertorials), then advertising still makes a lot of sense.
But the concept of just making everything free in the hope that you will get rich from advertising no longer works.
In other words. Free is not enough anymore. You have to be more than free.
Google+ is free, but you have to pay for storing your images. Gmail is free, until you hit the limit. Android is free, but you have to pay for anything you buy in the Google Play store, and you have to pay for the Nexus devices you buy. Chrome is free, but you have to pay for the Chromebook.
You see how the digital world has changed? Many people think the digital revolution is print to digital. But we are now seeing a second shift, from digital-free to digital-premium.
Free is not enough anymore, not even for a company as big as Google. We have so much choice via so many channels that a key element to success is not how much traffic you have, but how much value you create.
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