A Look Back At The Worries That Google Would Never Make Money

from the oh-look-at-that... dept

Mon, Mar 23rd 2009 8:48am — Mike Masnick

Last week, in response to Clay Shriky's wonderful look at journalism business models, I wrote a post about the fact that you can't wait for the perfect business model. I was amused to find some comments pushing back on this -- including one that specifically pointed out that Twitter and other social networking companies could never make any money. In response, I pointed to both Google and Craigslist as companies that were once in the same spot, but the commenter insisted that was ridiculous, because both had business models.

This is retrospective thinking. It looks back on things and pretends that it was obvious how Google and Craigslist would make money. It was not.

Craigslist was mainly a hobby for Craig Newmark for a while -- and every part of it was "free." It was only later that a business model was developed. And the situation was even more crazy with Google. I have admitted in the past that I never thought Google could make enough money to survive -- and it was something I was very, very wrong about. But, at least I wasn't alone. Howard Lindzon points us to an article from 2000 in Business Week fretting about Google's ability to come up with a real business model. Business Week wasn't the only one. I remembered a similar article in Wired, and just dug it up. It ran in October of 2001, and pointed to the huge dilemma Google had in proving to its VC backers that it was a good investment. Some quotes from both articles:

But how will Google ever make money? There's the rub. The company's adamant refusal to use banner or other graphical ads eliminates what is the most lucrative income stream for rival search engines. Although Google does have other revenue sources, such as licensing and text-based advertisements, the privately held company's business remains limited compared with its competitors'. -- Business Week

The dilemma? Behind the anti-corporate facade, Google is in fact a company - even worse, a venture-backed company - and these days that means it must find a route to profitability fast or risk failure. Given that its far more commercial competitors, from AltaVista to Ask Jeeves, have been unable to come close to positive territory (the one moneymaker, Yahoo!, started as a directory), Google's prospects might seem bleak. -- Wired

This doesn't mean, of course, that sites like Twitter and Facebook will definitely find business models. But, it should give you pause before assuming that they can't. Business models often seem obvious in retrospect, but at the time, it's not clear at all. I wouldn't put it past the team at Twitter to come up with something that works (I'm a bit less sure of the team at Facebook... but we'll see).

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Filed Under: business models, history
Companies: facebook, google, twitter

23 Comments

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RD, 23 Mar 2009 @ 9:12am

This means YOU WH
"Last week, in response to Clay Shriky's wonderful look at journalism business models, I wrote a post about the fact that you can't wait for the perfect business model. "

This means YOU WeirdHarold.
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Weird Harold, 23 Mar 2009 @ 9:27am

DUH! NSS.

The funny part? I didn't expect to make so much of an impression on Mike in such a short time. If nothing else, I have him checking his sources twice and going back to look for errors.

Now, on to the show.

Saying that Google had no business model (but already had text ads) is sort of laughable. I don't think they realized how profitable those text ads could be, but they had long since established the layout that would make it all work. If they had not considered text ads up front, then they would have absolutely no business model. Their business model has expanded since.

Craigslist is pretty much like any real world business. It would be no different than someone who likes to bake being asked by a small local shop to maybe make some stuff they could sell rather than just giving it to friends. That works out, so they hire someone to help, and so on. They didn't start with the intention of making money, but as soon as it was obvious they had something they went the business route. A clear route to monetization is important.

Twitter on the other hand has been around a while now, and still has no real business plan that is clear, no way to monetize what they are doing. Tweets may be too short to support advertising, users may be turned off by advertising when they are browsing tweets, and so on. At this point, the only potential monetization is sending back ads to the poster, based on where they are - but again, that would likely hurt the user experience enough to make it not work out.

Facebook is worse, because Facebook is on their Xth format change in the last 2 years, is serving more and more users, but has not come up with anything past "and we put banner ads on the pages" to make the money come in. Those users are all but immune to advertising (especially when most of it is as lame as facebook ads) and because they don't actively patrol the plugin apps by third parties, their site is a hellhole of fake ads, misdirections, and blind links (some of which lead to some pretty nasty stuff). Now they have buried the plugins, and the guys who were writing them and making money are peed off, their business is dropping. Basically, Facebook gave away all the profitable bits of their business to third parties, and left themselves with the expensive part of hauling the digital mail, as it were.

Both Twitter and Facebook also are exposed to the risk of rapidly going out of style. Facebook potentially will hit saturation at some point, no more old school friends to find, etc - and then usage slips. Twitter is even easier to replace with a similar or improved product. Meanwhile, the owner has said there is no need to turn it into a real business any time soon.

In a way, it gets back to the problem of free. It's easy to find ways to give away stuff, information, whatever for free. It is harder after the fact to back into a true business model. Both Google and Craigslist were built to be businesses. Facebook and Twitter, well, it's not so obvious.
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Joe, 23 Mar 2009 @ 9:32am

great perspective
Thanks for reminding us of that point (the concern that Google lacked a business model). If you have users in an online business, money will follow. The question is how much money? How skilled are the managers at monetizing their traffic? Twitter has dropped the ball. I think that lies at the feet of the people running Twitter for they certainly have had the opportunity to generate revenue but have not focused on same.

One historical comment on the Google situation. Those who worked in the web search field in 2000 knew there definitely existed a successful business model for search engines--the old goto.com. This model was essentially copied and improved by google with adsense. Goto.com, for some unknown reason, changed their name to overture and then were bought out by yahoo. The yahoo paid placement for search and text ads was born out of overture's system.
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Anonymous Coward, 23 Mar 2009 @ 9:37am

"Saying that Google had no business model (but already had text ads) is sort of laughable. I don't think they realized how profitable those text ads could be, but they had long since established the layout that would make it all work. If they had not considered text ads up front, then they would have absolutely no business model. Their business model has expanded since"

Jesus ass-fcking CHRIST!! THATS WHAT EVERYONE HERE HAS BEEN SAYING YOU GOD DAMN IDIOT!! Holy shit you are the most obtuse moron I have ever seen. This is EXACTLY the TYPE of "new business model" that has been touted here. To try new BM's and grow them into something. If (and its an IF, there is no blueprint yet) one of them takes hold and "hits" like Google did, then they got a barn-burner. But without TRYING ANYTHING NEW (which is YOUR suggestion) none of these BM's will ever be found. And in your whining about how "free cant work!" you still have never answered the YouTube question. Or BAEN books. And its because it doesnt fit your "Free cant work!" and "Free is giving EVERYTHING AWAY!!" ideology.
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Jeffry Houser (profile), 23 Mar 2009 @ 9:42am

If I had to bet money on it..
If I had to bet money on it, I'd have sworn that Facebook is more likely to developer a working business model than Twitter.

Of course, that may be because I use Twitter constantly, but Facebook only to respond to people who comment on my tweets (syndicated to Facebook ). If I were more, or less familiar, with either one my thoughts may be skewed either way.

I had a conversation with someone when Tweetdeck got some angel funding. People claimed that a free program built off a free service could never make money. I don't know how it'll make money, but I don't think it's impossible.
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Anonymous Coward, 23 Mar 2009 @ 9:57am

Re:
WH has an angle, I'm not sure what that angle is, but this guy (or perhaps gal) is on a mission. A troll would not go to these efforts... perhaps a REALLY bored troll, but I don't think so.
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Killer_Tofu (profile), 23 Mar 2009 @ 10:02am

Re:
He has an extremely long history of contradicting himself. It only really matters for whatever point he is trying to make.
My case in point is the last post that was done to techdirt regarding the PRS and YouTube.
He kept saying that google was evil and should take down the stuff if they couldn't comply.
Funny thing is Google already did that near a week ago, but he kept speaking as if it never happened but needed to.
He is just either too dense to talk to or understand anything other than his own little world, or it really is all satire and a joke.
Even above he states now for the show.
I now believe Harold is not really that stupid.
He only posts here to argue a ton so he can link farm back to his home page. Although that is kind of funny because I think I recall Mike saying at some point that the links are all no-follows. So his search engine optimization is kind of pointless because it doesn't help here.
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Ima Fish, 23 Mar 2009 @ 10:05am

Google is profitable? That's impossible. Everyone knows you cannot sustain a profitable business based on free.
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Andrew, 23 Mar 2009 @ 10:05am

On the Internet...
On the internet we only speak in definites. There is never doubt or allowance for exceptions! It is always one way or the other!
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Anonymous Coward, 23 Mar 2009 @ 10:06am

Re: Re:
Wierd Harold IS mike, hes just trying to get some more debate in the comments
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Anonymous Coward, 23 Mar 2009 @ 10:31am

A good plan violently executed right now is far better than a perfect plan executed next week.~ George S Patton

Success in business is based more on luck, being in the right place at the right time and being persistent.
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dale surrett, 23 Mar 2009 @ 10:52am

a look back at google
Excellent article. Helps people like me get the Big Picture.
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Jesse, 23 Mar 2009 @ 10:54am

I second that weird harold is Mike. It's the only thing that makes sense.
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Weird Harold, 23 Mar 2009 @ 11:12am

Re:
Google ain't free.

NEXT!
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Weird Harold, 23 Mar 2009 @ 11:14am

Re:
Mike isn't inventive enough to come up with me.

But if he was smart, he would be looking to book me for events to have debates in public. I don't mind dodging tomatoes.
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Derek Kerton (profile), 23 Mar 2009 @ 11:35am

Re: Re: Re:
Yeah, because there is so little debate without WH!??!

Smoke another. Take a look at how much Mike writes, then add in running his two businesses, then add in replying to every smart -and idiotic- comment posted here, and then tell me what part of his spare time you think he assigns to posting under an assumed name for the purpose of sparking more debate.
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Derek Kerton (profile), 23 Mar 2009 @ 11:37am

Re: Re:
And as a consumer who uses Google for search, I've paid them how much? Give me the number so I can go back and check my credit card statements.
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Anonymous Coward, 23 Mar 2009 @ 12:00pm

Derek, how about the higher price you pay for products that are advertised on Google?
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RD, 23 Mar 2009 @ 12:43pm

...
"Google ain't free.

NEXT!"

And once again, you hang your ignorance out for all to see.

You just dont GET IT, do you?

THE CONSUMER DOESNT PAY TO USE GOOGLE. And yes, there are "costs" for GOOGLE but that is GOOGLE's PROBLEM. I, as a consumer, DONT CARE. And, as you have seen, using FREE as part of their business model hasnt driven Google bankrupt. They FOUND A WAY to profit from it. You lose, QED.

Next!
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Easily Amused, 23 Mar 2009 @ 3:17pm

Re: Re:
people go to see Mike because they want to hear INTELLIGENT discussion, hence, you are out.
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Vincent Clement, 23 Mar 2009 @ 4:08pm

Re: ...
Yes, the consumer does not transfer money to use Google. But what they do transfer is information. Your keywords are used to provide contextual advertising. Information is the currency.
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Nick (profile), 23 Mar 2009 @ 7:01pm

I remember when I first hear of Google around 1999. My brother told me about it. He said it was a school project done by a couple of college students and that it ran on donations. I thought, cool, well, it is too good to last long and they will probably run out of money. And since it had the two eyes in the logo I misread it and through it was called Goggle (as if you wear them and it help you find stuff).
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Got news?, 9 Jun 2009 @ 2:04pm

But what about the newspapers?
Mike rebutted Shirky's comments that journalism cannot thrive on user pays model.

So what then? Ads pay for them? Do you remember the last google ad you noticed when browsing? Our minds have trained to focus on what we need and to unconsciously ignore the ads. If you noticed one ad, you're one in a million. With those odds, I'd say online ads are coming up for a major overhaul. Now that's a billion dollar idea ;-)

However, I'd pull for the newspapers, as in www.saveournewspaper.com
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