Google isn't a search/data organization company. They are an advertising

Google isn't a search/data organization company. They are an advertising

20/03/2007

company. All of their products are designed to do one thing: sell

advertisements. In that business model, they have found a way to compete very

aggresively with other software companies because most software companies rely

upon sales of software for their income. With Google's business model, they

care only about selling advertisements, so they can give their software away

for free. What does that mean? Nobody can beat them on a cost basis. Other

companies can produce higher quality (or more feature-rich, in MSFT's case)

software, but nobody can beat them on cost. Over time, Google can continue to

improve their apps until they approach the quality of traditional software.

What this means is that Google can chip away, and eventually eclipse, other

software manufacturers in terms of quality and features, but nobody can eclipse

Google on cost.

Another interesting thing about Google's model is that, compared to traditional

Madison Street advertising companies, most of Google's revenues come from small

to medium-sized businesses. They've levelled the playing field when it comes to

buying advertising space, allowing a mom-and-pop shop to compete directly with

a mega-conglomerate. What I find most interesting about this model is that I

believe it to be fairly immune to business cycles. While large companies will

expand and contract their advertising budgets based upon their bottom line,

Google will receive relatively constant business from the mom-and-pop shops,

whose advertising budget is both small and fairly constant regardless of

recessions or expansions. We'll have to see how Google does through the next

recession, since during the last recession they were still growing market share

far faster than the economy was contracting. My bet is that Google becomes a

safe haven for investors during recessions as a result.