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Ahead in the cloud

Ahead in the cloud

Google transformed advertising on the internet, and now it is taking on Microsoft's core business through free software online.

Google: transitive verb to search for on the internet. Macquarie Dictionary 2006.

Google has clocked up 10 years since its inception in a Californian

garage and it continues to defy critics of its business model

supported by open-source code and funding the creation of technology

through advertising revenue.

While most companies attract criticism because of unethical business

practices, Google sets tongues wagging because it has taken and turned

it on its head the traditional business paradigm of creating and

selling a product.

The greater majority of Google's 20,000 employees are dedicated to

creating products which the company then distributes free of charge

over the internet. The underlying notion is that as long as the

products work and work well, they will attract loyal users who can be

served with advertising tailored specifically to the information they

are seeking or the service they are using.

Unlike the first generation of dot.com businesses, which based their

advertising models on the usual print approach of posting banner ads

on web sites, Google integrates its advertising with its diverse

software applications, tailoring ads that are delivered to users and

tracking the response.

Launched in 2003, Google's AdWords service transformed online

advertising by charging customers only for traffic sent to their sites

from its search engine and not for exposure to advertising on the site

where it appeared. Its model - pay-per-click rather than the

pay-per-eyeball approach - proved so successful it forced change in

the rest of the market.

Listing on the Nasdaq in 2004 with an initial market capitalisation of

$US23 billion Google climbed to $US186 billion in 2007 before

following the rest of the market down to $US80.99 billion where it

hovers at present. If anything, the current cyclical downturn has made

Google's shares a more attractive option, given the company's robust

earnings. Unlike the first generation of dot.com businesses that sold

on promises of future profitability, Google has cash and healthy

profits, and annual revenue of $US20.92 billion, almost three times

that of online advertising rival Yahoo!.

Although its core business focus is on software creation, Google, like

television stations, earns the vast bulk of its revenue from

advertising. And just as a television station spends time and money

attracting quality actors, presenters and screenwriters to create

programming which will attract an audience, Google works to hire

skilled software engineers to create the quality software products

that will deliver it an audience.

And in the same fashion as free-to-air commercial television gives its

content away for free to attract viewers, Google likewise gives its

software away, thereby creating an audience and an opportunity to

advertise.

"It's a very relaxed environment, people are not micromanaged, they

work collaboratively on different projects, and they are rewarded when

the project they are working on actually manages to drive innovation,

from a monetary perspective but also from a status perspective,"

Google Australia general manager Karim Temsamani explains.

"It's critical to understand that our mission is to make information

readily available so that end users can find it at any time from any

device, then we monetise the search," he says.

"We don't start with a business plan and profitability in mind. We start with a particular

problem in mind and look for ways to solve it. Google is a company

driven by innovation; it's important we continue to develop the

services we provide so that we continue to attract that audience."

A case in point is Google's Chrome web browser, launched in September,

that is designed to challenge the dominance of Microsoft's Internet

Explorer. Rather than funding Chrome's development from software

sales, Google expects end users will adopt the browser, find it easier

to use with other online software, spend more time on the web, and

create more advertising revenue opportunities.

Microsoft's Internet Explorer, which is most commonly bundled as part

of its Office software and paid for as part of that suite, is easily

the most used web browser.

Now in its seventh generation, Explorer was launched for a less

sophisticated web. However, in the emerging era of "cloud computing",

much more of what is done online uses software specifically written to

deliver web-based services to users. Examples include e-commerce,

social networking, online banking, web-based email and online auction

sites.

Chrome has been built specifically to make it easy and quick to use

these services, changing the way in which software is delivered, and

potentially unseating established software players.

The danger for Microsoft is that if its web browser loses its

stranglehold, it could lose much of its market. Google's Chrome will

make it easier to access competing software online rather than users

having to buy it and install it on their desktop computers.

"For business, cloud computing will really be the ability to access 10

times the storage, and 10 times the processing power at a 10th of the

cost," Temsamani explains. "From our perspective, it's extremely

exciting because it is going to enable whole new business models for

companies that are looking to really drive innovation and product

development."

Temsamani's vision for Google Australia is to create a

software-development hub which will entice talented expatriate

software developers back from overseas and lead to greater levels of

innovation within the domestic economy.

"There's an enormous amount of talent already in Australia, and we've

been very successful at Google at attracting that talent and keeping

it here in the country," he says. "The greatest challenge is that

there have not been enough companies in this country competing for

that talent and a lot of intelligent young Australians have been going

overseas to look for a job."

Google Australia employs about 250 people and while Temsamani hints he

is interested in increasing this number, he doesn't have a specific

target. He does, however, indicate an interest in taking advantage of

Australia's geographic position and multicultural population to

develop technologies for different languages and cultures.

"About a third of our office are engineers, many from different

backgrounds; we're interested in investing in a lot of different

resources and we're particularly interested in languages," he says.

"Two-thirds of the world's population does not speak English, and

there's enormous growth in content in languages other than English

coming online."

"We're also looking at continuing to develop different business

partnerships, as much with some of the smaller companies in the

telecommunications, online or advertising space as well as large

companies."

In early November, Google announced an agreement with Telstra's

directories arm Sensis, which will see Google Maps and AdWords

software integrated into the Yellow Pages search facilities.

Temsamani also believes Australia provides opportunities for

increasing advertising revenue, suggesting that current online

spending has not kept pace with usage patterns.

"Australia as a whole is under-investing in online advertising," he

says. "Australians spend more that 25 per cent of their media time

online, but advertising spend is just 10 per cent of the total."

"Given our ability to provide a proper return on investment and strong

statistics, we expect to be able to shorten that gap over the next

couple of years."

Having established itself as a leader in the provision of free and

open-source software services, Temsamani is keenly aware that Google

will need to maintain this lead if its model is going to continue to

make money.

"Google is a brand that is entirely based on trust, and that trust is

based on providing our users with relevant information in a format

they understand. It's critical for us to continue to do that and to

continue to come up with new applications, or we'll lose that trust."

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