The explosion of smartphones, and the growing influence of mobile computing, has prompted Google to rethink its business model and strategy.
According to Google’s Australian and New Zealand managing director, Nick Leeder, mobile computing is threatening the company’s traditional revenue model.
“Our core business is desktop search – that’s where we make most of our money – and if you think about it, the arrival of mobile phones wasn’t ... necessarily fantastic news for Google,” Leeder said at a speech last night to University of Technology Sydney (UTS) alumni.
“We had a very nice business going in the desktop search and suddenly people decided they would use these devices to start searching for stuff. The economics of it are completely different.”
This shift has forced Google’s engineers to “start with a clean sheet of paper”, Leeder said, and reinvent how it responded to users. This included understanding the role mobile devices played in consumers’ lives, and why, for example, they would rather lose their wallets than their mobile phones.
“Obviously [at] Google, we’re very motivated to understand this stuff – we make our livelihoods out of digital and I think as we dig into it, some of what we’ve found is actually quite surprising,” Leeder said.
The financial impact of the internet While Leeder chose not to reveal details on how the company was changing in response to evolving consumer behaviour, he said the company was now looking to more broadly understand the digital environment and its contribution to Australia’s economy.
Citing a Deloitte Access Economics report, Leeder said the internet’s contribution to the GDP of Australia was more than $50 billion per year. While conceding productivity benefits can be hard to quantify, Leeder said according to the report, productivity benefits to businesses and the government are worth over $27 billion.
“Even Google search and the ability to search stuff that you just previously couldn’t get your hands on, [the] consumer value on that is around $7 billion. So there’s some very big numbers in terms of its contribution,” Leeder said.
“We are by no means at the end of this boom and we think that if we just continue along the current path that we’re on now, by 2015 the internet will be worth $70 billion to the economy.”
While some companies are and will transition well into the new digital environment, Leeder warned not all companies will adapt successfully and it’s not “butterflies and beer” and “creates opportunity and destruction” for businesses making the transition.
“Before I joined Google I worked with two media companies going through this transition, and I know it’s not easy and I know it can be very painful,” he said.
“Because the scale is so big, there can be a temptation to think that we’re powerless in this, that we’re just riding along. I think that would be a very big mistake.
“There’s nothing pre-destined or ordained about which companies are going to transition through this or countries that are going to transition through this change well, and it’s actually up to us, the governments, our educators, our boards [and] our businesses to help maximise the opportunities that we have available to Australia through this transition.”
The internet and regulation While debate ensues around copyright and the digital environment, Leeder said of particular interest was the current convergence trend where television, radio, print and online media were merging.
“In the case of media regulation, we need to look at the history and reasons [existing regulation] were created in the first place. The ideas were around promoting [plurality] and a diversity of voices to ensure that Australians could be heard and could reach a large audience with their ideas. That absolutely still makes sense, but the conditions that we now live in have completely changed,” he said.
Leeder warned against policy makers making rash decisions and to resist calls to make immediate changes. Instead, he believes when it comes to new media, it should be allowed to unfold and for the benefits to be clearly understood. Otherwise, “the risk is that we squash a lot of that innovation that we’re starting to see”.
Leeder further commented on how Google’s business model may be affected by the recent Australian Competition and Consumer Commission decision that found search engines, including Google, would be liable for misleading ads generated by its search engines.
“We’re giving some thought at the moment about what to do and because of that I can’t actually say all that much, but I would say that we are in the business of creating platforms for advertisers and for users to connect, and that’s our role that we see,” he said.
Leeder also commented on the practice of users receiving different search results based on previous searches.
“It is true that depending on where you’re searching from, what you’ve previously been searching for if you’re logged in – if you’re not logged in it would be a different story – then we will change the search results,” Leeder said.
“If you think about what we’re fundamentally trying to do, we try and get you what you’re looking for as quickly as possible...
“It is a balance. I think one of the things that we take incredibly seriously is privacy. We only exist because users trust us to give them what they’re looking for and look after their data well.”
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