Google Bowing to Pressure of Paid Content

(MoneyWatch)  Google is the poster child for those who want to claim that free content is the future and that everyone has to give away what they produce to court "eyeballs" and the advertising they can generate. So why is it that in a number of ways, the company has recently been turning its back on literal free market theory? Is it that management has become inexplicably dumb? No, it's because that executives at Google have always pushed to get what they can for free but realize that ultimately paying nothing may not be a workable business strategy.

If anything, Google's deeds, not its words, show that it considers viable business to be a combination of advertising and, because you can always get clobbered without diversified-enough revenue streams, charging for what you offer. Here's some of the evidence of how Google has talked a good "free" game, but has recognized the limitations of the model:

• Google Apps started as a free offering, but enterprises that want access have to pay $50 a seat. That may seem like nothing compared to the cost of, say, Microsoft Office, but over time it adds up. How long would a company keep people on one version of Office? Three years? That translates into $150 a head. Given that Google claims paid seats in the "hundreds of thousands," that's tens of millions in revenue a year. Not a whole lot in comparison to Microsoft, but it doesn't take a whole lot more adoption to hit the hundreds of millions. To reach a billion in money would require 20 million users, which would be optimistic. But a few million with an ultimate stream of hundreds of millions of dollars isn't far-fetched at all.
• Google has been seriously considering charging for certain types of video streams on YouTube. Again, user-provided content (when there's no problem with copyright) is fine, but ads pay limited amounts. For example, YouTube has talked to major studios about streaming new titles for a price to the viewer. And now it's looking at streaming pay TV. Just as its competitor Hulu is considering.
• After being sued, Google had to negotiate with publishers and authors to work out a deal that would allow Google Books to exist in the way Google wanted.The company essentially started scanning books still under copyright protection to push the envelope if possible and, if not, force a negotiation. But it was clear that making money off material owned by others without ever paying them wasn't a viable long-term tactic.
• The company is also bowing to media site demands and letting them restrict free access to the number of articles someone can read via Google News and search queries. That is clearly in response to the rumored deal talks between Microsoft and News Corp., which I called a Google-killer for a good reason -- because it threatens Google's business model.

No, Google isn't going to start charging for queries tomorrow. But I wouldn't rule out the possibility that some types of queries, or particularly active users, might eventually have to pony up. The way to understand the business machinations of media and technology is to remember the political adage: Follow the money.

Like any tributary, a revenue stream cannot stick to itself. It must flow into and out of other bodies of water. Although Google has shown that it will push the boundaries to get as much free material as possible to pull in audience and revenue, it also understands that this doesn't always work. And when you depend on the generation of media, as Google's actions show that it apparently does, you have to make sure that you continue having access, which gets tough when the producers feel as though they don't make money and so take their toys elsewhere. Many people trying to follow the tech industry don't get that part and think that everything should continue to be free. Ultimately, they will be the ones left behind, because people won't be willing to continue giving them rides.

Image via stock.xchng user johnridley , site standard license.