Over at Silicon Alley Insider, Hank Williams is arguing that VCs are supporting free services that ought to be paid for on the hope advertisers will foot the bill down the road — thereby eliminating the opportunity for noble paid services to make a couple honest bucks by charging users. It’s a dubious argument, as pointed our by the site’s own editor (ouch).
If we accept the argument that free is a bad thing, then wouldn’t Google be to blame? It’s acquired several companies such as Urchin and VC-backed Feedburner (our first guest) that offered paid services and made them free. Google also acquired VC-backed Jot (their CEO talked about plans to charge users on Venture Voice) and GrandCentral, then accelerated their development into free services.
Google understands there’s at least two ways to make money from “free” services. Ads, which are time tested and Wall Street approved. And data. Data has tremendous value, especially to Google (as opposed to VCs), as Google can use it to decide on new services to launch and to choose acquisition targets. (Who even needs to do due diligence on an acquisition target if you already are running its analytics?)
What’s next? Look to the past. When Google acquired Urchin, Google was working on its own analytics product that it dumped in favor of Urchin’s battle-tested service. Urchin had a hosted stats product that was turned into the free Google Analytics service, and a downloadable product with a license fee. Now, Google has its own ad server in development but just closed an acquisition of DoubleClick (their founder interview here) that charges for its industry standard hosted ad serving service and downloadable ad server. Why not dump the Google’s beta free ad serving product and just make DoubleClick’s hosted ad server free?
To most companies, it’d be a fine strategy to have different product lines for different market segments (e.g. Microsoft Works vs. Office, Toyota vs. Lexus), but not to Google. The beauty of Google has been allowing the same service to scale to companies of any size, most famously in the case of AdSense/AdWords. Will it break this tradition to preserve DoubleClick’s hosted ad serving revenue, which is already under attack from many competitors and from an open source solution (OpenX)?
Disclosure: This blog entry is free.