Google's next act: Diversify and conquer

Center stage at this year's Google I/O was a company honing its vision for a future beyond search

Guessing Google's future direction is a bit like trying to predict the path of a flock of birds: Tracing the trajectory of any one bird provides scant guidance, but there's little question the whole flock is headed north.

Search, Google+, Android, Google Glass, self-driving cars -- the company famous for beta launches (and killing projects) appears to be evolving in almost every direction at once. But examined together, Google's innovations, acquisitions, and strategic maneuvers reveal a few clear directions driving the company forward.

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To be sure, last week's Google I/O showcased a company intent on spinning as many plates as possible, all at once, but the past two years with Larry Page in the CEO office have slowly revealed a firm focused on corralling its advertising, mobile technology, cloud services, and hardware plays into a second act beyond search.

The future of Google's ad business: More, but differentOf course, Google's No. 1 business isn't really search; it's advertising. But how long can the company depend almost entirely on revenue from ads alone? The answer depends on how successful the company can be in diversifying its approaches to extracting revenue from service-based offerings.

"Google isn't the 800-pound gorilla in the online advertising space for no reason," says Victor Pan, senior data analyst at WordStream, a company that provides pay-per-click analysis software and services.

Pan sees a solid road map ahead for Google, thanks to its existing bets on mobile technology, where search is showing the strongest growth. Google's acquisition of mobile advertising platform AdMob and its AdWords Enhanced Campaigns, which allows advertisers to target both desktop and mobile devices automatically, create a strong foundation for Google's revenue growth in the years to come, Pan says.

"As long as Google innovates its ads to a consumer's search habits and educates its advertisers to do the same, Google's advertising growth will remain sustainable," Pan adds.

Shar VanBoskirk, vice president and principal analyst of interactive marketing at Forrester, also doesn't believe Google needs to establish a major source of revenue beyond advertising. Instead, VanBoskirk says, Google is diversifying its product and services portfolio "not because it has to, but because it can and it stands to make more money by entering new markets."

Adam Grunwerg, managing director of digital media agency, concurs: "Many of Google's products, including YouTube, Google+, and Android are the legs to support its growing ad business and generate more users in various markets." He also notes that Google's latest first-quarter earnings in 2013 showed a drop in the proportion of revenues coming directly from advertising, from 96 percent to 92 percent previously, thanks to its push into new markets: "reality eyewear [Google Glass], mobile payments, and wireless Internet infrastructure."

Last week's Google I/O solidified another major direction that had been previously hinted at: Google Now predictive search. Many common searches already produce answers from related queries. Google Now is being tooled to provide preemptive information based on one's location or movement habits. These, in turn, give Google and its partners new monetization opportunities -- assuming consumers don't find a way to preemptively opt out of them as well.

Life beyond searchGoogle Now represents a significant opportunity for Google in its shift away from search-based ad revenue and toward mobile- and location-based advertising.

BetterCloud CEO David Politis points to Google's acquisition of Zagat as a prime example. "I can imagine restaurants paying to show up in Google Now search results," says Politis, whose company created FlashPanel, a security and management software solution for Google Apps admins. "That's a strong source of future revenue and works well with the growing emphasis on mobile search."

Here, one of Google's most buzzworthy innovations of late may play a significant role: Google Glass. The wearable computer with head-mounted display gives Google a significant opportunity to transition from advertising to commerce, Politis says.

Robert Scoble, whom Politis cites, also pointed this out, with Google Glass serving as part of this process. According to Scoble, "Google could charge a nominal fee made for restaurant reservations or purchases through Glass (I can see this being applied to Android as well)."

Whatever Google Glass might accomplish, Android remains immutably at the center of Google's mobile strategy. For Google, the mobile operating system is many things at once: a platform for apps; a support infrastructure for mobile technologies, including Google Glass; and a point of intake for user telemetry.

The various Android-related announcements at last week's Google I/O conference all point to Android becoming more central than ever: a new Android-specific IDE for app developers; new tools for staging beta tests and limited releases of apps; localization tools.

But as much as mobile represents a lucrative future for Google, Larry Page and company are by no means focusing on mobile opportunities alone. As WordStream's Pan notes, the next big future direction for Google could very well be the destruction of the cable industry, by way of Google Fiber.

"The telecommunications and cable industry is a high-barrier-to-entry business thanks to huge fixed costs in setting up cable connections," says Pan. Google Fiber has done an end run around that, and in Pan's opinion, it would "tie back to Google's core competency -- search. Faster Internet, more searches; more searches, more ads served."

Killing projects for goodFew discussions of Google can avoid mentioning how the company has been shuttering services left and right. The death of Google Reader, for example, inspired enormous ire among users and helped launch more than a few competing products.

But not everyone thinks that Google killing services is bad news. WordStream's Pan believes the cleanups are "a great thing [because it means] existing core products get more engineers or past projects get a breath of new life."

"When Eric Schmidt came to Google," Pan recalls, "there were numerous moonshot projects aimed to change the world which lacked focus or cohesive strategy. What Eric Schmidt did by retiring projects was free up engineering resources for things that could build upon one another. Google Wave/Buzz may've died, but it came back as Google+. Google Notebook became Google Docs. Larry Page is doing the same thing, requiring new Google projects to have a social element to them."

Forrester's VanBoskirk sees a parallel here with Yahoo, the closest thing Google has had to competition in many respects. "Yahoo had so many disparate products for so long it lost its brand identity over time. Even now, under new leadership it isn't really clear what [Yahoo] is or is trying to be," VanBoskirk says. "I think perhaps Google (and other media companies) watched this and learned to consolidate ancillary services which weren't overtly contributing to the primary corporate strategy."

BetterCloud's Politis sees Google's close-and-refocus strategy as part of a larger push to make Google+ the true center of user activity with Google: "You can already see evidence of this in nearly every category: Google Authorship, heavy integration with Glass, Google+ comment integration with Blogger, Google+ sign-in, Local, etc."

To Politis, this is how Google+ will stand out from competing social networks -- by being "at the center of your life" with all of Google's services at one's disposal: Gmail, Google Apps, Drive, and so on. "Google is just looking for products that have the potential to reach a billion users," Politis says. "Their business is at such a huge scale now, what's the purpose of keeping something that doesn't have the potential to do that?"

What about Chromebook or Chrome OS, which many analysts see as outliers in the Google ecosystem? Politis doesn't agree. "[Chromebook/Chrome OS] fits in with Google's overall worldview -- everything should exist in the browser," Politis says. "This goes hand in hand with Google Apps, Gmail, Drive, Search. Google is a company 'born of a digital environment' and nothing displays this better than Chrome OS."

Politis himself uses a Chromebook Pixel "every single day" and claims he is able to do all his work in the browser. "When I don't have Internet access (something that's increasingly rare), there's Gmail and Drive offline."

Google App Engine and Google Compute Engine: An uphill battle worth fightingLess visible to the consumer, but crucial to developers and businesses, are Google's cloud services offerings. Google Compute Engine and Google App Engine -- IaaS (infrastructure as a service) and PaaS (platform as a service) offerings, respectively -- compete in a crowded market that includes Microsoft, Amazon, HP, and others. Here, Google must play catch-up against established competitors, as well as relative newcomers with captive markets. As such, to gain a foothold, it is crucial for Google to innovate -- all the more so, given that they are among the few services Google sells directly to users, without monetizing them through ads or search.

One way Google could differentiate its IaaS and PaaS offerings would be through simplicity.

"Google may finally find a way to penetrate the large enterprise market that has largely pushed back on the use of public IaaS" by making Google Compute Engine manifestly simpler than the competition, said InfoWorld cloud computing blogger David S. Linthicum, a year ago.

While Google may not have created a true turnkey IaaS, it is inching closer to this on multiple fronts by offering products with more granularity than just instance sizes. Consider App Engine, which allows customers to run apps in Python or Java without managing an actual server or cloud. At Google I/O this past week, Google added beta support for Google's own Go language and PHP, one of the most widely used languages on the Web. Most PaaS vendors focus squarely on a specific programming language.

Such a move hints at how Google can compete aggressively: By giving its customers as much or as little of the stack as they need, and by giving them kinds of granularity that don't exist elsewhere.

Motorola: The verdict's still outYet another Google move that has been widely scrutinized, and has yet to bear real fruit, is Google's acquisition of Motorola Mobility.

The conventional wisdom has been that the acquisition was meant to give Google access to Motorola Mobility's patent portfolio -- or to give Motorola Mobility access to Google's legal muscle, for the sake of settling patent suits brought on by Apple and Microsoft. Not that this has stopped the European Commission from issuing a preliminary antitrust ruling against Motorola Mobility over the abuse of standard-essential patents for cellular technology. All the other tangible signs of the acquisition so far have been negative, including the death of Motorola's mobile-security subdivision 3LM, itself an acquisition (one founded, ironically enough, by an ex-Google employee).

BetterCloud's Politis believes Google's snapping up Motorola "was done more in an effort to give them the ability to build hardware should they choose to do so." (The long-rumored Motorola "X Phone" is allegedly going to be the fruits of such a joint Google-Motorola venture.) "To me it seems that Google is really emphasizing operating systems -- Android and Chrome OS."

This way, even if the devices themselves tank in the marketplace or fall victim to antitrust politicking, it won't matter as much. "The software angle has a much broader reach than hardware alone," says Politis. "I think [Google's] core strategy is to gain the ability to power other companies' devices" -- which Google can already lay a good deal of claim to having done.

Another hint of how Google could be approaching hardware partnerships came at Google I/O with the unveiling of an edition of the Samsung Galaxy S 4 with a stock Android 4.2 "Jelly Bean" install rather than Samsung's own version -- albeit at $649, a $50 markup over Samsung's own prices. Units sold this way could allow Google to roll out updates faster, provided consumers pay the premium for it.

On the move with Google GlassNo one questions how crucial mobile technology is to Google's overall vision. The bigger question is what that mobile strategy will consist of, aside from further leveraging Android as a driver for search.

WordStream's Pan believes Google's plan for mobile can be summed up as follows: "To become the top-of-mind brand for users whenever they need to find a solution to their problem. Need to go somewhere? Google Maps. Want new music? The Google Play store. Crave Chinese food? Google it on Chrome, and Google+ Local will give you the nearest results."

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