Q U I C K TA K E

My View: The Google Future

by George F. Colony October 31, 2005

EXECUT I V E S U M MA RY
Google will dene the future of software. Last year, I wrote that Google would fade. I said that searchs lack of stickiness, combined with crushing competition from Microsoft and Yahoo! and a changing Internet, would mute the companys prospects. I was wrong. But not for the reasons that you think Im wrong. Youre reading in every business magazine on the planet right now about Googles lead in Internet advertising, the $100 billion valuation, all of the brilliant people joining the company, the companys strong nancial performance, and how smart Sergey and Larry are. All of that is true. But none of the conventional and obvious wisdom captures the real importance of Google. At the risk of sounding overly dramatic, I believe that Google will revolutionize the software business. Its a complex story, but Ill try to keep it simple . . . Most of us use two types of computer software: 1) programs like Microsoft Word or Oracle Financials, and 2) Web les like a corporate intranet or Amazon. You can perform many tasks with programs because they are executable; they contain millions of lines of computer code that enable you to underline words, calculate prot and loss, check spelling, etc. You pay for programs ostensibly to defray the high cost of writing all of those lines of computer code. In comparison, the Web les we use are like documents. When you click on a link for a site, the server at that site sends you pages of information. Web les are mostly static they cant do much compared with programs. Their limited functions (buy buttons, search) dont execute on your computer the server that you are connected to does most of the work. So its pretty simple: Programs can do things; Web pages are static documents. Heres where the plot thickens. Forrester has predicted that Web pages will get replaced by programs we call this executable Internet (X Internet). In the future, when you click on your banks site, servers will download a program to your computer, not static pages. Once that program is installed, you will be able to converse with your bank, run nancial models, analyze your net worth do much more than you could have with old Web pages.
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Quick Take | My View: The Google Future

Google will be the company that leads this revolution. It is already writing programs like Google Toolbar and Google Desktop Search that run on your computer but blur the divide between your desktop and the Internet. And they are very powerful programs. Do a test. Search in Microsoft Outlook for an email from a friend for me the search took 21 seconds. Then try the same search in Google Desktop Search: 5 seconds. Google is also leading a pricing revolution. Googles programs are free, funded through advertising and syndication. This is a prescient move. I foresee a world in which even enterprise applications like nancials, ERP, and supply chain software will be advertising-funded. So heres Googles playbook: 1) have the best search; 2) have more of the world to search than anyone else through the digitization of university libraries, earth images, maps, etc.; 3) attract the most advertising and syndication; enabling the company to 4) give all of its software away for free; which enables it to 5) change the rules and economics of the software business and dene the future through its pioneering work in X Internet. What It Means No. 1: Large corporations should get Google executable Internet programs onto their corporate desktops. Google Desktop Search, Google Toolbar, and Google Maps will drive productivity. In addition, this move gets corporate IT ready for a world in which free executables will begin to proliferate. IT stas will learn to incorporate Googles programs and application programming interfaces into corporate Web experiences. What It Means No. 2: Google stock price may not be insane. When you are restructuring an entire industry, your best years as a company typically lie ahead. What It Means No. 3: Vista (formerly Longhorn) had better be fantastic, and Microsoft had better be able to re-spark its culture of derivative innovation. Bringing back stock options may be the rst stop on that journey as a way to re-attract the best and the brightest. I predict that Microsoft, under attack from advertising-funded software (and other factors like open source), will lose its monopoly-driven 25% net prots over the next several years, having to settle for 13%-15% nets (still astronomical compared with the average for most large corporations). What It Means No. 4: The coming of executable Internet fundamentally changes the software and Internet landscape. Microsoft is an obvious loser. The closed, centralized architectures of Oracle and SAP will get a bunch of new salesforce.com-type challengers over the next ve years. Amazon, AOL, eBay, and Yahoo! will be stuck with old Web-style experiences not as easy, fast, and customizable as the executable Internet experience. That is why Google may be so dangerous for its Internet brethren it knows programming and they dont.

October 31, 2005

2005, Forrester Research, Inc. Reproduction Prohibited

Quick Take | My View: The Google Future

In the past year, Google has proven to me that it is way more than just a great search company. It can jump into the program game and play under a completely new set of rules: executable Internet and free. Unless Larry and Sergey lose focus and the companys charter devolves into esoteric pet projects, Google is going to change the world. George P.S. I encourage you to post comments on the discussion board. I will monitor the board to clarify, answer questions, and oer additional analysis. Thanks in advance.

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