It is what it is....

Monday, February 05, 2007

Google Should buy

Google is pimping search because it pays the bills. Search won't always pay the bills though, at least for Google. They know this in MtView so don't think I'm off my rocker just yet...hear me out :)

Google's largest investments are not in hiring mathematicians to write new algorithms on search. Their largest investments are in infrastructure and just happen to be funded by the revenue they realize by selling advertising within search. They are investing in infrastructure to support, for lack of a better term(seriously cant think of one), the Google OS. At the end of the day, the Google OS is the combination of the software and hardware that combine to create a 21st century mainframe. In 2006 alone, Google spent $1.6B on datacenter construction. They have forecast at least another $900M in datacenter costs in 2007. Google is probably spending more money building datacenters in these two years than the entire datacenter provider market has spent on datacenter construction in the last five years. They aren't doing this for search, they are doing it because these are the new homes for their 'mainframes'. Google is biggest ally Salesforce could ever want to saddle up with. Why? Because they are placing HUGE bets, maybe even the whole company, on the fact that software will be delivered as a service. I think it will too but that doesn't really matter now....

When software is delivered as a service the architecture is such that applications like Oracle or Siebel or MSWord or Powerpoint or Excel or Financials, etc do not live on computers that their users own, they reside on a many clusters of computers that google, in this example, owns. These clusters are what I'm calling the 21st century mainframe....hmmm, how about the GooFrame or GoogFrame...whatever. The search algorithms and engines Google use today are likely the foundation of the overlay engine that will allow for the distributed end product of $3BB, the datacenters, to function as one big ass computer that can be virtualized dynamically as demand warrants. Pundits will argue that bandwidth will challenge this theory.

Bandwidth is so plentiful that soon companies won't be able to give it away, they may even pay you to use theirs instead of their competition. Google is in the infancy of this movement now via their wifi initiatives and once they buy ATT or TW or Comcast of whoever they'll have even more reasons why giving access away makes sense. They won't have to pay the LEC if they own it. Therefore the marginal value of adding a user onto the network and being able to market to them and control the flow of data from their 'mainframes' to the users device gives them the control they want and need and surely exceeds the nominal cost of that user.

They aren't doing this to kill Microsoft or Intel or the PC industry in general...those companies will adapt. They are doing this because their end product is advertising. Advertising in 2015 won't look anything like it did in 1985, just 30 years earlier. Infact, in 2015 we probably won't even realize we're being marketed to because due to the intelligence of the systems we'll rely upon, each of our individual experiences will be unique and a function of analyzing the history of our electonic usage. This is our email, our office apps like word, xcel, ppt, data, voice, video, gaming, business finacials, www surfing, the old school networks(TV, PRint, Radio) which is EVERYTHING that Google is releasing as new products or services today! And everything they'll 'host' for you on their mainframes.

Back to the Salesforce logic. All these services have nothing to do with what their users core competencies are. The lumber yard that Bob the Builder buys his wood from doesn't have expertise in IT or in an efficient market they wouldn't need to because just as they aren't IT experts, the IT expert for whom Bob the Builder is constructing a home isn't building the house himself because its not efficient for an IT expert to build a home when there are readily available contractors. So the lumberyard doesn't know how to get its inventory online and host its financials and it's pipeline reports and maybe use some niche marketing software to run special programs to certain sets of customers and analyze all this data through one single interface in real time because that scale has never been deliverable to the unFORTUNATE 5,000,000 business on the globe.

Salesforce Apex would provide the interlocking piece that creates the true value for the user because it is a market of markets and a global one at that.. It surely isn't the datacenter building, it's what is inside but it can't go inside of nothing, thats impossible.

On the surface this speculation may seem far fetched to some and the more it seems like far fetched pie in the sky type rhetoric, the closer it probably is to being true. I speculate the market will gravitate in this direction because it allows for efficiency at the micro level, lumber focuses on lumber, IT company focuses on IT, car companies focus on cars, supply chain becomes a service industry focusing on supply chain, etc. Salesforce's Apex allows for the mashup of services that the enterprise may require to run the day to day business elements they must deal with. The combination of the mainframe, control of the communications network from end to end, hosting the business applications that make the market and using the search utilities to deliver to the customer something they never asked for but would be happy to pay for is what the Google OS is all about. Because that something that you'd gladly pay for but never asked for isn't the product of some random direct mailing, its a function of a boat load of history and data on what you and others with similar attributes as you are interested in for work, pleasure, family, etc because while google was pimping out all those services and apps they, by virtue of capturing all that data, built a silver ball which is the holy grail of marketing.

So, Google should buy Saleforce because, of all things, marketing. Google is the 4th Network, the medium of media. Let's not forget, media as an industry, produces marketing. CRM is cheap today at $5B+ relative to what, assuming I'm close to the marc(pun...get it?) CRM will be worth in a year or two years or three years. Google already put their bet on SaaS so it's a no brainer and an catalyst to a true global economy.

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Anonymous Isabel Wang said...

Salesforce could totally benefit from Google's 21st century mainframe, but would it do Google as much good to tie itself to the Apex platform? Or might the folks in MtView think they can make the Google OS a better interlocking piece for building that market of markets?

9:41 AM

Blogger Vet of the Net said...

Isabel, Thanks for the note. I doubt that goog would exclusively tie themselves to Apex or any market platform but I do believe they are going to be the biggest purveyour of SaaS very shortly. Also, I think goog has more to gain from purchasing salesforce than salesforce has to gain by getting acquired by goog. The apps that goog is offering as a service now; word processing, calendar, email, spreadsheets, analytics, etc are all fairly generic with the exception of analytics. Generic enough that they are almost a commodity. Salesforce on the other hand, is hosting all of the important data relied upon by many company's to run their daily business.

So, to answer your question, I think the folks in Mt View understand the future value of building in that piece of enterprise transactions to the Google OS. Top that off with the fact that Salesforce is forecasted to do approx $500M in revenue and profit of $23M makes the business compelling and justifieable considering what they paid for YT. Factor in the savings that goog could apply to salesforce in the form of hosting its datacenter deployments and you'll see that $23M going up and to the right pretty quickly. I could only imagine there is more scale than simply moving their colo to the goog sites but I know for a fact it would save them a couple $M/year on that alone. At the end of the day, this purchase would get google way deeper into the enterprise applications where they don't have much to offer these customers today. And for salesforce, it will be a victory, the biggest victory infact and the nod of, 'yes you were right Marc'. Think of the global distribution channel that salesforce instantly gets and can't possibly duplicate in the short term, if they go at it alone. Hollistically speaking, it plays well with Larry and Sergey's 'give anyone, anywhere the ability to access information' mantra and if not corrupted could have significant global social impact by leveling the playing field by inviting all the worlds population(as least those with an internet device :) ) to the party.

11:08 AM

Anonymous Anonymous said...

An alternative scenario is that Google should ultimately focus on marketing/advertisement and spin off google os infrastructure. Salesforce would focus on the functional aspects of their solution and either buy or become a major customer of google os, depending on how much they've grown.
Grid OS infrastructure would become a business of its own (utility for SaaS businesses).

12:23 AM

Blogger tomo said...

Anonymous, You got it.

It wouldn't be a surprise if Google gave away all these services solely for the purpose of capturing eyeballs that are staring at a computer screen all day long at work and then sometimes, for dummies like me, at home too. Also, the owners of those eyeballs aren't just staring like I joke about above. They are sending email, chatting, have personal content like videos, photos and music online, buy aforementioned entertainment services online, etc. That data is a history book written by that user of that user and is a marketers dream!!! Very powerful info.

Could software vendors be the next Fox-News Corps, NBC, Viacom, Disney? Huh? Rephrased;), could the additional advertiser $$ realized by applying detailed data(as described above) to individually served ads subsidize the cost of the software(either produced internally or licensed)?

1:49 AM


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