Having lived through one dot com bubble and being of somewhat cynical persuasion, it's hard for me not to burst out laughing when I hear of a company giving away it's wares because its set-up to make all of its money via online advertising. I still remember such fanciful start-ups as Buy.com, who were going to make their fortune by selling products at no-margin and living off the ad revenue of the online shoppers they attracted.
However, just as a good old belly laugh starts to rumble in my guy, I keep coming back to the millions of dollars that the free Firefox browser makes off its default search bar.
In 1999, I was editing channel magazine Australian Reseller News and I wrote any number of columns about how advertising-based business models might upset traditional, PC selling. There were more than one company around at that time, that planned to sell subsidised PCs, where the money was to be made over time via advertising or affiliate e-commerce sales. Of course, none of them lasted.
Now, Dell is bundling Google's search technology onto its PCs and the two will share the revenues that are generated by user's who stick to the machine's default search settings. I'd be fascinated to know the numbers and projections. PC margins are so ridiculously slim these days that this could just be an alternative business model. Is the zero margin PC back?
Interestingly, CNET quotes an analyst who questions the value to Google. He points out that Google would have probably received the search business without the deal, so by cutting in Dell, its only cutting into its margins.
However, this was almost certainly a defensive move by Google. All PC makers are likely to be looking for their cut of the search business and if Google isn't willing to deal in the box makers then Yahoo and Microsoft will. CNE's report noted that "Yahoo and Microsoft were reportedly vying for search-bar real estate on Dell PCs before Google sealed the deal".
Fortunately, for Google, you still make more money partnering with it on search because of the critical mass it has in this business. I've said it before and I'll say it again, Microsoft is going to have start subsidising and matching Google returns for it to have any hope in this market. Being the default search option in IE7 is going to help, but its not going to be enough, especially when deals like this are added to the equation.
Incidently, I just bought three AU$1000 (US$750) Dell desktops for my business, complete with 19 inch flat panel displays. They arrived at the office about four days after I ordered them, I ripped them open, installed Google Pack and Open Office and my machines were ready for work in about
$15 15 minutes and without spending a dime/cent on software. GMail, Google Calendar, Google Desktop, Picasa and the Open Office suite now constitute our standard operating environment.
Some have commented that they expect to see more Google software come pre-loaded on machines but that ignores the fact that PC makers bundle software where there is money to be made. Stick on too much free software and you cruel your upsell.
Anyway, back to the subsidised PC. There probably aren't enough margins or opportunities for PC vendors and builders to look at advertising as much more than a promising additional revenue stream, however the telcos could be another option.
If you take the Power of the Default concept and extend it beyond search and advertising and throw in they money you can potentially make over the long term via ISP charges, downloadable music and video, it could start to make a lot of sense for telcos to start pushing out PCs set-up and optimised to work with its services. Apple has already proved how well that works. And if there's one sector that understands how to manage subsidies its the telcos.
Based on the Australian market, I reckon we've got to the stage where a telco could put together an AU$800 (US$600) PC, zero dollars down, lock the user into a 24 month $100 per month broadband plan with a PC all set-up to download from that telco's music and video services and it might actually now be sustainable.