In announcing this week that it will be releasing a free, online version of its popular Office suite in 2010, Microsoft did something good for customers—especially those of us who want to work with all those Microsoft files favored by our employers or clients but don’t want to pay for the software. But at the same time, Microsoft’s announcement, an obvious effort to fire back against Google’s new free operating system, is bad for Microsoft. As two computing giants compete against one another to bring us cost-free software and services, only Google—with its near-monopoly on online advertising—appears to have an alternative source of revenue.
It’s an extremely dangerous game for Microsoft, which is effectively amputating its most profitable businesses in order to retain its share of the market.
Strange as it seems, while television moves increasingly toward a pay-per-view and premium channels model, computing is getting cheaper and freer. Verizon gives away netbooks to new FIoS subscribers, eTrade gifts BlackBerries to account holders, and Optimum provides access to free WiFi hotspots for its cable-modem users. These strategies can work because the customer still pays for something. The free phone requires a two-year contract.
While Google has given away pretty much everything it has to offer—from search and maps to email and apps—this has always been part of its greater revenue model: the pennies per placement it gets for seeding the entire Google universe of search and services with ever more targeted advertising. No, online advertising may not be much more successful than an old double-barrel but—like a good spray of buckshot—it makes up for its lack of accuracy with sheer volume. There are 10 unique ads listed with every Gmail message in your queue, each tied to the message content. And a paying sponsor.
As Google continues to dominate the Internet as an advertising space, it is to the company’s advantage to push for more of the free. Its objective is simply to get more people online, using more applications, and in ways that are as free and open as possible. This is why the company frequently lobbies the government for open systems, open spectrum, and open operating systems: the more open the Internet, the more open it is to Google’s ubiquitous advertising presence. Just as the World Bank or IMF press for “open markets” wherever they lend money, opening developing nations to first-world corporations, Google gifts the computing universe with free software that is open to the messaging of its own client corporations.
And so the Internet becomes more like television, with users’ activities subsidized by the advertisers who want their attention. This might be fine for Google, whose business has nothing to do with selling software to users and everything to do with selling users to advertisers. But it’s an extremely dangerous game for Microsoft, which is effectively amputating its most profitable businesses in order to retain its share of the market.
So, the same announcement by two different companies means two very different things. For Google, free software means a new advertising platform. For Microsoft, it means the demise of another source of revenue. Of course, if Microsoft really wanted to undermine Google’s journey into the free, it would keep its customers paying for software but start giving away the ads. The fact that it can’t do that demonstrates that Microsoft is on the wrong side of the equation of free stuff.
As tech business writers have been pointing out since Kevin Kelly’s New Rules for the New Economy in the late ’90s, in a digital economy everything that can be digitized becomes free. From music to books and now to software, anything that can be copied will be copied. At best, we can use the free distribution of an abundant product like books or MP3 files to publicize the selling of something more scarce, such as live lectures or concerts.
Google is in a unique position, however, because it isn’t selling digital content or services to us at all—it is selling us to digital advertisers. And our eyeball hours are scarce, indeed. That’s why Google wants us to do as much as possible online, in range of their ads, and is willing to spend billions creating more reasons and ways for us to do so.
Microsoft must not only catch up with Google’s online cloud computing and soon-to-be-offered free operating system, but also deliver superior versions of these services. Only then will they be capable of delivering a bigger audience to its potential sponsors than Google can.
This is why we have to understand Microsoft’s move for what it is: an effort at colonizing the limited resources that Google currently has in abundance. People.
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