Sunday, January 08, 2006

Google enters a new line of business

With Friday's announcement of the Google Video Store and Google Pack, Google officially entered a new line of business: distribution of digital content. While these two new products may seem very dissimilar, the thing they have in common is that they both involve the distribution of digital content. The Google Video Store connects video content owners with consumers, while Google Pack is a mechanism for software to be installed on Windows PCs.

Right now, 99% of Google's revenue comes advertising. The other 1% comes from selling hardware (such as the Google Search Appliance), software (such as Google Earth), and miscellaneous service fees. Once the Google Video Store goes live, Google will now get a distribution fee for connecting digital content providers to end users. Google Video has the potential to be a powerful gatekeeper for the distribution of video content. The initial split of revenue will reportedly be about 70/30 with 70% going to the content owner. Also, the content owner will ability to set their own price. This large split and pricing flexibility give a strong incentive for owners to make their content available on Google Video. Google will gladly take 30% of something rather than 100% of nothing. Especially if that 30% grows very large.

Although Google Pack is free to the end user, it too involves distribution. The foundation of Google Pack is Google Updater. This makes it easy for the user to download, install, and keep up to date a suite of software products. Going forward Google can simply add a new program to the suite on their server, and every user of Google Updater will have a copy downloaded to their computer.

We'll see how big this new business will be...

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