Small businesses with 10 or fewer employees previously had been allowed to use Google (NASDAQ:GOOG) services like Gmail and Google Drive for free.
According to a release yesterday, Google has stopped offering its web-based office software via Google Apps free of charge to small businesses — though, for the record, larger companies always had to pay for the service if they used it.
Google is quick to spin the move by saying, “instead of two versions, there will be one” and that “this change has no impact on our existing customers, including those using the free version.” The goal is clearly to raise revenues outside its core search and advertising business on the web, but GOOG spins this too, saying, “we’ll be able to do even more for our business customers” and “push Google Apps further.”
So is this a smart move?
On the surface, it appears pretty cutthroat. Charging for something you previously gave away is a sure way to alienate customers. Furthermore, the whole Google shtick that says “don’t be evil” seems to fly in the face of charging the little guy $50 here and there when big organizations already on Google Apps surely represent the lion’s share of revenue.
But long-term, this is not just a smart decision, but a necessary one.
Internet advertising continues to see pressures that hurt the bottom line — as painfully revealed in the recent Google earnings miss that showed margins shrank, mobile monetization remains challenging and cost-per-click was down.
Finding new sources of revenue from cloud-based apps seems natural, and is perhaps the best way for Google to keep its earnings moving in the right direction. Remember, Google might be a verb, and it might be one of the most respected innovators in Silicon Valley … but it also is a business, out to make a profit where it can.
Besides, Google Apps remains free for individuals, and the $50 per-person annual charge for the business version will hardly bankrupt any startups since it is very competitive with similar software suites from Microsoft (NASDAQ:MSFT).
Internet advertising has been great to Google in years past, but its dominance is hardly guaranteed. Even search might be at risk, as Facebook (NASDAQ:FB) reports it is serving “a billion search queries per day, and we aren’t even trying.” So if the company wants to maintain its dominance — and if shareholders want to see continued growth — then Google will have to think about new revenue streams.
Google Apps is one. Its ambitious Nexus line of Google-branded mobile devices is another. And investors can expect — and should demand — ideas like this to keep coming.
This recent move to snatch up an extra $50 here and there will hardly reshape Google’s roughly $40 billion in annual revenue. But philosophically, it will be good for the company long-term.
- Could Google Fiber or a wireless service be another revenue idea from GOOG? (InvestorPlace)
- Microsoft Office did some $24 billion in revenue in fiscal 2012. So this is a good place to be for Google. (Microsoft IR)
- Half-serious question: Was the Google earnings glitch a sign of a pending robot apocalypse? (The Slant)
- Of course, Google is under attack for alleged antitrust practices … so that’s worth watching. (Washington Post)
Jeff Reeves is the editor of InvestorPlace.com and the author of “The Frugal Investor’s Guide to Finding Great Stocks.” Write him at firstname.lastname@example.org or follow him on Twitter via @JeffReevesIP. As of this writing, he did not own a position in any of the stocks named here.