Google

About a month ago I had coffee with a friend, a systems administrator who pitched me on his plan to provide managed web services for clients. Where was he going to host everything? He had a relationship with a local data center. Who in their right mind would invest in hosting infrastructure, I asked him, when Google has already figured it all out and will sooner or later offer this for free? He gave me a puzzled look.

You can argue that Google is already there with Google Page Creator and Google Sites, but there’s no doubt in my mind Google will start offering a free hosting platform that will rival — and likely surpass — Amazon Web Services.

Dave Winer has written two posts on the subject of a hypothetical Google Web Services. From reading the comments, it seems a lot of people are still skeptical about this happening. Let me explain why I think Dave is right.

The picture you see here is of Google’s entire server park from 1999 — ten CPU’s across four servers. Google has come a long way since then, building up a massive global server infrastructure. A 2006 estimate is that they had in the ballpark of half a million servers across the globe. Gartner last year estimated Google has a million servers. How is this all possible?

Google Adwords is a killer cash cow for Google. The profit from the Adwords franchise, which represents nearly all of Google’s revenue, more than covers the cost of their infrastructure several times over. For all intents and purposes, therefore, Google’s incremental cost to add new applications to its cloud is zero.

It’s not like going free would be without precedent. Google Analytics is a prime example of how they’ve done it before. Google purchased Urchin and promptly reduce its price from $499 per month to $199. They later made it free by invitation only and with a five domain limit. Today, the application is completely free, with no restrictions or limitations.

A more recent example is Google Ad Manager, a new ad serving platform which is by invitation only — for now. Then there’s Google Apps for Domains, Google Website Optimizer, Google Earth… all applications that people were used to paying for before Google made them free. Why would hosting be any different?

Google has already won the battle for search engine market share. So how do they keep up the revenue growth the market expects of them? Here are a few ways:

1. Increase CPC’s
   In 2006, Google launched a new quality score algorithm and revenue up 70% and profit doubled. Yup, leave it to Google to help you bid against yourself. Last month, Google started piloting something called automatic matching, which lets Google sell you clicks on keywords you didn’t even bid on.
2. Increase ad inventory
   Wikipedia is great, but stubbornly refuses to run Adsense. Enter Google Knol. Google Ad Manager helps here, too. But Adwords is not limited to the web. You can now use the interface to buy ads on the radio, in print publications and even on TV.
3. Place bets on what the next big thing could be
   The next big thing could very well come from within Google, and the company has not been shy to hire legions of programmers with the hope that one of these teams will strike gold. But what if it comes from the outside. Google’s covering that, too, with equity investments in startups. Offering a hosting platform would make sense also, which would let startups focus more on creating new applications as opposed to the nuts and bolts of managing hardware and networks.

So how will Google roll out their hosting offering? A logical start could be to offer free hosting to sites with Adsense on their pages. Or free hosting for, say, your first million or so hits monthly. And they’ll go from there.

One way or another, the move is inevitable. And until it happens, I for one won’t be investing in massive server infrastructure.