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Why is Google Docs free?

Is Google docs free? We trade our data, willingly and unwillingly, for digital services all the time. Which could mean Google docs in not free, although, admittedly, no money comes out of your pocket to use it.

And hence the appeal. I recently learned about girl-math, which is a good way of understanding that the cost of a purchase isn’t necessarily all realized in the instant of the purchase, or with money. Passing up a sale on your soon-to-be favourite shoes does lose you the $40 discount, if you pay full price three weeks later, in the accounting of annual spending on favourite things. But, the rationalization of saving $40 by buying shoes on sale is only valid if the shoes would inevitably be purchased.

Money is a construct of humans. Imagine being in a world without a standard currency, and just wildly trading the 34 chickens you brought to market for a few loaves of bread (1 chicken), several yards of brown cloth (1 chicken), and a really cool sled with the round wooden things underneath it that makes it roll down the trail like magic (32 chickens because you understand that early adopters of new technology pay a premium price). The person selling the sled says it runs on wheels, so a wheel is worth 8 chickens.

Back to now. The concept of money is a convenient translation of value. I’d give 35 Things for someone to cut my hair, 3 Things for a cup of coffee and will accept 38 Things an hour to be a traffic cop, nurse, elementary school teacher etc. When Google docs doesn’t require any Things to use it, but lets me write documents I can share with my friends, family, acquaintances, business contacts and people I don’t really know, it appears I’m getting value but Google isn’t. And that’s no way to run a business1.

Either Google docs is the deal of the year, or using Google docs instead of a paid service for word processing and other aspects of document management is paying in alternative-Things?

An age-old marketing ploy is to get people ‘hooked’ on a free products, ahem, I mean provide a risk-free opportunity for potential customers to try it out, followed by charging a fee for the now-appreciated product. This was not Google’s way, at least in the beginnng.

In a time long ago and far away, shrouded in mists and accompanied by the whinnies of wild unicorns, there were rumours that Google’s brilliant search engine would die if it didn’t make money. One day, winds off the coast of capitalism blew and from the shrubbery along the path to enlightenment (or unlimited cat videos) emerged the valiant knight of targeted ads, to save all the fair users and innocent seekers of knowledge on the world wide web. And, lo, Google’s business model was born.

Google search is still a leader 25 years later, so it must do something right. The parent company now operates YouTube, gmail, maps, the Android operation system, and offers enterprise solutions for document management in the cloud. For the individual, services are free except there is a premium version. Users only have sign up, log in, and stay logged in.

How does Google make money? Its recent financial report2 explains that of the $70B in revenue for the quarter, 68% was from Google and YouTube ads, and 10% from cloud services (document management and storage). These are the most profitable products. The remaining 22% of revenues is from enabling ads elsewhere, and misc other things. 

Going beyond the obvious logic that Google makes most of its money selling ads and therefore offering Google docs for free is a way of selling more ads (by collecting more data to make targeted ads even more valuable to paying customers i.e. advertisers and providing another platform on which to post ads)… well, is there a reason to go beyond the obvious? 

The company proclaims3 that ‘we never use your docs content for ads purpose’. I want to say I recall the same for gmail – that the company states it didn’t use email content to target ads. Personal experience suggests there was always an ad in the next browser window that related to recent emails. Even so, Gmail evolved to be a trusted free email source and the best way to achieve continuity in your contact info through shifts in employer, service provider, and other, less stable free services. Trading other someThings for gmail is apparently worth it.

A more fundamental question is why gmail was created and distributed. At a time when its business model was all about targeted ads and search, Google made a reliable, stable, freely accessible email service. I want to believe it was for the pure joy of allowing friends to use the Internet to send messages. That is certainly how I got my gmail account, many long years ago. 

Google now sort of admits it uses gmail to target ads to you. Its privacy policy4 distinguishes between when you are signed in and not signed in. Reading between the clauses, this is how gmail and Google docs are both free to consumers and of benefit to Google. If a consumer uses a Google product, their information is consumable by the company, as I read the privacy policy. Users must be signed in to gmail or google docs to use either, so by default Google has access to the content posted there. 

Google Docs is free for individuals, but not for business customers. This could be the business model of offering a basic product for free and charging for a more functional upgrade. Google has been selling enterprise software solutions (bundles of email, document management and whatever walled off inside a big organization) for years. Not sure where is this in the financial statements – perhaps as part of Cloud services. 

A Google search (conflict of interest much?) on why Google docs is free brought up a number of comparisons of the cost of Microsoft Office to the free Google Docs. Interesting because it looks like a concerted effort to shift marketshare from the dominatrix of the document handling (Microsoft) to a tech company that is a dominatrix of another domain (i.e. Google’s search and data gathering).

So, is offering Google docs for free marketing for upscale Google docs or paid for by data? Both. I think. Using my crystal ball to peer into the strategic decisions at Google, I see that it is a move to garner marketshare in document management/enterprise solutions and achieve greater market share in its established market (targeted ads). 

What does the company say? On their most recent earnings release5, it was AI all the way down. Search and YouTube (ads) are growing but not as much as Cloud. However, it’s murky what’s driving Cloud. Cloud provides the infrastructure to deliver AI products but also enterprise solutions. Google docs is a mundane service, part of enterprise solutions, or is it? Speculating wildly, perhaps there are aspirations of integrating AI into docs, so that a user only has to have a vague idea of what they want to write, and AI does the rest. Could be a service people would pay for.

Why is Google docs free? It could be because users are paying in ad-targeting, or being marketed to for a premium version, or to use free as an individual but sign up to pay for a business solution, or a long term plan requires establishing a good users base. One way or another, Google docs is not free, users are paying in alternative Thingies.

1 I am sure Google/Alphabet knows how it makes money from Google docs. This post isn’t an exposé of the Alphabet boardroom secrets. It is a bit of fun rummaging around business models and the concept of value.

2 from Alphabet, the parent company.

3Here, on the info page about Google Docs



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