Does Google Apps have a future?

By Jeff Gould

A story in last week’s Wall Street Journal paints a somber picture of the future of Google’s enterprise-oriented Google Apps software business. Under pressure from Facebook and anxious investors, Larry Page is said to be de-emphasizing Google Apps in order to focus on the firm’s core advertising business. The latter targets mostly consumers and generates the lion’s share of Google’s revenue (around 96%). It includes the franchise Google search engine, the new Google+ social network, and the Android mobile operating system.

Page’s recent reorganization of the company, according to the Journal, effectively sidelines the Apps business unit. The Apps product development group is now part of the consumer software unit (which develops the Chrome browser and Chrome OS, among other products), while the enterprise sales team responsible for pitching Google Apps to corporations and government agencies has been left as a standalone rump. The Journal also notes a wave of executive departures from Google’s Enterprise business, including the man most responsible for making Google Apps what it is today, Dave Girouard. The article echoes recent comments by Gartner analyst John Pescatore, who bluntly notes that “Google isn’t an enterprise IT provider. It’s a consumer-grade advertising provider.”

So should companies and agencies that have moved to Google Apps be worried that they’ve bought into a product with no future? Is Larry Page ever likely to pull the plug on Google Apps? The short answer to that question is surely “no”. Google Apps may be too insignificant a piece of the company’s overall business to merit much attention from the CEO. But as an inexpensive repurposing of the company’s ad-driven consumer email product Gmail, the Apps business justifies its continued existence by the strategic value alone of the nuisance it causes search rival Microsoft (though certainly one could argue that the reorg reflects Page’s realization that Apple and Facebook are equal if not greater threats). However, strategic posturing aside, it’s also clear that the Apps business has a potential long-term economic value to Google as an on-ramp to its far more profitable ad-based services.

Only a handful of large corporations to date have dumped feature-rich enterprise-grade email server software like Microsoft Exchange or IBM Lotus Notes for Google Apps. But the search giant’s offering is proving very attractive to cash strapped government agencies and school districts (as well as a few private sector giants in financial peril, such as struggling auto makers or Euro-challenged Spanish banks). Pushed into a painfully tight budgetary corner by the weak economy, many public sector agencies are desperate enough to compromise on features, and maybe even cut a few corners on the privacy front as well. The opportunity to become enterprise free riders on an ad-subsidized consumer product is an offer some of these customers feel they can’t refuse. Google in turn is willing to accept weak or non-existent profits on Apps (since it’s hard to see how the current $50 per user per year pricing scheme could yield margins that Google investors would find exciting). But in exchange, it gains access to a vast trove of data it can mine to optimize ad delivery in the ever-growing stable of its ad-based services such as Search, Google+, YouTube, and so forth. And in the case of the schools, it earns the chance to funnel large numbers of new users into these businesses – hence the tight integration of the latter in the user interface of the Government and Education editions of Apps.

The long term question enterprise users of Google Apps have to face is not whether the service will still be around in a few years’ time (it will be), but whether Google is willing to build the enterprise service delivery and support model that large organizations require. Gartner’s Pescatore relates an interesting anecdote in this regard. Early last year the web site of cybersecurity firm HBGary was targeted and hacked by Anonymous. The firm’s CEO ordered the web site shut down, but realizing that its Gmail accounts had also been compromised, he called Google and asked that HBGary’s email service be turned off in order to stop the hackers from accessing newly arriving emails. Absurdly, the CEO was unable to prove his identity to Google’s consumer-oriented help desk in sufficient time, with the result that thousands of additional HBGary emails were exposed.

Pescatore points out that this incident does not reveal a security flaw in Google’s product. Any email software – including Microsoft’s and IBM’s – can be hacked if users allow passwords to be stolen. But it does reveal a crucial gap in Google’s product culture. Enterprise-grade software requires a level of support and a degree of commitment from the vendor that has no equivalent in the consumer space. That commitment and support inevitably cost money – lots of money. Accordingly, a viable and scalable enterprise software business, even one that is purely cloud-based (such as Salesforce.com), has to have a revenue model that allows the firm to devote the necessary resources to satisfying the enterprise customer’s complex support needs.

Will Google bite the bullet and build the enterprise support organization its Google Apps products deserve? The jury is still out on that question. It doesn’t look like Larry Page has devoted a lot of thought to it. But the people at Google who are actually building and selling the Apps products surely have. It’s time for them to speak up in the internal corporate debate. It’s also time for Google Apps customers in the public and private sectors both to confront this issue directly and ask Google to evolve. At the end of the day, advertising and enterprise software are very different businesses. While there is no reason they can’t thrive under the same corporate umbrella, combining them into a single strategy or product is not a recipe for lasting success.

Full disclosure: I’ve been using Gmail as my primary personal email account for six years, and I have to admit that life as a free rider is pretty comfortable. I’m not saying that Gmail is a bad product. In fact, it’s a great product – I like the user interface better than that of its rival Office 365, which I also use. And I’m not arguing that the devil’s pact Google offers of allowing your email to become fodder for data mining and ad targeting in exchange for free services is always evil. For an individual consumer like me it can make perfect sense. But organizations with mission critical security and performance requirements need to think very carefully about these issues before taking the plunge.

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