Google revs Apps revenue-generating engine

A big hit against Google has always been that it's just a one-trick-pony. It receives nearly all its revenue (some say 99%) from search advertising, reaping very little from its myriad other promising businesses, like Apps and YouTube. But as the economy continues its swoon, Google knows it can't rely on ad revenues forever, and it needs these other businesses to begin making real contributions. While it hasn't yet hit on the right formula for YouTube, two big changes to Apps--capping the number of users for the free version to just 50 and launching the Apps Premier reseller program--may just work.

Getting enterprises to shell out cash for Apps has always been problematic -- most of Apps' target market of small businessess and casual users are just fine staying on the free version. Why pay $50 per user? And even Google's internal revenue targets for Apps bear this reality in mind. According to Silicon Alley's Henry Blodget, Google's internal target revenue for Apps this year is just $10 million (or 200,000 paid subscribers at $50 each). That's a paltry drop in the bucket, compared to the firm's overall revenues, which are pegged at around $15 billion for 2009.

So how can Google get enterprise users to not only move to Apps but pay for it?

  • First, shore up what they get. Only the paying Apps users get real enterprise features, like the new SLAs and dashboards.

  • Second, make the move easier via the reseller program. Rather than designating an internal staffer to navigate Apps issues like setting up the sites and ensuring proper branding, enterprises can now purchase Apps via a reseller and have that partner handle any hassles that crop up. (Most smaller enterprises are probably more comfortable dealing directly with a reseller in person--especially when problems occur--than with an impersonal Google website.) Plus, enterprise users get the benefits of a reseller for the same price as going it alone, since Google is offering resellers a 20% discount on Apps. The idea is that the reseller will pay $40 per user to Google, and then turn around and charge no more than the regular $50 per user price to the enterprise (and depending on the reseller's margins, maybe less).

  • And the final piece of the puzzle? Force big accounts to pony up for Apps Premier. For the first time, Google has decided to limit the number of users an organization can have on the free version to just 50, forcing enterprises north of that number onto the paid version (although this cap affects only new customers). While this change may deter some especially frugal enterprises from using Apps at all (the initial pull of Apps has always been that it's free), the price point of Apps Premier actually makes a lot of sense for enterprises, especially considering the total cost of ownership of Apps Premier vs. supporting something like Exchange or SharePoint in-house.

Google seems to really be revving up Apps' revenue-generating capabilities. It will be interesting to see if it works.

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