June 6th, 2006

Google spreadsheet: the big test for ads in apps

Posted by Phil Wainewright @ 3:46 am

Categories: Business models, Google, Microsoft, Web 3.0

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There are no ads in Google Spreadsheet yet, but it's only a matter of time. What better application could you think of to embed ads into than one that people use for budgeting and price comparisons?

Google will be watching carefully who uses Spreadsheet and what they use it for. Once the company has proved the application and gathered enough usage data, then it'll launch an AdWords option for Spreadsheet and start to test its viability as a vehicle for contextual ads.

This will be the big test for ad-supported applications. As I've written previously, Google desperately needs to find new vehicles for its contextual ads that work as well as search. There's been a huge amount of speculation about ad-supported applications, but as I pointed out long ago in this blog, the track record of past attempts is that ads in applications don't work very well. People use applications for a reason, and they don't like being sidetracked. Ads work in search because they often provide the result the user is searching for.

Now think about why people use spreadsheets: because they want to find a numerical result. If Google can find a way of devising ads that are relevant to the results people are using the spreadsheet to find, then it may open up a lucrative new stream of contextual ad revenues. Not so much AdWords as AdNumbers.

Should Microsoft be worried? Yes and no. From one point of view, this new application is totally irrelevant to Excel, which has always been a single-user spreadsheet application and is therefore in a completely different category from the shareable, team-friendly Google Spreadsheet. If anything, Google Spreadsheet will extend the market for Excel by introducing more people to the spreadsheet concept.

On the other hand, if Google succeeds in turning Google Spreadsheet into its first truly money-spinning productivity application, then it will steal a huge march on Microsoft in the emerging Web-based, ad-funded application space. That in turn has serious knock-on implications for Microsoft's desktop Office revenues simply because it will make Office look ridiculously expensive. Who's going to pay tens or hundreds of dollars for an application that you only use to draft spreadsheets locally before you upload them to Google for sharing? Especially if Google sooner or later comes out with a rich-client version of Spreadsheet that you can save and use locally, as Ryan Stewart has speculated.

For the moment though, the key question is not whether Google Spreadsheet is an Excel killer. First of all, it needs to prove itself as a successful vehicle for contextual ads, which it won't do overnight. But if it succeeds, it will strike a powerful blow against Microsoft's entire business model. There's a very clear inverse relationship. The more money that Google can make from its ad-funded Spreadsheet, the less Microsoft will be able to make from selling Excel licenses.