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Google: Profiting from failure

Company has built failure into its business model. And amazingly enough, it's a roaring success.

Writer Nicholas Carr has done it again.

In a recent post on Google ("The Omnigoogle"), Carr explains more clearly than I've ever seen why Google does what it does (invests in satellites, free Wi-Fi, open-source software, etc.), and why failure is all part of the plan.

Indeed, it wasn't Carr's comparison of why Google is much like Microsoft (Google controls the online economy, while Microsoft controls the desktop economy) that I found most interesting, but rather his explanation of why Google can fail so routinely in its product launches...and have that failure feed into its top-line revenue:

Because the marginal cost of producing and distributing a new copy of a purely digital product is close to zero, Google not only has the desire to give away informational products; it has the economic leeway to actually do it. Those two facts--the vast breadth of Google's complements, and the company's ability to push the price of those complements toward zero--are what really set the company apart from other firms.

Google faces far less risk in product development than the usual business does. It routinely introduces half-finished products and services as online "betas" because it knows that, even if the offerings fail to win a big share of the market, they will still tend to produce attractive returns by generating advertising revenue and producing valuable data on customer behavior. For most companies, a failed launch of a new product is very costly. For Google, in general, it's not. Failure is cheap.

Shrewd on Google's part, and insightful on Carr's for figuring it out. It's also cause for concern for those of us in businesses that have far less wiggle room for failure. Most companies can't afford to fail more than once, if that. Google can afford to fail again and again and again, making it a fierce competitor, indeed.

From Android to Froogle, Google's products regularly fail to make a prolonged impact on the industry. At the same time, however, news that Google is launching a product in one's market is sure to turn venture capitalists frigid on investment, just as Microsoft's attention to a market does. Google, then, has extraordinary power to fail and yet still cause competitors to fail.

Powerful...and scary.