Google's decision to begin testing a free, ad-supported Web-based e-mail service this week was so far out of character for the search giant that many people thought the announcement was an April Fools' Day hoax.
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Google has released a test version of a new Web-based e-mail service called Gmail that will provide up to a gigabyte of storage and serve ads based on the content of messages.
Gmail could signal the beginning of a major overhaul for Web-based e-mail, challenging rival services from Yahoo, Microsoft and others with a new way of organizing messages that's based on search rather than folders. But Google's plan to scan messages raises privacy concerns.
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Google representatives downplayed the strategic significance of the move, painting the new Gmail service as a search-based e-mail application that offers a natural extension to the company's primary focus on organizing information. Nevertheless, analysts said Gmail likely heralds a broad expansion of Google's business and is a clear shot across the bows of rivals Yahoo and Microsoft.
Although Google has not yet made accounts available to the media, a description on its Web site points to a completely new way of accessing and organizing e-mail. The service will rely on search technology to automatically organize and find messages, removing the need for file folders. By typing in a search query, Gmail can scout out any message sent to or received by the user in its archive, showing entire strings of e-mail conversations related to the query, according to the site. Google said the storage allotment means that people will never have to delete messages.
But Gmail carries substantial risks, analysts said, most notably closer scrutiny from privacy advocates uncomfortable with the company's plan to scan the content of e-mail messages in order to serve up targeted ads--a feature that some critics said clashed with the company's long-held business mantra: "Do no evil."
Google's business also could undergo a sea change, as it further expands its focus from search to portal-like services, such as its recent launch of a news aggregation site and comparison-shopping engine.
"If Google wants to interpret search this broadly, the company is really saying that they're ready to go into any kind of Web-based service," said Jonathan Gaw, an analyst at research firm IDC.
Google is at the top of its game, having come out of nowhere to trounce one-time search leader Yahoo with a simple, stripped-down service that beat nearly everyone in delivering relevant search results. Google had an audience of 60 million unique visitors, or 40 percent of all U.S. Internet users, in February, according to Web measurement company ComScore Networks. Its audience has grown by nearly 25 percent since February 2003.
Now, as it prepares for a widely expected initial public offering, the company faces a critical crossroads.
Although Google has built a powerful brand, its competitors are gearing up for a long and drawn-out battle that could yet see the upstart falter. Yahoo has spent more than $2.5 billion on search acquisitions in the last year and a half, and Microsoft has put search at the top of its research and development plans.
Launching a Web-based e-mail service could serve as a defensive measure to counter coming blows. The average user of free e-mail spends about four hours a month using such services, according to ComScore. In addition, companies that offer e-mail typically acquire registration information that can be used to learn about their customers and lock in loyalty.
If Google is under increasing pressure, however, analysts said the company has thrown competitors on the defensive for now with its Web-based e-mail offering. Gmail's 1GB of storage is about 100 times that offered in the free version of Hotmail.
The idea, according to the company, is to allow customers to keep their e-mail forever and to provide efficient ways to search for old messages.
"Either they're geniuses or dummies on whether they can support that indefinitely on an ad-supported basis. A gigabyte of information is a lot, and it's going to cost a lot," said Raymie Stata, founder of Stata Labs, a provider of an e-mail search tool called Bloomba that launched last year.
An ad for every e-mail?
Gmail was promoted in a campy press release that had Google founders saying "Heck, Yeah" to offering mail that could help people search, store and manage messages for a lifetime. Some took the April 1 announcement as joke, along with a job posting on the company's Web site on the same day, seeking staff for a space mission with a project dubbed the "Google Copernicus Hosting Environment and Experiment in Search Engineering" (GCHEESE). A Google representative denied that Gmail was a hoax.
With Gmail, Google will become a prime repository for personal profiles or life memories, a goal Microsoft researcher Gordon Bell aspires to do with his MyLifeBits Project. Because many people wouldn't have to delete e-mail, they could potentially search for communications a year or two, or 10 in the past, with ease.
The downside of that is the creation of a centralized honeypot of personal data for legal investigations, privacy and security expert Richard Smith said. Investigators could subpoena stored data for evidence in civil divorce cases or employee-employer disputes, for example, he said. Microsoft is currently embroiled in a civil antitrust lawsuit in Minnesota, in which e-mail evidence has played a featured role.
Google could face additional controversy over its advertising plans for Gmail, which has been designed to scan the content of e-mail messages in order to deliver targeted sales pitches to readers.
Google makes an estimated $1 billion annually by letting advertisers bid for placement next to search results related to search terms, for example, delivering an ad for American Airlines each time someone types in the word "travel." The program, called AdWords, has been such a hit that Google expanded it for publishers last year so that standard Web pages could be linked to relevant ads. Now, it aims to propagate that service for e-mail, the No. 1 activity on the Web.
Google's technology system works by scanning Web pages--and now, e-mail messages--to boil down their meaning into a few key terms or concepts. It can then match them to ads that are meant to fit to the context of the page. Imagine an e-mail exchange with your father about golf, resulting in a pitch for Titlist golf balls appears below the message.
With billions of potential e-mail at its reach, Google could substantially boost the size of its ad network and coffers.
But consumer privacy will play an enormous role, industry watchers say. Some people may be unwilling to trust Google with a personal catalog of their e-mail, let alone be happy about receiving ads in personal communications.
For this reason, Google will have to walk a fine line with consumers. IDC's Gaw pointed to a service from Citibank that sought to have call center operators use caller ID to find customers' account information before picking up a call. It shelved the system, when many customers complained.
Privacy advocates take a harsh view.
"It's absolutely unacceptable from a privacy standpoint to have Google scanning e-mail, even if they say that data won't be transmitted or personally identifiable," said Gary Ruskin, executive director of consumer advocate group Commercial Alert, run by Ralph Nader.
"It's a violation of users' privacy, and it's an outrageous one at that. As they say, the camel's nose is in the tent, and in one year, the camel is in the tent."
Salar Kamangar, Google's director of product management, said "privacy is foremost on our minds," and that no personally identifiable information is associated with search queries, nor will it share data with third parties. "We have the same privacy standards for all of our services." To date, Google has not hired a privacy expert, and sources have said the company believes that its internal sensibilities will rein in any wrongdoing.
Archiving your life
Whether or not offering massive online storage lockers for e-mail archives proves appealing to users, there may be considerable value in hosting them. For example, Google might be able to convince customers to grant it permission to mine the archive for contextual information that could be used to deliver more relevant search results--something Microsoft is considering in its own search plans.
Although Gmail is coming late to the game, analysts said it could reset the bar for Yahoo and Microsoft, which more than a year ago began charging customers for extra storage. Rumors of the free e-mail service had circulated for weeks prior to the announcement, and Google has recently filed patent applications that deal with methods for serving ads that use information contained in e-mail.
"Google's initiative will force the industry to refocus on (e-mail) and offer new ways to...allow users to search, find, organize and view their e-mails in a more useful way," Piper Jaffray financial analyst Safa Rashtchy said.
Microsoft declined to comment on Gmail but noted that its Hotmail service has 170 million accounts that are used at least once a month. The company does not reveal how many Hotmail users pay for extra storage, but it says 8 million MSN customers pay something to the company, primarily for e-mail storage, dial-up subscription fees and MSN Premium--a portal service for people who get their access elsewhere.
Yahoo highlighted unknown future advancements. "We will continue to be an innovative leader by integrating and delivering new features that add value to people's lives," said Chris Castro, Yahoo's chief communications officer.
Rashtchy said Yahoo's paid e-mail service ranks only second to Yahoo Personals as a source of income on fee-based services, excluding Yahoo's Internet access deal with SBC Communications. He said Google's 1 gigabyte of storage will still dwarf offers of paid e-mail service, which range from 25MB to 100MB. But the cost of creating similar capacity will be high and make e-mail a potential money loser, he said. "Monetization of e-mail on storage alone may become more difficult."