), which dumped Google as its primary search provider in February, has shelled out $2.5 billion for a trio of acquisitions to go after Google's core Internet search business. And after years of watching from the sidelines, Microsoft Corp. (MSFT
) jerked awake to build a new search engine that it has claimed will one day catch the upstart competitor. All the while, academics and analysts who once marveled at the ease of Google's ability to find just about anything clucked as its once impressive edge in search technology narrowed.
Now, Google is ramping up to take on the giants of the Net. On Mar. 31, the company announced that it would soon unveil a new e-mail service, dubbed Gmail. If successful, the move could rattle the Internet business -- and portals like Yahoo, Microsoft's MSN, and America Online (TWX
). At the least, it threatens to unhinge the fast-growing e-mail business, which is the killer app for just about every major portal. They rely hugely on e-mail to amass the hefty audiences that help draw in millions in advertising revenues.CONSUMER BACKLASH? The e-mail foray comes at a pivotal -- and perhaps risky -- time. Six-year-old Google is expected to file paperwork for an initial public offering as early as this month. Analysts figure Google, with estimated sales last year of $900 million, could set Internet IPO records by fetching a valuation of $15 billion to $20 billion.
But it's a precarious time to take on entrenched incumbents, especially since Google is experimenting with a risky new business model. It is offering e-mail with much greater capacity to store messages than the free services portals provide. And rather than charging users premium prices for the added capacity, as rivals do, users will get it for free in exchange for receiving ads with their e-mail. The catch: Google will target ads to users' specific interests by scanning the text of their e-mail for keywords. Someone who gets an e-mail about the beach, for example, might receive swimsuit ads. That has raised big privacy concerns. "There could be too much consumer back-lash," says analyst Matthew Cain of META Group Inc.
With its bold gambit, Google hopes to do to e-mail what it did to search in the late '90s. Although the service won't be available for widespread testing for several weeks, the version showed BusinessWeek at Google's Mountain View (Calif.) headquarters is fittingly spartan in design. No splashy graphics or e-mail folders adorn its look -- something demanded by Google co-founders Lawrence Page and Sergey Brin. But unlike other services, Gmail will make it far simpler for users to organize and find e-mails. The key, not surprisingly: Google will organize users' e-mail by searching key phrases rather than using folders. The old system becomes unwieldy, Google executives say, as inboxes grow. "You can read your e-mail without worrying about the logistics of how to manage it," says Jonathan Rosenberg, Google's vice-president for product management.
And the service will dwarf its competitors.To entice users, Google will offer each customer 1 gigabyte of storage space, enough to store 500,000 standard e-mail messages -- roughly 250 to 500 times the size of Yahoo's service or Microsoft's Hotmail. That could eliminate the need to delete messages from flooded mailboxes.PROFIT CENTERS. Google is targeting portals where they're the most profitable. E-mail is among their "stickiest" services, keeping folks coming back to the services repeatedly. That allows Yahoo, MSN, and AOL to wring money out of them for subscriptions, sales, and advertising.
The question, of course, is whether Google will succeed in persuading its millions of search customers to move away from those rivals. For now, none would comment on its move. Despite its technological strengths in search, the company is unproven in critical tasks like customer support or providing anti-spam filters. More important, its basic model -- getting folks to take free e-mail in return for opening their e-mail to Google's advertisers -- is far from proven. Google says there should be no privacy concerns in part because computers, not humans, will comb through individuals' e-mails.
Still, not every e-mail user will want ads to appear next to their private messages; many could also hesitate at giving advertisers the ability to target those ads based on their private correspondence. Many of Google's 150,000 advertisers also could prove reluctant. Warns Obie Miller, head of sales for online retailer Gazebo Garden, which now spends $5,000 to $10,000 per month on Google ads: "I don't think anyone wants ads in their e-mail." Google clearly thinks those fears are misplaced. But as it enters a potentially big new market, this time success won't be as simple as offering up the Web's best recipes for hot apple pie. By Ben Elgin in Mountain View, Calif.