Why the Wall Street Journal is Wrong about Google Apps

Clint Boulton of the Wall Street Journal’s CIO Journal (one of our favorite news sources), published an article this past Monday detailing how “Google Organizational Changes Cloud the Future of [Google] Apps”, which brought up recent departures of a few high-profile executives in the Google Enterprise organization, and summarily stated that Google may look to pour more resources into Search, their core business (and 75% or more of their revenue), and Google+, which many, Boulton included, think of as a direct competitor to Facbeook. Boulton thinks this leaves Google with less focus on Google Apps and the enterprise software business in general, which has been around for over 5 years.

Contrary to Boulton’s statements, we believe that Google Apps for Business is just getting started as a serious competitor in the enterprise IT space, for a number of key reasons:

Google+

Boulton points to Google’s growing focus on Google+ as a large distraction from Google Apps. However, the network is much more than a Facebook competitor. In fact, we think it’s an enterprise Trojan Horse of sorts for Google. In our recent article published in Mashable, we point out many areas where Google can leverage the power of social and Google+’s growing base to broaden their enterprise offerings. And we’re not the only ones who think so. Today’s launch of Google+’s new look had many claiming a renewed and more aggressive approach to out do Facebook, but Brian Solis, a principal analyst at Altimeter Group and a Social Media expert, sees a broader vision for Google+. Solis states that, “In the future, Google’s value will be greater than just search and social, it will be the integration of Google’s business and lifestyle services into one seamless experience that serves as a personal OS…a digital hub for people to share, communicate, transact, work, learn and collaborate.”

Pace of innovation

Boulton states that last summer, Google CEO Larry Page “restructured the enterprise business to help the Apps product teams focus on development, leaving [Amit] Singh and his team to sell the software to businesses.” The platform’s pace of innovation has noticeably increased since this restructuring, with a number of big updates released over the past 9 months. Google Apps Vault, preview pane in Gmail, offline Gmail, Docs & Calendar, mobile device management in the Control Panel, comments-only access in Google Docs & page-level permissions in Google Sites are all updates that everyone in the Google Apps ecosystem had been begging for. This speed of innovation is typically seen only in consumer products, but Google is a unique place where an enterprise software and consumer product development groups co-exist and thus influence each other. The results have been incredible.

Huge Customer Wins

While Google Apps used to reel in one big name customer each quarter, that has transformed into multiple monster corporations Going Google each quarter. In the first quarter of this year, both BBVA and Roche Group announced that they had chosen Google Apps, bringing a combined 200,000 workers to the platform. Jordache and Leroy Merlin bring a combined 28,000 users, while Colorado is the latest state government to Go Google, bringing 26,000 workers to the platform at an annual savings of $2 million. And last but not least, GM is on the fast track to Going Google.

If it wasn’t clear already, it definitely is clear now. Google Apps is a serious enterprise competitor and will continue to win large deals as the platform’s speed of innovation outpaces competitors like Office 365.

Growth Opportunity

Google is a public company, so they naturally look to deliver the best returns possible to their shareholders. This has led many people who cover Google to believe that Google should focus on its core business, Search, and anything that complements Search, because it represents around 80% of the company’s revenue.

There’s only one problem with that – Google has a near monopoly on the search market. Growing their market share in the US from 66% to 80%, that would only represent a 21% increase. This would noticeably increase Google’s overall revenue, but where do you go from there? Each additional percentage point becomes less valuable to Google’s shareholders as Google captures more market share, unless Google can begin deriving more revenue per query.

What’s a good alternative? Look for new growth opportunities. While Google Apps is estimated to own over 50% of the market for enterprise cloud email, that market is expected grow 10 times over the next 5 years, as companies look to replace on-premise systems. Even if Google simply maintains market share, their revenue from Google Apps should increase by at least 10x, and probably more as Google introduces new products like Vault that will help companies move everything IT related into the Google Apps ecosystem.

With that kind of growth, Google Apps could easily become 10-15% of the company’s overall revenue, and that’s a lot of potential to give up on.