The Wall Street Journal has an article entitled The Men Who Came To Dinner, and What They Said About Email which contains the following excerpt

"Email is one of the liveliest niches in tech right now. Google, Microsoft and Yahoo all view it as a key to winning new customers and making money off current ones. And so they are innovating with new email programs and services all the time. Since all three companies' email teams are in my neck of the woods, I thought it would be fun to have the heads of each team come over one night for dinner and conversation. The three companies were good sports and agreed, in part because I said I wasn't interested in a shouting match.

As it happened, Google's Paul Buchheit, 29 years old; Kevin Doerr, 39, of Microsoft (no relation to the venture capitalist) and Ethan Diamond, 34, of Yahoo were all on their best behavior. Whatever they may say about their competitors at work, at my table they were gracious and complimentary. Gentle teasing was about as far as they would go.

The evening began with even the Microsoft and Yahoo delegates agreeing that much of the current excitement in the email world can be traced back to last year's debut of Mr. Buchheit's Gmail. The program had a fast user interface with a fresh new look, along with a then-remarkable gigabyte of free storage.

Mr. Buchheit said he started working on Gmail after observing that other email programs were getting worse, not better. Microsoft's Mr. Doerr said that at his company, Gmail was a thunderbolt. "You guys woke us up," he told Mr. Buchheit. Yahoo's Mr. Diamond, then at a startup with its own hot, new email program, said Gmail was the final impetus that Yahoo needed to buy his company.

Mr. Buchheit responded with a victory lap. "We were trying to make the email experience better for our users," he said. "We ended up making it better for yours, too."

The evening wasn't all a Gmail love-in, though. The Microsoft and Yahoo representatives said their many millions of users might not accept some of Gmail's departures from email norms, such as the way the program groups messages into "conversations." The two men also razzed Mr. Buchheit a bit, saying that it had been easy for Google to promise a lot of storage to its users because it carefully controlled how many users Gmail would have by requiring an invitation to get an account."

As someone who has to build services which compete with Google's the last statement in the above excerpt resonates with me. I tend to think that in a number of their products such as GMail, Google Talk and even Google Pack, the folks at Google are practising the lessons learned from articles such as Joel Spolsky's Fire & Motion. In the article Joel Spolsky argues that large companies like Microsoft tend to create technological imperatives that force competitors to respond and keep up thus preventing them from focusing on new features.

Examples of Google practising Fire & Motion are somewhat different from what Joel Spolsky describes in his article but the ideas are similar.  Google tends to create initiatives that are either much more expensive for their competitors than them to provide (e.g. giving users gigabytes of storage space for email but limiting sign ups on the service) or would be detrimental to their market share to compete with (e.g. allowing non-Google clients to access the Google Talk servers). I've had co-workers joke that for every dollar Google spends on some of its efforts, its competitors are forced to spend five to ten dollars. Here is a back of the envelope calculation that illustrates this point.

Email ServiceEstimated Number of UsersInbox SizeTotal Storage provided
GMail 5 million2.5GB12.5 petabytes
Yahoo! Mail219 million
1GB
219 petabytes
HotMail221 million
0.25 GB
55.25 petabytes

Of course, these numbers are off because they are based on estimates. Also I think the Hotmail numbers should be somewhat lower since I haven't confirmed that we've rolled out the 250MB inbox to every market. The point should still be clear though, Google has forced its competitors such as Microsoft and Yahoo! to spend orders of magnitude more money on storage which distracts them from competing with Google in the places where it is strong. More importantly its competitors have to provide from 10 to 20 times the total amount of storage Google is providing just to be competitive. 

This is often the dilemma when competing with Google. On the one hand, you have customers who rightly point out that Google is more generous but on the other the fact is that it costs us a whole lot more to do the things Google does since we have a whole lot more users than they do. The cool things about this is that it forces to be very imaginative about how we are competitive in the market place and challenges are always fun.  


 

Saturday, January 7, 2006 10:31:24 PM (GMT Standard Time, UTC+00:00)
> or would be detrimental to their market share

Is this why Microsoft does not allow other clients to connect to its network? If so, it's sad that Microsoft prioritizes market share over user benefit.
afraid to mess with the borg
Saturday, January 7, 2006 10:40:22 PM (GMT Standard Time, UTC+00:00)
I agree with the essence of your post. But, the specific example is a little different from fire and motion, isn't it? The real reason gmail might be able to scale to petabytes might be GFS (http://labs.google.com/papers/gfs.html). And people don't forget that theirs is the only online email search function that seems to work.
Sunday, January 8, 2006 12:31:56 AM (GMT Standard Time, UTC+00:00)
av,
It seems you have misuunderstood the point of my post. Giving users free gigabytes of storage then restricting accessibility to the service is an example of Fire and Motion because your competitors are forced to respond but have to do it for 10 to 20 times the number of users you are doing it for.

afraid to mess with the borg,
Microsoft believes in increasing the connectivity of IM services which is why Office Communicator/Live Communication Server can communicate will three major IM networks (AOL, MSN and Yahoo) as well as why we're working with Yahoo to interconnect our consumer IM networks.
Sunday, January 8, 2006 1:55:12 AM (GMT Standard Time, UTC+00:00)
Dare,
I think you're using the term 'user' a little loosely. Google mostly hands out GMail accounts to humans, right? So, couldn't it be said that Yahoo and Hotmail are hobbled by hosting countless spammers?
Sunday, January 8, 2006 2:23:28 AM (GMT Standard Time, UTC+00:00)
Robert,
I'm sure the ratio of spammers to regular users is better in closed systems like GMail compared to open systems like Yahoo! Mail and Hotmail. However e-ven if half of Yahoo! Mail and Hotmail's users are spammers (which is extremely unlikely) and you assume every account on GMail is legitimate that is still 20 times more people we have to deal with than Google does.

And that's a worst case scenario.
Sunday, January 8, 2006 5:38:46 AM (GMT Standard Time, UTC+00:00)
Dare,

Agreed with your point that restricting the membership is underhanded. That said, what if they really do have a system that can handle petabytes? What if google is spending more time building a scalable system behind the applications?

I know, I know about G's PR machinery which introduces each one of their applications flippantly like, "... One late night in Mountain View, I was looking at planes land on the Moffett Air Force Base and I decided to build me an Air Force ..." But what if Google is focussing on finding applications for a cheap, massively parallel architecture? That they focussed on this parallel architecture long before focussing on the applications?

This would make their unit cost for your back of the envelope calculation really low? At the very least you should add another column in your calculation - a column that tries to put a dollar value to maintaining the petabytes worth of data?
Sunday, January 8, 2006 7:44:57 AM (GMT Standard Time, UTC+00:00)
Your post made sense when I first read it. But when I think about it, it doesn't. The only reason Google, Yahoo and Microsoft provide free E-Mail is because they somehow make money off of it (e.g. advertisment). It's business after all. Since Microsoft has a far greater number of users, they should make a lot more money and thus should be able to provide more space. If they cannot scale and stay profitable, then they're doing someting wrong.
Hermann Klinke
Sunday, January 8, 2006 4:22:35 PM (GMT Standard Time, UTC+00:00)
Hermann,
Interesting. I would have expected it to be obvious. A business that is profitable giving users 2MB (Hotmail) or 6MB (Yahoo!) of free email storage may not be [as] profitable if you increase your storage cost structure by over a hundred times. Similarly there is the increased logistics of managing that more storage and that many more servers.
To be competitive in this space Yahoo! and Microsoft had to radically improve their cost structure so that email didn't turn from a money maker to a loss leader simply to compete against Google in checkbox features. That's what I mean by being imaginative in how we are competitive.

Sunday, January 8, 2006 4:48:03 PM (GMT Standard Time, UTC+00:00)
Dare:
So do you think that Google is making a loss on Gmail, and that it only went into the market to hurt its competitors by forcing them to up their storage?

Or is it that Google believes that its technology of scanning emails and delivering targeted adverts can deliver more revenue per email account?

I suspect the latter is true: that Gmail can afford to provide more storage (and hence a better user experience) because it's better at selling ads.

To generalize from that: I'm not sure it's quite true that "Google tends to create initiatives that are... much more expensive for their competitors than them to provide". It's not more expensive for their competitors: it's just that their competitors are worse at raising revenue.
Sunday, January 8, 2006 6:30:36 PM (GMT Standard Time, UTC+00:00)
TheophileEscargot,
>So do you think that Google is making a loss on Gmail, and that it only went into the market to hurt its competitors by forcing them to up their storage?

Probably not.

>Or is it that Google believes that its technology of scanning emails and delivering targeted adverts can deliver more revenue per email account?

That is quite likely.

However none of this invalidates my point, which seems to be obscure enough that everyone who has responded thus far has missed it. The folks at Google like to brag that by coming out with GMail, they forced their competitors to catch up. Sergey Brin bragged about it at the Web 2.0 conference. Paul Buchheit bragged about it at the dinner with the Wall Street Journal guy.

Let's say Google has about 10 petabytes of storage to devote to mail. And also that their bean counters have figured out that they can make a profit from showing ads to users in the U.S. and other first tier markets at 2GB per user but not so for other markets. Especially if they end up with a whole bunch of users in 2nd tier markets like Brazil which is what ended up happening to Orkut which is why they consider it a failure.

One thing they could have done is open a generally available email service with a potential to be unprofitable and also have to give users less than 2GB of storage per user since they aren't artificial caps on the number of users via a limited invitation model or requiring a U.S. phone number to sign up for the servce.

But they didn't do that did they? However every chance they get they try to make their competitors look like chumps for not doing exactly that.
Sunday, January 8, 2006 7:53:52 PM (GMT Standard Time, UTC+00:00)
Is Microsoft practicing fire & motion with playforsure? It will be detrimental to Apple's market share to compete with Microsoft's initiative to promote choice and openness in the music player business.
afraid to mess with the borg
Sunday, January 8, 2006 8:32:44 PM (GMT Standard Time, UTC+00:00)
It seems like this is an example of the cycle described in "The Innovator's Dilemma" where dominate companies lose market share to upstarts because the dominate companies cannot compete on price or without cannibalizing existing products.
anonymous
Monday, January 9, 2006 9:03:37 PM (GMT Standard Time, UTC+00:00)
Great data. I didn't know that Google has so few users in comparison with the others.
Wednesday, January 11, 2006 3:09:03 PM (GMT Standard Time, UTC+00:00)
Dare just over a month ago I looked into the costs of providing email, from Google's point of view:

http://www.nik.com.au/archives/2005/12/11/the-economics-of-online-storage/

my latest info has the cost of a GB of bandwidth down to 10-15 cents, so I guess the actual storage does make up a very large part of the costs. Still I can't see how this is beyond what Microsoft and Yahoo! are capable of delivering, I am using 850MB at the moment so there is no way I can switch (and that is after just 1 year).
Comments are closed.