Continuing its masterly replay of Microsoft’s old kill-competitors-by-bundling-their-products-as-free-features-in-our-platform strategy, Google today begins giving away tools for analyzing the effectiveness of web advertising. The Google Analytics service is a repackaging of the Urchin software that Google acquired earlier this year. In addition to the competitive benefits – Google Analytics is a hammer blow to small specialist companies like Web Side Story, and it neutralizes analytics as a potential advantage for direct competitors like Yahoo and Microsoft – the free service will likely increase sales for Google’s AdWords service. Analytical tools for ad performance are a complement to advertising itself. By giving the complement away, you’ll tend to boost demand for the ads. (Joel Spolsky explains the economics of complements well.)
Of course, the service also means that Google will gain access to a ton of new data on ad performance that it can analyze itself. For one thing, Google Analytics can be applied to ad campaigns running outside the Google network, giving Google information on how its competitors’ programs perform. For another, Google will gain greater insight into the decision making of its AdWords customers, information that could help it in optimizing its ad pricing (ie, maximizing its income at customers’ expense). No need to worry, though. Google says we can all trust it to do the right thing. A Google executive told CNET: “We have very strict controls on the data. It is only used to provide reporting to customers and people using the analytics.”
It’s hard to complain about getting stuff for free that you used to have to pay for. This is, after all, how competition is supposed to work – the benefits fall to the customer. And that’s great. Beyond the question about what happens to the data Google collects, though, there’s another concern, which may or may not be purely theoretical. When Microsoft fought competitors by bundling new features into its operating system, it was frequently attacked for chilling innovation. When you give a product or service away, you take away the economic incentive for inventors and entrepreneurs to improve the product. Google right now is such a rabid innovator that it’s hard to think of the company as being a force that impedes innovation. But even a cute 800-pound gorilla is still an 800-pound gorilla.