The only thing that they are lacking is Apple’s branding finesse, but it is pretty hard to compete with “LESS-THAN-FREE” in the long run…

Why would Google “bare [almost] any burden” (including the $12B purchase of Motorola Mobility, in large part to defend Android in the #PatentWars) to buy their way into this? Because… “The Future Of Mobile Is The Future Of Everything”.

From Abovethecrowd.com - The Freight Train That Is Android:

…the more I wonder if I too may have underestimated the unprecedented market disruption that is Android.

One of Warren Buffet’s most famous quotes is that “In business, I look for economic castles protected by unbreachable ‘moats’.” An “economic castle” is a great business, and the “unbreachable moat” is the strategy or market dynamic that heightens the barriers-to-entry and makes it difficult or ideally impossible to compete with, or gain access to, the economic castle. …

For Google, the economic castle is clearly the search business, augmented by its amazing AdWords monetization framework…and Google would clearly want to put a “unbreachable moat” around it. …

So here is the kicker. Android, as well as Chrome and Chrome OS for that matter, are not “products” in the classic business sense. They have no plan to become their own “economic castles.” Rather they are very expensive and very aggressive “moats,” funded by the height and magnitude of Google’s castle. Google’s aim is defensive not offensive. They are not trying to make a profit on Android or Chrome.

They want to take any layer that lives between themselves and the consumer and make it free (or even less than free). Because these layers are basically software products with no variable costs, this is a very viable defensive strategy. In essence, they are not just building a moat; Google is also scorching the earth for 250 miles around the outside of the castle to ensure no one can approach it…

Because they are “giving away” money to use their product, this creates a rather substantial conundrum for someone trying to extract economic rent for a competitive product in the same market.

This is the part that amazes me the most. I don’t know if a large organized industry has ever faced this fierce a form of competition – someone who is not trying to “win” in the classic sense. They want market share, but they don’t need economics. Imagine if Ford were faced with GM paying people to take Chevrolets? How many would they be able to sell?…

[First curated on Amplify.com]

Related -> This SiliconAlleyInsider Sub Headline Reveals Why You Must Move The Freeline

Here is the one I see as the most relevant for all businesses large or small:

Business models sink or swim. Several new business models have emerged this decade, among them VoIP, Social Networks and online video. But with a few exceptions, they haven’t been profitable. 2009 could be something of a crucible for them. Companies offering products or services for free will be tested as ad dollars remain scarce.

I would submit that this is very much true, and has been true for most small businesses even before the dislocations that 2008 brought us. Whether you are an entrepreneur just starting out, or already own a working business that you would like to grow with new products or services, (Profitability) Proof of Concept is EVERYTHING.

Many people, especially in the early phases of a new business (including many tech start-ups), concern themselves with a bunch of side-activities that I collectively call “playing business”: Things like getting stationary and business cards printed, building a brochure Website, hiring a lawyer to incorporate or file patents, etc. etc.

And the truth is, until you test your offer against the reality of your target market (if you’ve done your homework on identifying/selecting a detailed one), you have no business, and can dispense with just about all the formalities.

Pay-Per-Click (PPC) advertising through Google Adwords et al. has made it shockingly simple to market test, so that just about no one has any excuses left for not doing so (and the same goes for launching new products or services for an existing business). So why then is it that we tend to avoid going straight for the Proof of Concept first? The answer is simple: fear. We’d rather cling to a cherished illusion or dream, than find out the cold hard truth.

Fair enough, it’s understandable from a psychological perspective, but it is likely costing you and everybody else enormously in terms of the time and effort wasted on errant paths that should have been trimmed long ago, and in terms of failure to flexibly adjust to the realities of your market.

Here’s wishing us all the courage in 2009 to “Fail Fast”, that is to test fearlessly and up front. If you remember only one thing for all of 2009, make it these three little words: Proof of Concept.

Happy New Year!

- Alex Schleber

If you’ve been wondering about what Google is really up to with its forays into mobile phones with their Google Android OS (now out on the G1 Phone with T-Mobile), why they don’t care when many of their services don’t monetize (yet or ever), and why Google is interested in "stealing our voices" (?!?!), then this slide deck is for you.

I am very serious about this, spending about 10-15 minutes studying it can save you dozens if not hundreds of hours of reading tech newsy blog posts, or checking Techmeme.com every few hours. Once you understand the big picture of what Google is doing, you can create plans for your own business around them if applicable (and if your business is going to thrive in the 21st century it is almost certainly applicable), or actually model (copy) some of Google’s strategies and principles.

Study especially the explanation of how Google uses network effects starting on slide #24. Happy strategizing!

As an aside, it is extremely profitable to search SlideShare.net for presentation slides in your area of interest. You usually get highly condensed/integrated information, you can use successful presentations as templates for your own work, and possibly upload your own presentations in your own areas of expertise.

But this time even usually stalwart Micro-hoo cheerleader Michael Arrington of TechCrunch is saying that Microsoft may be going too far in its Machiavellian machinations to want to feast on Yahoo’s carcass.

Meanwhile David Kirkpatrick, senior editor of Fortune Magazine, argues that Microsoft will inevitably buy Yahoo, making the case that it has gotten personal for Redmond ever since Google wrested the crown of perceived "greatest and most powerful tech company" away from them.

But in arguing that Microsoft desperately needs Yahoo’s scale, Kirkpatrick falls into the same "scale will solve things" thought trap that is deluding Microsoft, and plenty of commentators throughout the blogosphere in both posts and comments as well.

Currently Google’s monetization advantage vs. Yahoo (confirmed, and likely similar vs. MSN/Live Search), that comes from their focused execution is somewhere around 50-100%. And it has NOTHING to do with "scale".

It has everything to do with the advertisers being able to afford higher average bids due to higher average conversions. Period.

Conversion is the only thing that ultimately matters to an advertiser. Scale is a straw-man. If YHOO or MSFT had equal or better conversion numbers for the same keywords, then advertisers would jump on that. The individual advertiser could care less about the total query share numbers, or total number of clicks, they only care about their ads converting when they are being shown and clicked on.

If you mail a direct response ad, do you care what total percentage of the region or nation that mailing list reaches? No way. You care about the conversion numbers, because if an ad doesn’t convert you can’t long afford to mail/run it. In search ads, if you fail to convert the clicks you get, as a small business you can be bankrupt before you know it. It’s that simple.

The total volume of searches or even clicks for a keyword on Google, Yahoo, or MSN/Live has little or nothing to do with it. It’s simply that at lower conversion rates on Yahoo or MSN/Live, advertisers have a harder time making the economics work for them.

Steve Ballmer should change his tune at the next Microsoft company meeting:

Conversion, conversion, conversion…

Few people in "big business" understand direct response models, but that is what search advertising ultimately is. It is NOT image advertising, because Google text ads, whether served with search results or on websites and blogs as "Adsense" ads, do not lend themselves to branding exercises like display (image) ads or TV commercials.

The old adage of marketers – "I know half of my advertising is wasted, the problem is, I dont know which half" – does not hold true for the direct response model that pay-per-click ads served with searches or with content are based on.

Any advertiser with a basic understanding of the Adwords campaign management backend can tell EXACTLY which half is not working, then tweak the keywords, ad copy, asf. and turn off non-performing ads/keywords in short order.

Myth #2: "Affluence Gap"

A similar oft-repeated myth is the following statement taken from an Alley Insider comment:

Google has [...] the most affluent search users. Therefore, ad buyers want their ad to be shown on Google, and the price is bid up.

It isn’t about the supposed greater affluence of the Google users at all, otherwise Yahoo could not outsource THE AD SERVES (NOT the searches) to Google and instantly get 60-80% higher returns. Note that we’re talking about the very same (Yahoo) search users as before.

It’s about Google’s superior monetization that is due to their fanatical refinements of ad serves and the search results themselves, AND the higher conversion rates that the advertisers are experiencing.

Now there is one other side to this that is in fact branding/positioning related: The context in which an ad is served. With Google, since Google = search, users are in a "searching for a solution" mindset much more so (on average) than on Yahoo (or MSN), where people may be for any number of reasons (social, email, IM, news, etc.).

This is the real draw-back of the portal strategy that Yahoo and MSN embraced, which by definition leads to brand dilution: You have no idea about the exact user mindset, and many if not most of the pages you serve create contexts that are counter to anyone clicking on ads.

How many ads have you personally ever clicked on that got served with your free online email? Your chat? Your Yahoo groups, etc.? Chances are, none. After a brief period of mental adjustments, you likely started to completely ignore those ads.

Even Google had to learn this lesson, when they found last year that the social networking inventories for Adsense ads (e.g. on MySpace) were monetizing far lower (because converting less) than expected: People just weren’t looking to buy when networking on-line. It’s two different things.

From the point of view of the advertisers, all that matters to them is per-click cost and conversion. That alone determines whether their PPC campaign is viable past a few days. If Yahoo could allow them to get workable numbers, they’d be more than happy to bid higher on Yahoo’s search inventories.

So it is this mindset context differential rather than any affluence disparity, or the vaunted "search share" scale myth, which gets even usually smart and tech savvy people like Alley Insider’s Henry Blodget to drink Microsoft’s Kool-Aid on why they need Yahoo’s search division.

As long as this myth persists, there will likely be no peace for Yahoo.

As CNET blogs, Google earnings may make Microsoft yearn more for Yahoo, but the real meat here is in the post’s Google quarterly earnings chart since Q1/2005. It shows that Google was making about as much all the way back then as Yahoo is expected to earn this quarter ($1.28-1.35 Billion).

Only Google has been killing it in these last three years, and just last week announced earnings of $5.2B.

You do the math, that’s about 4 TIMES as much as Yahoo.

But what is much worse, if the ComScore search engine stats have any semblance to reality at all, Google in e.g. December of 2007 had about 5.6 billion searches (a 30% year-over-year gain) to Yahoo’s 2.2 billion, or only 2.5 times as many. That means they are monetizing searches much more efficiently.

And this is the big damn secret that often gets overlooked by the mainstream media, including the financial analysts, because they do not understand paid search and it’s offspring very well:

Google is refining the efficiencies of their Adwords and Adsense offerings at an alarming rate (if you are one of their search competitors).

Last year alone, they tweaked the core algorithm 450 times! That’s more than once a day…

And the manual stuff gets even weirder…

And that’s not even mentioning the other, more "manual" things that they have done more and more since last year. Such as "firing warning-shots" across the bow of various people trying to game the system, such as "link farms" and Adsense arbitrage garbage pages, etc.

For example by introducing whole-sale Page Rank penalties for entire such link networks, and through the by now famed "Google Slap" (actually there were a number of these in ‘07) where partially manual quality scores could drive you out of the Pay-Per-Click bidding due to massively increased bid prices for offerings deemed as low quality in Google’s eyes.

In fact, recently there have been people trying to devise entirely new strategies to stay in Google’s good (quality) graces from the very beginning with a new Adwords account/campaign (check out the video here, the meat is in the second half).

Arcane stuff to most, I know, but this is the only explanation for how Google has managed to have such a stellar Q1 result despite the doubts in the market that had come from the flat to declining Paid Clicks numbers put out by ComScore the first few months of this year:

While there is certainly some declines in growth due to the current economic environment, Google itself has been cutting into the "inflation" of low-value clicks and low-click-through ads aggressively, shoring up both its per-click and per-search returns.

And while ComScore is scrambling trying to explain the Google discrepancy, it actually appears to be mostly blind to these finer points of how Google operates. Even the Alley Insider didn’t get it a few months ago.

Back to our regularly scheduled programming: Micro-hoo…

So what does all of this mean for Microsoft’s attempt to take over Yahoo? Nothing good. MSN + LiveSearch + Yahoo Search does not in itself equal a viable position vs. Google. The only thing that could work is the idea floated by Henry Blodget to have MSN/LiveSearch spun off into Yahoo plus $10B in return for a 50-51+ % stake.

There would at least be a chance that Yahoo, powered with Microsoft money from its still flush MS Office coffers, might innovate its way out of the current predicament for both companies.

But hearing from my sources how Yahoo just recently internally killed a very innovative new social network-cum-wiki proposal, plus the recent brouhaha over the lame, "is-it-a-spoof-or-not", lame, internal Microsoft Vista sales team video, I wouldn’t bet on it.