Is Google a Tech Company?

I think you'd be hard pressed to find someone today that hasn't heard of Google. The company that started by beating up on search giant Yahoo is now much more than simply Web search. Google is still search. But Google is also GMail. Google is Maps. Google is blogger. Google is youtube. Google is the epitome of a Web based company. But is Google a tech company?

It seems strange to question Google, the behemoth that revolutionalized search and brought AJAX to the forefront of Web technology with killer apps like GMail and Maps, seeing as we usually ask Google for answers. So let's take a step back from this question for a minute to come up with a definition of a tech company.

What is a tech company? Or, how do you define what is the primary business of a company? I assert that you can get a good sense of the primary business of a company by the category of revenue that is greatest for the company. Let's take a look at some other known tech companies to see how my assertion holds up. (A little disclaimer up front that I'm not a financial expert and the following analysis is based on my naive understanding of the reports for which I've provided references.)

Let's start with my employer, IBM. In 2005, 52% of IBM's revenue came from services, 26.7% came from hardware and 17.3% came from software. (See IBM's 2005 annual report for the details.) Services in IBM's case generally refers to technical engagements so from this I'd say that IBM is a tech company because over 90% of IBM's revenue comes from tech related categories.

What about Oracle? In 2006, Oracle has reported that all of its revenue has come from software and services. This includes software licenses, license updates, and product support. (See Oracle's Sept. 2006 press release for the details.) Again in Oracle's case it seems clear to me from the sources of revenue that Oracle is a tech company.

To round out this review let's take a look at Microsoft. In the first three quarters of 2006, Microsoft has reported that the bulk of its revenue came from three categories: business division, client, and server and tools. (See the Microsoft press release from Oct. 26 for the details.) Assuming that business division activities are activities focused on delivering technology solutions to businesses (as I'd expect but the definition of which I didn't see in the report) Microsoft has reported that 85% of its revenue came from software. Microsoft also looks to be a tech company.

Now let's take this approach with Google. Through the first three quarters of 2006 Google has reported that 99% of its revenue came from advertising. In fact, this is the exact same number that Google reported a year earlier in 2005. (See Google's third quarter 2006 financial press release for the details.) In Google's case the company is not deriving revenue from the software and services they create but from the advertising placed on the software and services. Is Google a tech company? According to this criteria it appears that Google is not a tech company but an advertising company. Stay with me a little longer.

Let's take a look at Google's strategy to try and shed some additional light on this thought. Google provides a lot of cool Web applications and tools to recreational and business users, some of which I mentioned above, and to Webmasters, such as analytics, hosted services (which includes a portal, e-mail, talk, calendar and personal Web space), and Webmaster central. And all of these great tools are free. Why? Because Google needs as many people online as possible to increase the audience for their advertising business. All of Google's applications and services are really just different types of billboards that allow Google ads to be displayed to different types of captive audiences. This really isn't that strange of a notion as there are other examples of technical leaders in various industries including banking, automotive and energy all of whom are not considered tech companies. In fact Google recently announced that it has formed partnerships with 50 major newspapers to sell ads for the publications. (See the Globe and Mail article "Is Google 'Evil'?" for more.) So the Google of the future does not look like it will be strictly Web based.

To summarize, Google is a very innovative company, a technical leader, and a Web based business but all of this exists to support Google as an advertising company. Does any of this affect your day-to-day interaction with Google? Not likely. But I think it is interesting to consider that all those great services that we enjoy are coming from an advertising company.