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Re: Why do they Do This?

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By RedneckRoleModel
June 15, 2005

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Blogger was a product created by a tiny startup called Pyra Labs. At the time of the acquisition by Google in early '04 (if I remember correctly), Pyra couldn't have had more than about 6 employees according to the industry contacts that I had at the time (I was a venture capitalist covering Internet and mobile technology).

At typical Silicon Valley startup salaries, that was probably a shade more than $500,000 in total salary expense, plus rent and server costs. In 2002, I also ran a Blogger/Blogspot hosted weblog for about 6 months, and the frequent network outages led me to believe that they were using very low cost hosting and server technologies, most likely open source. Given all of this, I always assumed that Pyra operated on an annual burn rate of less than $1 million per year.

Assuming Google gold-plated the technology, quadrupled staff, and increased salaries across the board, the company could still be run for less than $10 million per year. There's no need for hordes of coders, because small teams are almost always preferable for development work that involves high-touch consumer Internet applications (try navigating www.microsoft.com to get a feel for how intuitive the opposite approach is). The infrastructure is solid now because it runs on the Google cluster, which is from all reports the cheapest, lowest-maintenance, highest-availability platform in the world. There's no need for salespeople, because tens of thousands of people sign up to run their own blogs every day, and the millions of existing blogs are the best viral marketing money can't buy. Maintenance and customer service is all done using the company's own technology and one or two people working part-time.

So, Google can run Blogger for what amounts to a rounding error. Why then? I think there are three primary reasons.

1.) Blogs are updated frequently, reflect the opinions of influential people who are expert at their fields, and are highly numerous. That makes them the most important category of sites for Google's PageRank search algorithm, which emphasizes those features. For Google, it would have been a nightmare if someone else had acquired the technology platform behind Blogger and blocked the Google robots from indexing blog results. It would have seriously degraded the relevance of Google search. Remember how before the days of search, human-powered directories like Yahoo and Looksmart were the preferred way of categorizing the web? Blogs tracked by PageRank perform the same function, on scale much bigger, virtually for free.

2.) Blogs generate scads of page views, and will be an increasingly important channel for adverstising. This potential has barely been tapped--it's where Adwords was in late 2001. It also offers the same degree of demographic/pyshographic segmentation that marketers like. For example, one of my favorite blogs, vinvesting.com (run on its own proprietary software, not Google's) caters only to people interested in value investing. From a marketing perspective, that site offers the ability to targer only individuals who are likely to have high incomes, even higher net worths, and who are likely to be avid consumers of various financial services.

3. Blogs are already evolving and morphing into multimedia services, with formats like podcasting, and sites like www.flickr.com and www.myspace.com leading the way. Categorizing information beyond text is a widely-discussed goal of Google, and blogs, which will always carry commentary near the links they post to multimedia content, are the only system for categorizing multimedia content that is likely to be relevant and cost-effective. Thus, Blogger fits in well with Google's product development roadmap for projects that won't even make it out of the labs for a few years.

There are a few flaws with Blogger. As a previous post mentioned, the feature set and reliability of Blogger is inferior to the offerings of other companies, and most of the larger bloggers like Glenn Reynolds (www.instapundit.com) have moved to their own hosting and to a software platform called Moveable Type from Six Apart, another small startup that recently received a large VC funding round. Feature development at Blogger also seems slow, but I could be mistaken here because I haven't run my own blog for three years now.

Hope this helps.

Redneck


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