The current business model of the search giant Google may become unprofitable in the coming years. Maintaining free services like YouTube is increasingly challenging, as advertising revenue declines while costs continue to rise. Furthermore, the U.S. government has labeled the company a monopoly, potentially forcing the sale of parts of its business—another blow to the corporation’s profits.
Free for All, but with Conditions
For a long time, Google has offered a variety of high-quality services without charging users. These include its search engine, Google Drive, YouTube, and more. However, it’s no secret that these services are funded through user data. The majority of the IT giant’s revenue comes from targeted advertising tailored to individual interests. This strategy has enabled the “company of good” to make its services popular and accessible to the masses.
One of the early successes in this realm was Gmail, launched in 2004. At its inception, this email client provided a generous gigabyte of free storage, far exceeding the couple of megabytes offered by competitors. For many, Gmail became the first cloud storage solution, as there was no limit on the number of accounts created. Today, Google’s ecosystem boasts hundreds of services, many of which are technically free.
Google: A Leading Cloud Storage Provider
In the early days of the internet, storing user files online was relatively inexpensive. However, this landscape has shifted, and it’s not just due to the growing consumer base. Content has also ballooned in size, with 4K videos becoming much more common than a decade ago. The need to cut costs has become apparent; in 2023, Google began deleting inactive accounts that hadn’t been used for over two years.
Another looming issue is the decline in advertising profits. Several factors contribute to this trend. Investors have recently shifted their focus toward AI startups rather than traditional tech companies. An increasing number of users are employing ad blockers and privacy tools. As the audience exposed to ads shrinks, average market rates for advertising decrease. In response, companies are implementing restrictive measures against ad blockers, complicating the bypassing of promotional messages, and introducing non-dismissible ads, among other tactics. Premium subscriptions are also becoming more expensive.
All these factors indicate that the free business model is gradually becoming unsustainable. Over the past decade, the cost of data storage has barely decreased. Meanwhile, demand for online services is at an all-time high and continues to grow, but revenue from these services is not increasing at the same pace. Other companies are experiencing similar trends and are searching for alternative revenue streams. For instance, Amazon is considering implementing charges for its Alexa assistant, while even the smaller startup Snapchat plans to display ads directly within user chats—a rather desperate move.
Antitrust Challenges
Additionally, Google faces legal challenges regarding allegations of unfair practices. Recently, the U.S. Department of Justice ruled that Alphabet (the parent company) holds a dominant position in the search engine and text advertising sectors. Regulators believe the tech giant’s influence is too extensive and hampers healthy competition. The “company of good” controls all Android devices, preinstalls its Chrome and Play services, and pays Apple millions to ensure Google Search is the default on “Apple” products.
However, Google’s advertising business is too vast for anyone to acquire, with the entire infrastructure valued at $95 billion. The government is currently exploring options for restructuring and possibly selling off specific divisions to alleviate the monopoly situation. This decision is likely to face legal challenges, suggesting that the litigation could extend for several years, making it premature to make predictions.
On one hand, market forces are pressing Google, while on the other, regulators are tightening the reins. Considering these factors, it is difficult to determine how much longer the era of free internet will persist.