Or how Google can offer so many products for "free".
There has been much published about Google in the recent weeks, particularly concerning its supposed "death blow" to Microsoft with their press release (actually a blog post, because this is Google after all) stating they are developing an operating system for netbooks which may be released as soon as the second half of 2010. I'll probably expound upon why I don't think this is a real game changer in a later post (preview: come on, it is just linux with a browser running on a small, underpowered notebook), but the announcement did make me think more about how Google funds all of these seemingly free projects.
Google states that 97% of their revenue in 2008 was generated from selling advertising. On the surface, this is where the dollars are coming in to keep the lights on, keep the servers running, and fund all of the new research. These ads appear on screen in many Google products and on many other websites which subscribe to Google's ad network. Now, do not get me wrong, I am not saying these ads are a bad thing. With the exception of The Deck ad network, Google's ads are probably the most innocuous ads on the web, usually just encompassing a list of text ads on the side of the screen. These tiny ads support many online services by generating money for the site whenever someone clicks on them, but there is also a reason they are so effective.
Google is able to target what ads are being displayed on a page by the content of the page. For instance, if I search for "how to make my lawn green", I'll probably get a an ad for a lawn care company. Or I may get an ad for environmentally friendly fertilizer. Now here is where it gets interesting, not only is Google looking at what I am searching, but they can also draw a profile on me from searches I have previously done or sites I have visited to better target the ads. I may get different ads if I had previously searched for "green projects" versus if I had searched for "home services". Now, let's add on top of this data that Google also has at its disposal from my gmail account, calendar, and RSS feeds. We voluntarily give Google (virtual) mountains of data in exchange for free services.
This isn't a new concept and isn't entirely the domain of Google. Facebook and MySpace also exchange services for personal data and trends. Your local grocery chain probably has a loyalty program -- that little swipe card -- that allows them to track what you buy in exchange for some discounted items. In and of themselves, these are not necessarily bad things (assuming these companies keep this data securely and confidentially). I am not trying to be a privacy nut here, but I think people should be aware of what they are giving up in exchange for these "free" services. You may not be paying out of your wallet for these services, but you are paying with your personal information and attention to some advertising.