Google will be offering free WiFi service covering San Francisco. At first blush one may think that this is an altruistic gesture, but when looking a little deeper you can think about the potential economic benefits Google can derive in return.
The article is
here: "Google Confirms Free San Francisco WiFi Plans"
To understand the potential economic benefits you need to first understand the way Google makes money and how information about an individuals information can be used to increase those revenues.
First, Google makes money by providing advertisements relevant to the user. In their Google AdWords program they look at the search query submitted by a user and seek out the top paying and most relevant ads provided by their advertiser base. For example, if I search for Yankees the ads will be for merchants selling Yankee hats or shirts for example. Each time an advertisement is clicked on, the advertiser pays some fee to Google.
Google also has an AdSense program which is used on websites to help website owners generate revenue. The way this technology works is that Google will periodically spider a site looking at the content of the page where the advertisement appears looking for the category of a page and relevant keywords. Again, using this information they will provide ads relevant to the context of the page.
Now when one considers how local information impacts these models one can reflect on the business models of Yellow Pages (both online and traditional). Local merchants will try to get people to come use their services (dry cleaners, florists, etc.). Of course an ad for my local dry cleaner doesn't have much value to anyone except for people in a small geography.
Yellow Pages online allow for premium listings and blod face and all sorts of other ways to monetize a list of phone numbers. Merchants pay for these services because they see an increase in the traffic to their stores, etc. One variant on this is a newly released type of business model where an advertiser pays per call, as opposed to paying per click of for a certain number of impressions of their ad.
How does this impact Google and their ability to use local information to upgrade their current advertising model?
1. Local merchants can participate: a local dry cleaner can now effectively participate in the ad serving service. Because Google nows that a user is logged into the access point in Union Square they can provide advertisements that are relevant to the user based on this information.
2. There will be more advertisers in the system: With more advertisers, the cost per click will rise because the system is based on an auction. As more people enter the auction, the willingness to pay will creep upwards.
3. Potential integration with Google Talk: As mentioned there has been an interest from some types of merchants to pay for different types of leads. Some prefer branding their product (cars, insurance, etc.) and pay on a CPM basis. Some prefer a link to their sites (online retailers, etc.) and pay on a CPClick basis. Local merchants who do not have a web presence may prefer to pay on a CPCall basis. Google Talk may be a natural means to provide this type of service at some point in the future.
it will be interesting to see how this plays out. The cost to cover San Francisco with WiFi is really a test to see if this type of offering can scale. I for one hope that it does; if only so I never have the shoot the duck advertisements on my screen ever again.
