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Google Drops an E-Mail Bomb

By Alex Salkever Everyone knew that Google was gunning for e-mail. A Web-based e-mail offering from the Net's most popular search engine to compete with Yahoo! (YHOO) and Microsoft's (MSFT) MSN unit had long been rumored. Still, when Google announced on Mar. 31 that it was testing Gmail, a free e-mail service, eyebrows in cyberspace shot up. According to top Google executives, Gmail would offer users a full gigabyte of storage with the intention of allowing them to keep their e-mail on Google forever. That's 500 times more free storage than MSN offers and 250 times more than Yahoo, Google's chief competitor.

The space alone is a huge deal. Both Yahoo and MSN have dramatically cut back on the free storage. Instead, they're trying to squeeze revenues and profits out of their e-mail products by charging users for additional space or services.

But that's not all. Google aims to dominate Web mail by allowing users to search their Gmail in-boxes as easily as they "Google" the Web because they would get the same search technology that creates lightning-fast keyword searches of the Web. The time-consuming need to organize in-box mail folders on a regular basis might quickly disappear.

NO JOKE. The timing of Google's announcement and the press release's playful wording sparked instant speculation that Gmail might be an April Fool's joke. But it's hard to believe that a company angling for a massive IPO would pull such a stunt in an environment where the Securities & Exchange Commission is on red alert for any false moves that could spook investors. Google would surely understand that this announcement would affect share prices of other companies -- specifically Yahoo -- so a hoax would be a pretty dim idea. Google officials, of course, insist that Gmail is real.

Still, there's a catch. Google will add unobtrusive text ads targeting the content of e-mail. For example, if a Gmail user receives a message about the NCAA basketball finals, then Google will put a hoops- or sports-related ad into the e-mail. Those ads, wagers Google President Larry Page, will more than pay for the cost of giving users so much space.

According to Wayne Rosing, vice-president for engineering at Google, the ability to do contextual ads was all-important. "Gmail grew out of experiments that were done that involved our ad targeting," he says. "We did some textual analysis and were able to make it work." Rosing adds that it wasn't easy, but the project required "an expertise that Google has developed, which is to manage large-scale distributed-computing systems."

PROBLEM SOLVED. Yahoo and MSN must be sweating at the prospect of matching Google's feat. They have yet to comment on how they might react to such a potent competitive threat. Until now, both have relied on free e-mail as a magnet to draw users for other services. But if what you can get free at Google is by far better, these Web behemoths could possibly lose millions of monthly visitors.

The move into e-mail is typical Google strategy. Before the search giant arrived, the task of finding useful information on the Web was daunting. But with an elegant solution that ranked a Web page's importance by examining what other pages linked to it, Google fixed the worst of Web search problems and became the dominant provider. It recoups its costs and then some by selling ads on those search pages. Google showed up at the right moment, when broadband usage was gaining momentum and the Internet was moving from newfangled to mainstream.

Google may be in the right place at the right time again. E-mail remains the killer app of the Internet Age, providing instant communication between any points on the globe. But e-mail has hit the same wall that search hit in the late 1990s, when the volume of Web pages and the Web's complex structure finally outdistanced the ability of earlier search engines to keep up. Today, most users struggle to keep their e-mail up-to-date and organized.

INSTANT SMASH? And no one offers effective search for Web-based e-mail. Although some smaller companies offer good search capabilities on the desktop, those applications haven't gained widespread followings and, therefore, aren't supported by most big corporations or Internet service providers.

Google's search capabilities should prove so appealing to frustrated Web-mail users that the site might draw millions of sign-ups in a matter of months, if not weeks. "We certainly think millions to tens of millions of users in a reasonably short period of time is a possibility," says Google's Rosing.

Better still, mail could be a profit center right off the bat because it'll extend Google's advertising technology into this new realm. Yahoo and MSN already stuff their mail sites full of ads, but it will likely be much harder for them to provide the storage space and the speedy, accurate searching that Google is offering.

CORPORATE BYPASS? Google's move could easily have wide ripples. By offering the first viable Web-mail competition to desktop e-mail programs, Google could challenge Microsoft's Outlook hegemony. Most corporate mail users get mailbox sizes of only 100 megabytes or so, a 10th of what Gmail is offering. And most users don't have really good search functions. That could tempt thousands, maybe millions, of corporate users to bypass their info-tech departments and use Gmail.

Of course, most corporations still need the bulk of their e-mail functions to occur behind secure firewalls. But Google's offering contains the seeds of a contest. Says Rosing: "Certainly as the system develops, and we see what happens, there are many things we could offer. Trying to offer corporate e-mail changes many things, and it's not something we're thinking about right now."

At this stage, Gmail is only in the testing stage. But it's hard to imagine that it won't be a smash hit, potentially putting tremendous pressure on Yahoo and MSN. Google has added other capabilities in the past six months, but e-mail is by far the one with the most potential to vault this already dominant Web company to another level in cyberspace. Salkever is BusinessWeek Online's Technology editor

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