Google promised to accelerate the pace of innovation this year, and we're starting to see the outlines of that innovation. While there are many seemingly disparate initiatives, what's common to all of them is the ability to deliver solutions that scale to global volumes. So while Microsoft, Yahoo and Google can one-up each other in features and functions, Google's fierce investment in infrastructure gives them a sustainable competitive advantage that will take competitors years to equal.

Gdrive

There's been much talk and speculation stemming from Google's March 2nd Analyst Day, in which notes were leaked that indicate Google is planning to challenge Microsoft's dominance of personal computing by moving much of the storage to the Web.

This isn't a new idea, of course, and the anti-Microsoft crowd has blown a lot of cash on dreams of network-centric computing for at least a decade. But time and again these visions have turned into mirages - witness Larry Ellison's Network Computer, or Sun's JavaStation, or Citrix's or Wyse's which have either completely flopped or filled just some small niche.

I've long argued that a simple suite of Web productivity tools that didn't require a PC would be terrific for most ordinary people like my parents. Most people don't need a complicated, fragile and expensive PC to do email, calendar, IM, blogging, word processing, and spreadsheets, or to store and share their photos and movies. And it seems likely that Google will provide some kind of integrated network-based solution that my mom could use without getting tangled up in adware, viruses and messed up operating systems.

Storing millions of users' photos, videos, calendars and documents - redundantly - will consume vast amounts of storage. And making all this content available instantly, anywhere, is something that Microsoft and Yahoo can't do today. It will take years and billions to develop this infrastructure.

Video

Cringely does the math on how much bandwidth will be required in a world of IP video. While his bets are on peer-to-peer solutions, he acknowledges that this only works well for the few programs that are in high demand - recent episodes of Desperate Housewives, for example. But for the long-tail video that is sparsely consumed, Cringely says we'll need much more than BitTorrent:

There are some who believe Bit Torrent alone can do the job, but I feel that a true media market is going to require more components than are currently offered in Bit Torrent. There have to be payment systems, rights management systems, and some underlying quality-of-service layer that can save the day just in case you are the only person in the world who wants to watch that particular episode of "The Green Hornet."

And this is what Google has created, isn't it? A video marketplace that connects small and large producers with consumers through search, handles payment and distribution, protects content, and passes most of the revenue back to the content owner.

If this takes off, it will consume tremendous resources to deliver an instantaneous and hi-res user experience, even if much of the heavy lifting is peer-to-peer.

Ginormous Capex

So when Henry Blodget frets about never-ending capital expenditure, he's missing the point:

What on earth are they spending that much money on? I understand the need for 'servers,' but why has this need exploded so much in the last two years? ...

Why does Google need $400 million more than Yahoo! and eBay do?

It's not that Google is playing accounting games with capex to juice earnings, it's that Google is playing to their competitive strengths - scale and engineering. They're deploying massive infrastructure today in a big bet that superior infrastructure will deliver a better user experience, and that it will take larger competitors like Microsoft years to match Google's scale.


From the presentation (PDF) at Google's Analyst Day.

Updated 3/8/06, 6:16 AM: Linked to screenshots of Google's new calendar app.