I am due to write up my adventures at the Web 2.0 Summit. That is on the way very soon, as well as a post about StartUp Camp. In the meantime, I wanted to share something you may have seen on the FreshBooks blog:

“One of my favourite takeaways from the Web 2.0 Summit was Marissa’s presentation about something she learned working at Google. She ran a survey and Google users told her they wanted 30 results in the Google search results page. She delivered thirty results in the results pages and then watched as users ran from Google faster than she could say, “What happened?”

At first she did not know why they left. In time she came to realize page load times – an extra half second to download the extra HTML required to display 30 results – was what drove people away. So, in a word, slowness drove them away. Looking at things from the other direction, the results indicated that speed keeps users coming back to Google.

To explain the significance of this, I created some graphics (which are NOT based on data):

See the difference in approach? Yahoo! tries to get you to stay as long as they can get you to stay on Yahoo! properties. Google wants you to visit and leave their site as quickly as possible, the idea being that the positive experience you have with Google will keep you coming back more frequently (i.e. you do more searches). And guess what? Every time you return Google gets another chance to monetize you…and Google monetizes about 30% of the searches people make. Impressed? I was. Thanks for sharing Marissa.”

I am working the spreadsheets this week and I am trying to quantify “the lifetime value” of a FreshBooks customer. In digging into that, I came across this excerpt from “Managing Customers As Investments“:

On average, a 1% improvement in acquisition cost improves customer value by only 0.1%. Improving margins by 1%, for example, by cross-selling, improves customer value by about 1%. This result is similar across firms and is consistent with the margin elasticity discussed in [an appendix]. Improving customer retention by 1% improves customer value by almost 5%. In addition, retention shows a virtuous cycle – the higher the current retention rate (e.g., Ameritrade’s 95% versus Amazon 70%), the higher the impact of improving retention.

Customer service in the services world – and I include web services in that world – is SO important. To some extent that belief has always been a gut thing; it’s great to find the research to backup your instincts. Here’s a good review of the book.

So there has been a lot of talk about Google becoming the new Microsoft and how Google is suffocating innovation by carelessly stomping on emerging markets. Now I see eBay has decided pay-per-click ads on its sites.

So what’s the good news for innovation about Google going public? Just like eBay’s, Google’s investors are going to realize how much money Google is leaving on the table – and they are not going to be happy. Think about it… I’ve never clicked an ad from within my Gmail account. If they’re selling impression based ads (and I bet they are), then they make some money on my account IF I am a very active user. I’ll bet they don’t make $5 a month though, or even close for that matter.

So as Google moves into other applications, they are going to find there is far less revenue in running ad-sense ads. Why? I don’t know about you, but I am in my email all day long. No other application even comes close in terms of my attention or usage.

So… Let’s apply Google’s strategy to other applications – ones that are less commoditized than email, but the perceived value is higher. In those scenarios a user might generate $5-$10/YEAR in Ad-sense revenue – and active user that is. But because the perceived value added by the application is higher, that same user would be willing to spend $15/MONTH for the service.

Clearly, they will be leaving heaps of money on the table. Wall Street will tighten the vice. Paid services are inevitable atGoogle…especially when they enter the business space where many organizations want to pay the services they consume.