GMail (and hotmail, yahoo mail) are loss leaders designed so that you create an account with the provider and become reliant on their services.

It looks like the free lunch is over for Google Apps.

The issue is that context is required for direct response ads, and that brand advertising doesn’t have the same impact online as it does in TV and the press. So if you’re online, but lack desired context, it’s hard to charge for it.

It’s easy to have a saleable context next to a search for ‘ipod’, but it’s very difficult to sell the context of a news story of somebody being stabbed to death…

Brand advertising wants to reach a captive yet passive audience, particularly FMCGs who are responsible for the bulk of ad spend, the majority of which is on brand marketing. People don’t search Google for toilet roll or dishwasher tablets or frozen ready meals.

But even brand advertisers have a target market, demographics. There’s no point marketing tampax to men. So that’s why companies have loss leaders such as free email, to collect data on you. Facebook is the best at that, it even knows your sexual and political preferences, and lets advertisers target on pretty much anything.

But what the web makes up for in targeting, it lacks in impact, except for the odd viral. Can you see Unilever building a new brand on Facebook like they would in TV, press and magazines? Probably not. Yet.