A couple of days back, I wrote about my first impression of Google Analytics and how it was a typical Google clusterf*** launch. Obviously, I was just one of a billion voices talking about the launch of GA and the troubles getting it to work, but having used it for a couple of days, it's pretty darn good (as expected, since it's just Urchin). Of course, for some reason, it doesn't seem to like me putting it on the blog. I'll figure that out later.
So, after a couple of days of thinking and arguing with people about why it's free (I'll explain), if it'll stay free (yes), and if it's going to make life hard for other web analytics businesses (yes, especially those that are priced ridiculously, like WebTrends), I think I've hit on why Google did Google Analytics. It's not groundbreaking, but it's logical: it's to serve the Google advertising market.
Google's been working on the ability to advertise on specific sites. Is there a better, more accurate way to judge a site's popularity, and what search terms actually lead to some sort of transaction/acquisition than via direct logging of it? Think of it this way: previously, Google could tell that you searched for something and went to a site, but couldn't tell anything beyond that, unless the client had installed the AdSense code to phone home to Google. But if it was a normal search term, and not search advertising? Google's blind to what the web visitor does after clicking the search link.
But ... what if that site has Google Analytics installed? Now Google knows what search term got you there (regardless of what engine you came from), and then where you went on the site. Did you go to a product page? Did you buy something? Did you abandon the site on the next page? Sure, it's a bit scary, but it's all data that's freely available to the website/web host. It's not like you had complete anonymity before (unless you were browsing with cookies off, and through a proxy, etc.)
Besides, it's not about you. It's about your clicks. In the long run, Google doesn't care who you are (though, eventually, the demographics might matter). Right now, they just want to tell a big advertiser "hey, looking to advertise your product, well, these five sites have the largest stickyness for people doing that search query across all engines, with 10% of them going on to purchase a product. We'll put your ad on those sites for a nominal fee, and we'll both get rich."
That's why it's free. Google Analytics is the Neilsen ratings of the web. Even moreso than the real Neilsen ratings. It'll be more accurate, more reliable, and, for Google, a huge competitive advantage over Microsoft and Yahoo! Google's going to give you a valuable service in exchange for your data. MS and Y! will have to figure out a way to capture similar data and give the published a bigger chunk of the revenue.
The rest of us get a handly web analytics tool to muck around with until Google goes out of business.