Google has clearly transformed the software industry’s approach to business models, as evident in the hundreds of online software companes (i.e Web 2.0) planning to “monetize” through advertising. But Google may also be influencing the software industry in less obvious but equally significant ways, through its ethos of simplicity and its obsessive (and often hyped) focus on user experience.

I saw Danny Sullivan’s conversation with Google CEO Eric Schmidt at Search Engine Strategies this past summer, and one exchange has stuck in my mind:

Danny: In some ways search feels like it’s marginally boring in that we’ve got these new…

Eric: Boring to you.

Q: Well, not boring. It’s never boring to me, but the experience of, I go to this page, there’s still a box. I put in the words. I know we’ve got new verticals that are coming out and the results have gotten much better. But the way I dialogue with a search engine on Google might as well be Open Text or AltaVista in the basic of I’m putting words into a box, I push a button, I get results that come back.

Eric: People actually like that. They like the simple interface. They tell me this all the time. Do you not?

Danny: That’s my question – I agree with you, people are largely comfortable with it. And when I’m asked about that, all of the analysts and reporters, they’ll say to me, “Well, what’s the next big thing?” And I’m like, “Well, it’s like saying what’s the next big thing in television sets.” You went from black and white. And then you went to color. You had a long period where we didn’t feel like it was working. I could put all sorts of things but then they’d confuse you. And we’ve made a jump to HD, but a television set largely works as a television set and it feels like that’s because people are comfortable with it. So I’m wondering, is search like television sets where we get HD search or are we going to have an “Oh, wow!” moment which just completely changes and we have something different in how we dialogue with them?

Eric: For many people, many people are very, very happy with the very simple Google search. And we think that’s wonderful. There’s a set of people who want to personalize it. And so we have a version which is currently known as iGoogle, where you have a login name and a password, and then if you personalize your homepage, you can add what are called gadgets. We started off with a number of gadgets that we wrote. But more importantly we created a developer program and the developer program enables people to build gadgets. The first gadgets were the obvious ones: What’s the weather in this town and the stock prices and so forth. [But now] the gadgets are getting much more sophisticated. So my personalized Google homepage, for example, has information sources, newspapers, magazines that I care about. It has pictures; it has video and so forth.

The importance of this exchange is even more apparent if you watch Eric Schmidt (26 minutes in).

When Danny suggests that there’s an opportunity to innovate the basic search interface, Schmidt looks at Danny like he has three heads and jumps in to insist that most people like it that way — no, they REALLY like it that way. Schmidt then goes on to talk about Google’s customizable home page, which has absolutely nothing to do with the question that Danny asked.

What’s evident in this exchange is that despite all the lipservice about customization, Google is deeply invested in keeping the basic search application simple and with limited (or no) customization.

Why? Because they realized that they could get away with it. Google dominates search with a ridiculously simple application interface, with advanced features that almost no one uses. Google gets away with this because getting search results is fast, easy, and, in almost every case, the results are good enough.

Until recently, the software industry was dominated by applications that made it easy to do complex tasks and complex to do easy tasks (think Microsoft Office), and by software that required massive customization (think enterprise software).

But the software industy has taken note of Google’s success with its one-size-fit-all search application — perhaps even Microsoft, as Preston Gralla observes in Why Has Microsoft Abandoned the Power User?:

The upcoming final releases of Windows Vista and Internet Explorer 7 make one thing exceedingly clear: Microsoft has abandoned the power user, allowing fewer and fewer customizations and tweaks. By doing this, they’re leaving behind a very loyal audience.

Internally, Microsoft has created a mythical typical user it calls “Abby” who knows very little about computers. It now targets the operating system and browser at this imaginary Abby, potentially leaving the rest of us out in the cold.

I think Microsoft has abandoned the power user because Google has shown that, in the age of Web as platform and software as a service, it’s much more profitable to create applications that err on the side of simplicity — even to the point of significantly limiting user options.

Just look at Gmail, the email program of choice for nearly every early adopter. Customization and other “power user” features (such as integration with other email programs) are nearly non-existent, but still everyone uses it. Why? Search. That one feature is so useful that we put up with all of the other limitations. And Google gets away with it. Google’s new word processor and spreadsheet package are also a bet that less is more.

The Googlization of the software industry may make many applications easier to use — but it may also lead software companies to develop applications based on the belief that less is more in every case. That is a good thing when an application makes it really simply to do what you want — but maybe not so good when the application simply won’t do what you want.