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Winner-Take-All: Google and the Third Age of Computing

IBM1950-1980
Microsoft1984-1998
Google2001-

Google has won both the online search and advertising markets. They hold a considerable technological lead, both with algorithms as well as their astonishing web-scale computing platform. Beyond this, however, network effects around their industry position and brand will prevent any competitor from capturing market share from them -- even if it were possible to match their technology platform.

To paraphrase an old comment about IBM, made during its 30 year dominance of the enterprise mainframe market, Google is not your competition, Google is the environment. Online businesses which struggle against this new reality will pay opportunity costs both in online advertising revenue as well as product success.

Competitors such as Yahoo should quickly move to align themselves with this inevitability. Yahoo could add an extra $1.5B to their revenue overnight by conceding monetization to Google and becoming a distribution partner for Adwords, as Ask Jeeves did.

Google is the start page for the Internet

The net isn't a directed graph. It's not a tree. It's a single point labeled G connected to 10 billion destination pages.

If the Internet were a monolithic product, say the work of some alternate-future AT&T that hadn't been broken up, then you'd turn it on and it would have a start page. From there you'd be able to reach all of the destination services, however many there were.

Well, that's how the net has organized itself after all.

From this position, Google derives immense and amazing power. And they make money, but not only for themselves. Google makes advertisers money. Google makes publishers money. Google drives multi-billion dollar industries profiting from Google SEM/SEO.

Most businesses on the net get 70% of their traffic from Google. These business are not competitors with Google, they are its partners, and have an interest in driving Google's success. Google has made partners of us all.

Why does Google make so much money?

It turns out that owning the starting point on the Internet is really, really valuable.

Not just because it gets a lot of traffic. It's because that traffic is so much more valuable than the rest of the page views bouncing around the net. Google's CPMs are $90-120, vs. $4-5 for an average browse page view elsewhere.

This value premium on search vs. content is because of the massive concentration of choice potential which exists on the decision point, Google.

John Battelle calls this power behind user search queries "intent". This is why the ROI of a clickthough bought from Google is so much higher than a clickthrough bought from a banner ad impression. It represents a higher likelihood that someone is going to take action if they came from a search instead of a mouse click.

No one wants to be on a search engine, they want to be on one of the 10 billion destination or application pages of the net. They may navigate "directly" to these pages because they know the name and/or have been there before. And they may move between pages by following links - say, from a blog like Valleywag to an interesting article. But these are 1:100 fan-out effects.

Google is a 1:10,000,000,000 fan-out effect. When you need to find a new page, or perhaps even to navigate to one you've been to before, you go back to the starting point -- Google.

To reconstitute Google's full value on the destination pages, you'd have to have a network which participated in a majority of the destination landings. Such a network would also participate in repeat visits which G does not see; but it would hit users after a decision point, and so might still have less overall value; it will be harder to distract someone to go elsewhere from the sidebar than when you're on the locator service.

But it's a lot easier to monetize G's 1:10B branching point than to participate in 10B destination pages.

And once you own it, you can have the rest of the net too. :-)

Google's next step: owning the rest of the page views on the net

Just as Microsoft used their platform monopoly to push into vertical apps, expect Google to continue to push into lucrative destination verticals -- shopping searches, finance, photos, mail, social media, etc. They are being haphazard about this now but will likely refine their thinking and execution over time. It's actually not inconceivable that they could eventually own all of the destination page views too. Crazy as it sounds, it's conceivable that they could actually end up owning the entire net, or most of what counts.

Complaints are already being heard about Google using their starting point power to muscle into verticals.

My 70% market share number was conservative so as to be believable; others report that Google is more like 78-80%.

Competitors who want to dethrone Google need to fight a two-front war. They have to build a killer consumer search service as well as a successful advertising network. Building one of these is difficult, but doing both simultaneously is nearly impossible. Google's dominance in both of these areas gives them an unfair advantage, and allows them to easily parry any attacks.

How zero switching costs paradoxically yield a winner-take-all market

Search engines have zero user switching costs. Unlike switching email providers, there is no user data to move over, or addresses which need to be forwarded or communicated to peers. You just type in a new name and go to the new place.

If switching costs are zero, the first thought is that it should be easy for a worthy challenger to take some share away from the leader. Paradoxically, it's the reverse that happens.

Zero switching costs lead to a winner-take-all market for the leader. Even a modest initial lead will snowball until majority market share is reached and maintained. This is because, faced with a choice between two products, in the absence of switching costs users will choose the better one, even if it is only slightly better.

Google had a vastly better product than any other search engine for a number of years. Competitors have closed the gap somewhat, but Google is still better. Everyone (70-80%) knows this now, and so the Google-has-better-search concept is now built into Google's brand.

Even if a competitor such as Yahoo, MSN or Ask were to fully close the gap at this point, they would still have to overcome the final brand perception gap. This is the effect where market research shows that users who see Google's logo on top of Yahoo's results perceive the results to be of higher quality; users looking at Google's results with Yahoo's logo on top view them as having less relevance. Brand perception effects have been measured to account for about 8% in things like beer. A few years ago an AOL researcher replicated this study in a shopping mall in Virginia with AOL Search results vs. Google.

Back to the zero switching cost and winner-takes-all. Suppose the product gap has been closed, and the two products are now identical. But one product has a powerful brand perception that it is better. In the marketing analysis, that's the same as being better. Users will stick with the leader.

Economic and social forces reinforce a feedback loop of success for the leader. The best programmers will leave the losers to work for the winning team. Major online sites will invest in organizing their sites to appeal to the winning search engine. Advertisers will be drawn to the leader, giving it a greater share of resources to invest in continuing and strengthening its lead.

Yahoo is leaving a lot of money on the table

Everbody wants to own their own advertisers. Talk to newspaper execs if you want to get an earful about ceding sales to the online giant. Controlling sales is a point of pride, and of some perceived strategic value. But quantifying the opportunity cost throws a stark light on the huge cost of opting out of Google's winning monetization platform.

This story has played out before. In 2001, Ask Jeeves was on the ropes. Battered by the dot-com crash, its ticker symbol was in danger of being de-listed from the Nasdaq. Skip forward to 2003, and they're flying high again. The magic in between was doing a deal with Google to have Adwords take over monetization. Google quickly become responsible for 70% of Ask Jeeves revenue, and Ask Jeeves stock rose 1,685% in the year following that deal.

Yahoo should accept Google's search and monetization dominance. Yahoo will not recover the search application, and browse views are not competitive and cannot be made to be so. They should do a deal with Google for Adwords/Adsense across their entire network, as Ask Jeeves did. They should be able to obtain at least an 85% rev share; that would take them from $0.10/search to $0.17, a 70% increase in search revenue overnight.

That's an extra $1.5B or so of yearly revenue being left on while they try to build a copy of Google's revenue platform.

Such a deal could even see Google's triumphant return to powering Yahoo's search results, which would provide superior results for users. In a way, this is simply rolling back Yahoo's configuration a few years, to the point where Yahoo used third parties -- Google and Overture -- for both search and monetization. Yahoo's effort to vertically integrate these functions has failed; it hasn't yielded a winning consumer product, and it's leaving billions of dollars in potential revenue on the table.

What about Microsoft?

Microsoft isn't a player online any more than IBM is. IBM?

IBM still has a great business, inhabiting the business enterprise market where they've been since they started. When the PC era arose, the popular question was why IBM couldn't own that new market too. Sad requiems were printed the day IBM finally gave up and exited the PC business.

Stodgy old IBM was perfect to selling to Fortune 1000 CIOs and the government, but wasn't configured to deliver PCs to consumers. The winner of that game was Microsoft. Surprise...the winner of the PC market didn't actually sell PCs! How could IBM have known...

The PC market isn't going away either. Microsoft has a great business too. But now the question everyone asks is why Microsoft doesn't own this new thing, the Internet. Surely with all those resources it could own any new market that arose.

But it shouldn't be surprising that huge successful companies can't make the leap into owning a completely new and different market. New markets bring with them new rules, and require different skills to win. Microsoft has the same shot as any well-funded venture at knocking off Google's crown. But they don't get a special pass just because they make a lot of money selling Word and Excel and have their logo on keyboards.

We get used to seeing the giant squash everything it steps on as it strides through the domain of its market dominance. But sooner or later, the terrain changes, and the old leader can go no further.

Nobody even bothers asking why IBM isn't a player in consumer search. IBM and consumer websites just don't have anything to do with one another. PC software and websites don't have anything to do with each other either.

All Hail the New King Google

The interregnum between the end of the PC era and the rise of the online world has concluded, and Google is the new king of forward market growth in computing and software technology. Major companies will succeed by working within the framework of Google's industry dominance, and smaller players will operate in niches or in service to the giant.

"I for one welcome our new insect overlords."

:-)

TrackBack

Listed below are links to weblogs that reference Winner-Take-All: Google and the Third Age of Computing:

» SearchCap: The Day In Search, Jan. 2, 2007 from Search Engine Land: News About Search Engines & Search Marketing
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» Google Take All? from StanleyWong.org
I just read Rick Skrenta’s great blog post, “Winner-Take-All: Google and the Third Age of Computing” Rick is right on the money with a lot of his observations, especially the fact that Google has built their huge lead on the backs of ... [Read More]

» Benefits of Yahoo using Google advertising from Internet Business
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» Google is not your competition from Lars Trieloff's Weblog
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» Does Google=Internet? from SIVACRACY.NET
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Comments (40)

Hi Rich,
Just wanted to say what a great post. Superb and excellent observations, I whole heartedly agree!
Thank you.

Pete

Well..I do think there might be something new instead of google in the coming future.

Hmmm... you might want to take a closer look at Microsoft's net online revenue and total page views across Microsoft.com, Xbox Live, MSN, and Windows Live before saying that Microsoft is 'the new IBM' - even though it does seem to be the thing to say these days.

I absolutely agree with you Mike that Microsoft has many great businesses, and will be a successful company doing great things for many years to come. Its entrepreneurial spunk and success with products like the Xbox are commendable for such a large company, and I love some of the stuff I've seen on Live.

But I see you seem to agree with concern around Google's use of their homepage to push into verticals -- http://mike.spaces.live.com/blog/cns!FBABF8E542F5D5DB!7758.entry

No one would care that Google was doing this, if the big G didn't own the starting point. No one would be making a fuss if it was Ask doing that sort of thing. You gotta admit, there is some irony in a Microsoft employee kvetching about a dominating competitor using their platform success to lever into verticals. :-)

/// Just as Microsoft used their platform monopoly to push into vertical apps, expect Google to continue to push into lucrative destination verticals

Unlike Microsoft, Google's apps and web services are FREE.

Microsoft AND Yahoo had the advantage to create their own search engines, but neither chose to do so until Google showed how profitable and how sticky it could be.

Just a few years ago, Yahoo has the same share of searches that Google does now, they go too comfortable and paid the price.

Microsoft chose to ignore the software as service model, until Google began developing it.

You're making a major error in you're reasoning.

While it would be beneficial for Yahoo to run Adwords it would not be beneficial for Google.

Yahoo is a strong potential competitor and Google might simply turn Yahoo down on their offer (I would).

Ask was a different situation because they weren't a threat. Even now they're not a threat (though they are a pretty aggressive upstart). They just won't push Google out of the market anytime soon.

Yahoo stands a decent chance and Google needs to keep them at bay.

How is Google getting a slice of the action on a competing site and killing a competing ad network going to strengthen the competition to make it overtly competitive with Google beyond anything Yahoo! could do now?

What better way is there to track a potential competitor than to track most of their pageviews, and to get paid in the process?

Google won't disappear in the next few years. Google is too mighty at the moment. Even Microsoft and Yahoo together cannot stop them. Yet.
We don't know what will be in the next ten years. Nobody knows. The only thing we can do is waiting :-)

Thanks Rich for that post!
bumble

federico:

very good post but the final quote from the simpsons just killed me.
best regards from argentina

Anon:

Yahoo giving up on their business model to Google for advertising revenues it the most stupid thing I have ever heard. Perhaps the author needs to be reminded that the technique of advertising was created and patent by a Yahoo owned company and that GOogle paid a lot of money to settle a lawsuit because they copied that system.

Don't worry soon people will associate the rainbow colors of windows with the rainbow of Google's logo and Google's actions will overtake their "Do no evil" slogan. People will question what happened to the "Do no evil" and Google will become the next Microsoft. Hated by all.

Its coming.

how did you arrive at the CPM for Google? that is about triple of what I have other people quote. I think Google IS the competition because they don't like to share. If they found a way to share effectively with the people that produce content in their index, then everyone would be happy. But a lot of media companies are not happy.

Also, Yahoo needs (for the sake of competition, and the future of the net) to continue to develop their own ad platform. If they cave and go with Google that is a terrible sign for the industry. It means that if Google doesn't want to do business with you anymore, then you are SCREWED. I pray that Yahoo gets their act together.

The CPM for google is based on the revenue per query figure of $.20 cited in the BusinessWeek story. For examples of backing into this kind of CPM estimate for them, see http://blog.topix.net/archives/000097.html

Google has dramatically increased their revenue per query in the past two years. Yahoo's has gone up as well, but they still lag. The gap there is a matter for buy-vs-build arguments, but the major point to notice is how high search CPMs are compared to browse CPMs. If you are running a content-based business you have a huge disadvantage in terms of getting paid ad dollars compared to a search engine.

Yahoo give up their business, crazy or stupid, right. Here's how it happens. Wall Street gets impatient and forces some changes. Or maybe they merge with AOL -- AOL already went through this argument a few years ago (back when they harbored ambitions about running their own successful search engine) and AOL now has a deal with Google to power search and monetization.

At the end of the day, the banker-types who actually own Yahoo on Wall St have little patience for programmers to sit around and try to dethrone someone who doesn't look like they're going anywhere. Especially when the magic software is late and you're missing out on $1.5B/year while you try. The buzzer goes off and it's time's up...

got here via Om Malik. Top notch analysis, and the call for Yahoo to swallow pride and concede search has been doing the rounds quietly in out of reach places. Look, Yahoo started as a portal, and you talk about controlling entry points into the net - Yahoo has a well stocked start page. Stick to that, and develop it, make it magic, that's where Yahoo's focus and energy should be.

Again, great analysis.

Skrenta writes, "This is the effect where market research shows that users who see Google's logo on top of Yahoo's results perceive the results to be of higher quality; users looking at Google's results with Yahoo's logo on top view them as having less relevance. Brand perception effects have been measured to account for about 8% in things like beer. A few years ago an AOL researcher replicated this study in a shopping mall in Virginia with AOL Search results vs. Google."

Rich, I was that researcher. We did that study in 1999 or 2000. And the comaprison was between AOL and Yahoo -- because at the time Yahoo was the leader. And we discovered that the Yahoo brand had a halo effect on user's relevance judgments.

So my take-away is that we have not reached the end of search history -- any more than the fall of the Soviet Union marked the end of political history.

hey rich -

great post, and i agree with most all of your logic except that Google only dominates CPC-based advertising... there's still another innovation on the near-term horizon: CPA-based advertising. see my post on VentureBeat from a few weeks back:
http://www.venturebeat.com/contributors/2006/11/30/yahoo_monetization/

currently, Google doesn't dominate this space... altho with Google Analytics & Google Checkout they are trying to gain a significant & growing foothold.

if Yahoo can use the point-of-transaction data it has from YahooStores, and similarly with eBay & PayPal data (whom it has partnered with), then Yahoo could perhaps regain a significant market position in advertising. (note: you could make a similar case for eBay or Amazon, or whomever wanted to buy either of those properties... say, er, MICROSOFT).

while i wouldn't suggest this scenario is likely -- the GOOG is totally killing it, and i expect them to continue to do so -- to suggest the game is over already seems a bit early. i'd give them another 2 years before they give up the ghost.

in the meantime, i tend to agree with most everything else you mention and your analysis of zero-cost switching / brand perception is terrific insight.

- dave mcclure
http://500hats.typepad.com/

Rich,
A great post! I agree with the dominance of Google Search in the next few years. Beyond that, however, the invincibility of Google Search might greatly diminish. If any business is thinking about dethroning Google Search, that business should be thinking out of the 'Google box.' Far too many businesses are imitating rather than differentiating themselves from Google Search. As long as applications look and feel like Google Search, the search-king will be Google Search. In the coming years, I see the most potent competitors of Google Search as meta-search engines and startpages. After all, these latter alternatives provide a superior gateway to the Internet. And best of all, they can include Google Search as well as other search engines.

Best regards,
Rod.

Interesting post...though I think that Search is still in its very early days as Web metadata is rudimentary and Search behaviour is still evolving - your example of people using Google instead of Bookmarks for eg leads into a whole new set of front end search approaches.

(By the way, for about 8 years now I have had Dogpile as my destination screen - it scrapes Google and all the other search engines for any one search - beats me why one wouldn't use that instead of a Google, but there you go)

Farhad:

As you point out Google has a better product and so garners the most users, but users are fickle. I switched from Yahoo Maps to Google Maps a few years back and never looked back, then recently switched to Ask maps because it's better. While brand is extremely powerful, the perception of brand comes, at least in some part, from the illuminati. If someone comes up with the better product that generates buzz, it could get highlighted on mass media, and that could be enough to cause significant switch. That Google has built a strong supply side network (aka ad network) is irrelevant (other than giving them tons-o-cash that they can parlay into more products).

Users benefited (at least in the short term) from Microsoft's domination because it removed market confusion and resulted in thousands of programs. Similarly, Google's influence grows because they now have significant developer mind-share, as evidenced by the thousands of Map mash-ups. Joel Spolsky wrote a great piece on this some time back (http://www.joelonsoftware.com/articles/APIWar.html).
They really are becoming the web OS. If Google's APIs become the standards as they extend their offerings into calendars, notepads, events, etc. then they'll be even harder to displace.


kiran:

china....?

Bill Modlin:

I think this post is right on point. I know people who open a browser with Google as the home page, type the URL of the web page they want to visit in the Google search box and then choose the site from the search listings.

These people actually think this is the way you use the web!

Stephane Rodriguez:


Microsoft partners can kill Google over time by blocking Google bot. Hasn't Microsoft inked a deal with GoDaddy last year?

Also, Google cannot index session-based sites. All it takes is, whether that is desirable or not, is major businesses to start adding session-based tokens to cut Google's legs. Example : the online identity card that could well be used by an increasing number of websites and blogs.

Also, there are vast improvements to make to Google : problems that Google has not solved at all. Example : searching non-English web sites with English queries.

My 2 cents.


I can tell you just one thing. In recent months Google search results has been worse than ever. I actually started to experiment with MS Live and Yahoo search engines to see if I would get better results.
Besides that - great post :)

Very good post, however:
IBM 1933 - 1980
http://news.com.com/2009-1082-269157.html

Best regards
Tom

Thanks for the superb insight and analysis, Rich.

Will be saving it for future reference and referral...

A few points if I may:

#1. As Farhad points out, in case anyone doesn't remember, Google was the beneficiary of a virtual (and virtually unheard of) tidal wave of almost 100% positive online and offline media support during its critical early months and years.

Most of the world's (or at least US-based) reporters seemed to have developed a love affair with what was then the plucky little "we will do no evil" startup with the great new-fangled search engine...out to change the world of information identification and retrieval...

Were a new startup able to come up with another comparable major search advancement...AND capture the hearts, minds (and keyboards) of the media...well; could such lightning actually strike twice in the same major app field?

The odds of a second such occurrence are slim indeed.

#2: Everyone who currently earns--or hopes to in the future--money from Google's Adwords/AdSense program/s had better hope real, real hard that Yahoo (and MSN) NEVER allow Google to take over their search/PPC ad systems.

If that happens, how long would it be before Google--now with no competitors--would start cutting the percentage shares of such Adwords/AdSense users? Everyone would have no choice but to take what Google offers them...or settle for nothing.

With the continued worldwide growth of the Internet over these next couple of decades, such lack of site monetization competitors could result in Google being the most egregious case and example of monopolization this world has ever seen...

#3. As it happens, I've come up with a killer consumer search (match) service--with a built-in breakthrough new advertising system/network to boot--that you say a Yahoo or Microsoft (or an AOL, IAC/Ask, eBay, Amazon, News Corp for that matter) would need to dethrone Google.

As explained in the white paper at MatchTo.com and detailed in pending patent #11/250,908, it's called Match Engine Marketing (MEM), or paid match; and it will allow advertisers to select and bid on the actual demographic and psychographic traits and characteristics (keytraits) of their most desired customers...instead of just the words we all type into search boxes.

Since it's been estimated that about 1/2 of all searches are for products and services anyway, such a paid match approach would prove immensely popular given its unquestioned relevance and pinpoint targeting.

It's just the weapon needed to attack Google's greatest weakness--it's almost total reliance on PPC for its income.

Great post. You are right on the money with a lot of your observations. You are absolutely right that Google is building their huge lead on the backs of the Search and Advertising dominance.

One thing I'd like to add is zero switching costs also has a downside for Google if a new entrant is **significantly better** than the incumbent. So far, the efforts of Yahoo!, Ask, and Microsoft in the search space are building on essentially the same technology platform as Google. The best they can do is incrementally better than Google and therefore have a huge challenge to overcome the brand gap.

Significantly better requires one to make a dramatic technology leap beyond what Google is doing today. When Google came into the market they introduced PageRank (link based algorithm) which was significantly better than the prevailing keyword based ranking technologies employed by the incumbents (AltaVista, Excite, Infoseek, Inktomi, etc). PageRank introduced, for that time, a relatively SPAM free search environment that plagued the keyword based search engines.

The biggest challenge for search continues to be search SPAM. SEO practitioners (white hat and black hat) have been making in roads to SPAMMING the current generation of search engines with the inclusion of keyword based page generator (using Markov chain models) while linking them together into artificially generated networks to improve ranking.

Having worked in the Internet space for over 10 years, I personally think that Google is not invincible. I've seen too many dominant players come and go during my career. However it requires one to have a talented team that can approach this space from a completely different vantage point and offer up a new technology paradigm to take the state of the art towards the next generation.

Search engines have zero user switching costs. Unlike switching email providers, there is no user data to move over, or addresses which need to be forwarded or communicated to peers. You just type in a new name and go to the new place.

If switching costs are zero, the first thought is that it should be easy for a worthy challenger to take some share away from the leader. Paradoxically, it's the reverse that happens.

-------

sorry but wrong...

costs = data acquisition costs

the reason why Google bought YouTube? Data, user habits, etc... Google is processing and documenting daily internet activity, something that microsoft can't do (supposedly).

also mr. mcclure....

PPC is not the important thing. The left side of the search page is.. and Google (43%) dominates Yahoo! (28%) and MSN (23%)in searches performed.

it's all about the data

good article tho.

-paisley amoeba

WTL:

If you want global information and/or search results, Google cannot be beat. However, if you want local info, Google is awful and will only get worse. The larger the net's "page count" gets, the more splogs, the more "old" never-updated pages, etc, etc....the more crap will infiltrate Google results. Don't believe me, try using Google for local search. Unless you're in San Francisco its awful.

Someone will figure out build a better local search, community by community. When they do and if they can scale it, Google is toast. Why? Because he who controls the local advertiser will ultimately become king.

Thank you for the interesting post. I have one comment that has not yet been expressed.

> Search engines have zero user switching costs.
> Unlike switching email providers, there is no
> user data to move over, or addresses which need
> to be forwarded or communicated to peers. You
> just type in a new name and go to the new
> place.

I believe this is a limitation of the current search technology. A better search engine would provide me with personally tailored results so that when I search for "protect apple" I get information about pesticides and not laptop lockdown hardware.

The detailed user profiles that power personalized search will take time to build, and they won't be immediately transferrable. Of course, they'll also cause a user's preferred search engine to return better and better results over time, thus decreasing the incentive to switch.

Once personalized and context-sensitive (e.g. different results at work and at home) searches become prevalent, the user's cost of switching will be high. The search engines need to build a loyal customer base early on before it becomes too expensive to acquire new customers. This also plays to Google's advantage as the current market leader.

-Kevin

Great post, but i still think we need yahoo & msn in this game

Hi Rich,
Outstanding analysis. Something some might not have considered in this or other analysis I've looked at is what happens if Google is not satisfied with dominance of the net... The United Google States of the World. Yikes!!!, maybe time to stock up on a few extra cans of Raid or Black Flag:)

Anyway you slice it looks like Google is going to be around for a longtime. One thing for sure having all the money in the world does not guarantee you love or decent customer service.

Hello Everyone,

It's apparantly funny how all of a sudden everyone jumped aboard Google's side. Everyone abandoned AOL/YAHOO/MSN in favor of the latter entry, Google.

Don't get me wrong, Google's a solid company with a solid business plan. With that said, they're going to be around awhile due to three elements:

1.) Brand-Recognition;
2.) Product Platforms (Adsense/AdWords);
3.) Traffic...Yes Traffic.

With element's two and three, Google would be just like every other pioneer on the net prior to the metldown that couldn't convert these elements.

RE: AOL/YAHOO/MSN/ETC

Everyone acts like AOL and Google's contract is everyone. By all means, it's not, it's simply temporary. Read the fine print everyone. AOL could walk away any point in time if need be.

If Yahoo decides to acquire AOL from TimeWarner (since TW already can't get their act together), Google better be cautious.

Coming the still traffic champ of the web (Yahoo) with top-ten traffic provider AOL can provide the ultimate Google killer.

RE: WEB Traffic

Let's face us, Google success occurs because they deliver an INTENSE amount of traffic to their site, Google.com. Simply convert that traffic and viola!, you struck gold.

You know how many companies exist that provide more type-in-traffic and organic traffic that the likes of Google, Yahoo, Myspace, YouTube or MSN? According to Alexa rankings, you probably do not...but the secrets relies in the backbone of the web...the small element that started the dot-com rush, domain names...that's right INTERNET DOMAIN NAMES.

Can you envision how much traffic these companies that are hoarding the likes of 100,000, 200,000, 400,000 or 700,000 domain names are delivering per month?

One startup company alone, Internet REIT claims upwards of 60,000,000 or 90,000,000 visits per month to their network. Does everyone know what this is equivalent to? This is nearly 1.30-1.50 times the traffic that Google.com's web site receives.

These companies are slowing and silently constructing the ULTIMATE GOOGLE KILLER...however the only problematic element being, they (well, most) have yet to successfully develop a platform to coordinate their efforts.

Granted they have the traffic, and may I say, alot of the traffic indeed. That's one element that's a no-brainer. Traffic cost money and time...already having this element is 80% of the plan. The remaining challenge would be to construct a platform such as AdSenese/YPN to simply take on the Google's and Yahoo's of the world.

Let's face us...most of us never seen Google even coming. Yahoo, for instance, even funded Google..go figure right? They might have pocketed a cool billion in profit, but look how much Google has cost them current day (2007). Google's a multi-billion dollar revenue-generating machine. The $15+ billion Google has generated could of been in Yahoo's pockets if Yahoo help (fund/etc) Google become what it has today.

The only players that could possibly challenge Google today are the likes of social-networking sites that transform into search-engines or the likes of your CRAZILY successful NFP foundations WikiPedia, Mozilla and the likes of them.

Simply to confirm, if a deal was ever stuck between Yahoo/MSN or Yahoo/AOL...consider Google another Netscape in about five or ten years.

If Google cannot innovate further (as they are today), they their going to end up another billion-dollar failure, next to the GM/Ford (sinking ships), Enron's and the likes of the world.

Always keep an eye-out or buy (ie - Myspace/YouTube) the innovaters as this can be your potential company killer.

Best Regards,

Fabulous Innovater

David Wrixon:

This picture is true if you observe the Internet from an entirely introspective position.

If you look at things from a global perspective, Google is doing very indeed, but is certainly not in an unassailable position. Google is trailing Baidu in China, Yahoo in Japan, and Yandex in Russia. The Arabic and Indian Internet contents have only recently been indexed and many of these markets are in their infancy.

If you Universe is the US, yes, Google has won. However, Baidu is coming out of China to challenge Yahoo in Japan. It is not inconceivable that a serious challenge to Google's dominance in the US may yet come from outside. Search is a global game, it requires a global strategy.

Such a deal could even see Google's triumphant return to powering Yahoo's search results, which would provide superior results for users.

This is the only bit I really disagree with. I've loved Google for the longest time, but their search results lately have been pathetic! Sites seem to be dropping out their index all over the place, rankings are changing all the time, and the quality is a lot lower than it used to be (lots of 'index' sites, and other such 'spam').

Yahoo!'s results are a lot better, but.. alas.. they're on Yahoo.

Overall, I think this was a great post (an in-depth article, actually), and think your analysis is far superior to the usual fuzzy thinking displayed by the analysts on Wall Street. But, I would like to quibble with a few points.

First, I think your historical perspective is a bit misleading. A more valid list would include Intel as a successor to IBM, along with Microsoft. In fact, Microsoft's dominance of software has partly been due to Intel's dominance of the hardware arena, making it much easier for Microsoft to dominate the software arena. In fact, Microsoft's dominance has been largely limited to PCs, where Intel's architecture has effectively become the industry standard, greatly simplifying Microsoft's job.

Second, I don't find your argument about zero switching costs to be particularly convincing. I think a more plausible hypothesis is that Google has succeeded despite the presence of low switching costs.

This is an important distinction ľ the market may be a "winner takes all" special case, but it could also turn out to be a more ordinary market in which one of the early entrants happened to perform extraordinarily well, and thus quickly gained an huge share of the market. in the latter case, Google will be vulnerable to market share loss if it loses its focus, or becomes complacent, or over-reaches and tries to squeeze too much money from its quasi-monopoly.

There are many markets where one or two firms dominate for decades, due to the presence of moderately high barriers to entry and deeply entrenched brand loyalties, but these are not inherently "winner takes all" markets, and they are rarely involve a single firm enjoying the sort of 70%+ market share enjoyed by Google currently.

I think it's too soon to say for sure what will happen next. To the contrary, if Google stays focused, continues to innovate and improve its core product, it has a chance to enjoy extraordinary profits for many more years, due to its unique position as the main "entry point" onto the Internet. Otherwise, it could falter, much like Alta Vista and Yahoo before it.

I agree with a lot of it, Rich -- but I think you color Yahoo as too far down and out. Going back to the 70 percent figure, when I drilled more into that, it seems like that Yahoo may be still driving plenty of searches to the pages it owns (and earns off of) that don't show up in site owner stats.

But still, I think anyone would agree Yahoo's a strong number two. They are hardly down and out. Nor are they facing the build up challenge. They have both excellent search, a great ad system and still a decent brand.

I could see an argument that Microsoft should perhaps give up. But the suggestion that Yahoo should? Pick an industry, you're going to have more than one leader in it. And that leader typically isn't going to always remain all dominant.

Flip it around, what's Apple doing still selling computers when everyone runs Windows? Well, they're making money. Maybe not as much as Microsoft, but being number two ain't bad. And then if you get a hit in an unexpected area (say iPods), suddenly you're on top of the world.

By rights, Topix shouldn't be running. You should concede news search to Google, the all dominant player. I certainly hope you don't. You know there's a model for you in news, hopefully a profitable one. Yahoo's got just as much room if not more :)


There are alternatives out there. Assuming Google doesn't buy them all out, there is plenty of opportunity for new search engines to come to the fore. Here's one called EigenCluster.

G:

This smacks of 2000 when nets could do no wrong. Think of the net as moving to a new neighborhood. You buy a map to get around but after time you know the place by heart so to assume this exponential growth without any roadblocks is foolhardy.
Although I like Google, to assume that google will never own the net. THis isnt msft back in the 80s where I have no alternative that to use their OS.The net is dynamic and always changing. Don't assume the future is just some linear 2dimential web pages scattered all over the place.

Fabulous Innovater:
Very interesting insight you have. Heard of OpenDNS? It's exactly what their plans are...

PS. "Innovator" is the correct one :)

All:
Great arguments, discussions and info. Please stop using acronyms for marketing lingo-speak... so we can all understand without having to use a search engine (again!) :)

Can someone guess why google hasn't already made searching in images (and video, and sound) yet? Just in case someone says it's hard: no it's not THAT hard. Look at Riya's technology. Is search not their (Google) main product anymore?

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