Google: an innovator in danger?

Not a week passes without an article celebrating Google’s success, the poster child of the post-bubble Internet economy, the one that has survived. In a previous post, we were discussing how Googles poses a threat to mighty Microsoft with its new generation mail and search engine. In fact, Google is now much more than a superbe search engine and a very smart mail service. Google, in fact, is now a "Web system", ie a set of services designed to work together and leverage each other.

It is in the design of this "system" that Google’s strength lies, not so much in each service’s quality, even thoug these are real. Let’s take a few examples. Based on its search engine, Google developed a service called AdWords. It is an automatic advertising service that works this way: you register to the service for free, you create your banner and define the keywords that will trigger the display of the banner. When a user seraches on one of these keywords, your banner is displayed and if the user click on it, Google bills you. It is a remarkably effective and cheap system to generate contacts for a business. It is also a license to print money for Google. It is a good illustration of how Google leverage each service’s strength to make money. The system works the other way: if you manage a Web site, you can outsource some space to Google to display Ads. If a visitor of your site clicks on a banner, you will get paid by Google. Of course, the ads displayed are automatically selected by Google’s serach engine based on the content of your site so that they are relevant.

This "Web system" is very powerful, and new services are added regularly. It proves Google’s thorough understanding of the Web, and the company’s creativity. Does Google, however, create a lasting competitive position on the Web? Not really.
As we have seen, Google’s strength lies in the synergy between all its services, but it really is based on the leadership of its search engine, which is both the technological basis and the "loss leader" of the system. The problem is that, after several years of near-total domination, the search engine is now under attack, by non other than Yahoo, and… Microsoft.

Having been initially overwhelmed by the Google tornado (Bill Gates admitted in Davos that Google had kicked Microsoft’s butt), Yahoo and Microsoft have since reacted and caught up by introducing vastly improved seearch engines. As a result, and even if Google remains clearly superior, the gap is narrowing. But Google absolutely needs to maintain this gap: there is no switching cost from one serach engine to another: as we have all dumped Alta Vista for Google a few years ago, we could dump Google for MSN Search as easily, should it become better. If that happens, Google’s Web system crumbles. Today, because it is so dominating, you have to advertise on Google if you advertise on the Net. If tomorrow, however, the market fragments, advertisers will have more choice, and each engine will have less impact. But Google will be hit harder, because this monopoly is the cornerstone of its system.

In conclusion, Google’s system is brilliant, but it is does not lock the customer, the way MS-DOS has done for instance, unless one consider the lock at each of the system’s services level. This is not to say that Google is a house of cards, but its domination  will continue only if it keeps adding new services that each creates a micro-lock.

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s