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28Oct/082

Web 2.0 & The Google Cop-out

I'm going to attempt to kill two birds with one stone here and give an update while finishing some homework.  The following post is going to look really academic, that's because it is :p

This is a brief homework assignment that I had for a strategy class that kind of intersects some of the topics I cover in this blog.  It's not my best work, but that's kind of you're signing up for when you're trying to get an MBA & working at the same time.  At least that's my qualifying disclaimer.

This is a case study published by Harvard Business School on Google which was released in 2006, so some of the details covered are ancient history relative to the pace the search marketplace has been evolving.

Sorry for the sensationalist title, enjoy my personal cop-out to blogging:

  • What are the key factors behind Google’s success?

Google has been so successful because of the focus and importance they placed on technology; this strategy contrasts that of its closest competitors, Yahoo and MSN, who focused on pushing content to users through internet channels called portals.  Yahoo was one of the earliest search services, but relied on human editors to organize websites into categories via a directory service; technology was only an afterthought for Yahoo once it realized the Web had grown much larger than human editors could manage.  They soon turned to indexing services such as AltaVista, Inktomi, and even Google to utilize the algorithmic search engine method that has made Google so famous today.  By focusing on technology out of the gate, Google was able the gain the first movers advantage of getting ahead of the learning curve of search algorithm technology.  Through the learning curve, Google has managed to identify and resources and capabilities necessary to deliver its superior algorithm based search technology (server farms, engineers, etc.).

  • Will the search business become more concentrated? Is search a winner-take-all market?

In the months following the authorship of this case study (2006 and beyond), it was considered that the search game was over and that Google had won.  Still, to date of this writing, Google is considered the dominant and most effective search engine on the market; however, the internet is an ever evolving marketplace.  In 2008, the dominant theme within the world of web technology is Web 2.0.  Web 2.0 has an ever-changing definition, but it generally refers wide use of web technologies in the enterprise and the development of social networks.  Web 2.0 literally encapsulates the network effect; that is, the more users of a web service, the greater the benefit to the installed base of those users.

Through its first mover position, Google has been able to capitalize on its installed-base in generating a strong network effect.  However, new entrants have begun to eek out a slice of Google’s market share for search.  Users are increasingly relying on their social networks, such as Facebook.com and LinkedIn.com, to find relevant information on the web.

Ironically, there is a movement in web technology towards human influenced search, or Semantic search technology.  Semantic search technology relies on the aggregation of human arbiters to rank web pages by relevance, which effectively personalizes a web search; seemingly contrary to the purely computational approach that Google has pursued to date.  Interestingly, Microsoft is experimenting with Semantic search with its U Rank prototype search engine.  This service rewards users for ranking web pages by relevance by providing credits to active users who share their ranked search results with their social network of friends.
One fact is clear moving forward in the market of search; that is, different users search for different reasons.  Some search for commercial reasons, other search for academic reasons; Google effectively captured a broad market of search users utilizing its algorithmic approach. However, there are many new entrants entering the web technology arena, all with the Amazon approach of “get big fast.” Social networking sites Myspace.com, Facebook.com, Twitter.com, and Friendfeed.com are all generating substantial network effects by developing a large installed base and many users are relying more and more on these types of sites for their information, particularly the social website aggregators such as Digg.com and Stumbleupon.com.  Google clearly has the first movers’ advantage with its huge installed base; however, this is not enough to sustain its competitive advantage.  Finally, Google has the opportunity to leverage its installed-base and its track record for innovation to compete in the ever changing technology sphere; nonetheless, there is still room for search, or more generally, information aggregation beyond Google as it stands today.

  • How important is Google’s deal with AOL? How did Microsoft’s bid for AOL’s search traffic compare to Google’s?

Microsoft’s bid was a direct response to Google’s growing dominance in web search and the ad revenue it created.  Microsoft failed in its bid where Google succeeded due to competitive nature of the bid; that is, Google was able to identify the Value Net advantage of partnering with AOL.  Google understood that AOL offered a complimentary service to Google search and that the Value Net of the deal allowed them to offer a premium the generally accepted market-valued of AOL.  The network effect of Google search coupled with their cost-per-impression basis of paid listing demonstrated their ability to generate greater returns because it ensured users would see the most relevant adds first.  Microsoft’s competitive bid for AOL was much less nuanced in its approach to Value Net benefits.  Microsoft was much less interested in creating a win-win relationship with AOL by offering complementary services as it was in creating a joint venture to compete directly with Google, which would inevitably lead to a competitive price war for paid ad listings.