In the light this BusinessWeek article published 2 1/2 years ago, it's impressive (if a bit premature) to see Google's founders now touted as billionaires in Forbes. Back in October 2001, Google ads were not syndicated on other sites, it was not even clear whether ads or intranet search appliances would fuel the company's growth, and it made a few dozen million dollars of yearly revenue.
Congratulations to Google for building this big castle on top of what has become a (relatively) big hill. It took guts to know GoTo was the model to emulate, when everybody else was switching to more intrusive ad formats and bloated user interfaces. I've pondered the thought for years though, and I still don't see what's Google's defensible competitive advantage. To unlock the grip Ebay and Microsoft have on their respective markets, you need to attract two communities at once (buyers and sellers for the former, users and developers for the later). It's a chicken and egg conundrum for wanna-be competitors, and the incumbents can screw up in a lot of ways before serious competition will arise.
To replace Google on the other hand, you "just" need to attract users and advertisers will follow. Not a small feat, but still orders of magnitude easier. I gave the new Yahoo a try and won't switch just yet because their toolbar is not quite as good, which seems like a trivially easy thing to fix, and as a user it wouldn't be too much of an effort to change my habits (tremendously less than, say, changing operating systems or office suites). Yahoo's search results themselves look competitive, so it's already 80% there. (Then, like Brazil, maybe Yahoo has a bright future in front of itself and always will).
The consequence is, Google needs to keep executing better than the competition to stay on top. It's how it got there in the first place, and its analysis of the gap left in the search market back during the portal wars was spot on. It also took a long while for its competitors to acknowledge the obvious. However, for the last year the company has increasingly looked overstretched and unfocused. Where else can you let services stay in beta for more than a year that don't even attempt to make money for you? Why was Froogle, launched in December 2002, allowed to miss the 2003 holiday season? Where's the moolah in news? When is the API going to be more than a nice toy? How is Blogger contributing to the bottom line? Is Google Answers ever going to generate more than pocket money? Couldn't Zeitgeist be more than a PR tool? Yes, AdSense recruited 150,000 sites within less than a year, but how many are making any kind of money? In many cases Google doesn't even seem to be trying to monetize its services.
Last year minor improvements such as stemming were introduced, but the big challenge seemed to simply stay as relevant and fight spamdex. Though we can't know for sure, I'd bet the latest index grew less quickly than the web at large. It went from 2.5 billion web pages in the summer 2002 to 4.3 billion pages today. Come on, just a few buddies and I have probably added 100,000+ pages to the web during that timeframe. Seems we have a dark matter problem here: it's out there but it's not indexed.
Marc Andreessen, Netscape, 1997:
"Browsers will reduce Windows to an unimportant collection of slightly buggy device drivers"
"I think there are a lot of liabilities in acquiring Microsoft."
Of course the people who run and fund Google know all this, they don't need Wired, let alone me, to spell it out. My point is, the vibe coming out of Google those last 12-15 months has been increasingly unhealthy. Not only is it never good to be smug, but it's even more dangerous when you don't have any real structural advantage to defend your business. What puts me ill at ease is the discrepancy between the lack of a barrier to entry to Google's market, and its carefree if not arrogant attitude. Here's what it comes down to:
- There's actually a barrier to entry but I don't see it. Please enlighten me.
- There's no barrier to entry but Google's tremendous success blinded their leaders and they're convinced otherwise. Seems unlikely, but not impossible.
- There's no barrier to entry, Google knows it but it doesn't care because it thinks it will remain a moving target thanks to better focus and execution. Well, guys you'd better get your act together. If Microsoft chooses to go after search like it went after file and print, email and database servers, expect BIG trouble (ask Novell, Lotus and Oracle respectively).
- There's no barrier to entry, Google knows it and it doesn't care because it thinks its market is too small and not core enough for Microsoft to focus and execute competitively. Think Money vs. Quicken, IIS vs. Apache. If the major threat is just Yahoo, that can be taken care of.
- There's no barrier to entry, Google knows it and it doesn't care because you're going to buy their stock like crazy, and by the time its bubble bursts, which won't happen overnight because the business is going to keep growing for a while, VCs and founders will have cashed out.
The big forthcoming liquidity event is going to put the structure under pressure. We'll know quickly whether this thing was built to last or to flip, but my hunch right now is it's the later, which would be a shame and a huge disappointment, if not a disillusion for many (some people apparently think Google is a different class of company). At the very least, I expect a huge shakedown in Google's project portfolio with most non-core services terminated at some point.
02/28/04 update: David Galbraith: The Google myth.
03/02/04 update: Forrester: Google's soft spot.
