[warning: This is a fairly “duh, I know all this” post for some people. I just wanted to get out an accumulation of thoughts on the topic. The interesting stuff is closer to the bottom. ]
It’s pretty safe to say that Google is the current king of technology and innovation. No it doesn’t have everything figured out and it isn’t even as big as HP, IBM and Microsoft, but it does currently have one of the most ubiquitous product on earth, Google.com.
Competitors and up and comers want to catch some of that Google fire or at least it’s riches. Most of them are trying to beat Google at its core -Web Search. Some of that is out of fear that Google can encroach on their core business and some of it is out of envy of the profits Google created. These are real factors. Real big money is at stake… but…
Google can’t be beat at web search.
But wait!
It doesn’t need to be done!
Beating web search won’t happen with better web search, we don’t need a better way to search web pages or YouTube videos. Google can be beat in business and will be “beat” when the environment is right for the next big shift in info tech.
Consider that no one tech company has managed to be number 1 in more than 1 major aspect of the modern info tech chain.
Server OS is linux/unix
Database is Oracle/MySQL
Enterprise connectivity are the big infrastructure companies
Consumer connectivity are the cable and phone companies
Server hardware is HP, Dell, and Sun
Consumer OS is windows
Browsers are IE and Mozilla
Web server software is apache
Productivity software is Adobe and Microsoft
Web Search is Google
Email is your ISP, business or prefered portal
Social Network is MySpace or Facebook
and so on…
The point is while most everyone chases Google on Web Search (and Search Advertising) they are missing the point that the cost to make a competitive product and maintain competitiveness is just not going to be worth it. Users will always search the web, but by now it’s just like everything else in the digital chain – it’s one of the functions that will steadily grow in use each year but the massive usage and monetization explosion is over. You can see this in Google’s financial trends. Anyone who jumps into the fray at this point is just going to be swept up in the general trend of steady growth. (i.e. the cost of entry is still high, but the upside isn’t high like it was before)
The key to massive wealth generation in technology is to create the next function that users aren’t already using but will need/want as soon as the tools/technology/culture reinforce it.
A classic example is the Operating System.
Microsoft whipped everyone at the consumer OS. However, Microsoft’s tech dominance didn’t come to an end (some will claim it hasn’t ended) because someone built a better OS (even though Apple did in many eyes). OSes all got to a certain usefulness and now they are practically given away (on netbooks, phones, etc.). Few people pay full price for an OS any more because it just is part of the package. The OS isn’t the killer app anymore, no matter who makes it. Microsoft’s dominance was done in by the accumulation of improved hardware, connectivity, great web apps, reliance on non pc devices, web servers, more savvy user bases, open source… literally, the OS just became another low margin part. (yes, I know they still make billions on it, but really it’s not the big margin it used to be and its getting MORE expensive to remain competitive).
Recent Examples of this concept include Social Networking leapfrogging AOL and chatrooms, Twitter and Facebook overtaking IM, search targeted text ads dominating banner ads, timeshifting and on demand doing in TV guides and one time broadcasting…
Google has shown that it can no longer build the Next Thing. It can buy or extend the Next Thing once others have built, but raw creation is not going to happen again at Google. Its web search (and related Ad Sense) business takes most of its energy and contributes 97% of its revenue. Maps, Earth, Picassa, YouTube, etc. etc. are neat, but they weren’t invented or dramatically improved by Google. Sure, Google’s mass in web search made these products runaway hits, but none of these products make Google profits. It’s 20% rule for engineers is legendary, but that 20% has generated products that mostly a revisions on what others have done.
This is true of Yahoo and Microsoft and Apple and HP. And it’s all good. They are incredibly profitable businesses that will continue to generate profits and make strides in their products. They just will never again generate the massive insta-wealth that they did when their core products made a splash in the market. The fact that they are all now established businesses with product, marketing and shareholder obligations keeps a good amount of creative energy tied up in just maintaining the core business. Start ups don’t have these pressures and so they usually make the killer apps.
What’s the next big thing?
One thing that’s becoming clear is that we have so much data (even our data generates data) that just finding data is not going to be enough. We needed web search as soon as the number of web accessible resources outgrew the directory approach. We wanted better social functions when chat rooms and IMs couldn’t give us the disired threaded discussions and access to media. We now have access to millions of scanned books, every piece of video media created in the last 10 years, everything our friends are doing through out the day, all our IM conversations, all the emails we send, every SKU, all academic papers, code, genetic data… etc. etc. Finding is not the issue. Any of us can FIND relevant data. None of the innovations after Google search have been much more than ways to digitize data and provide a way to find it. (Facebook, YouTube, GPS, Wikipedia and so on are just specific implementations of the basic digitize and make findable)
The next problem to solve is DOING something with this data. The technology has to start DOING stuff for us. Not just presenting summaries of options for data or links to more data or a list of more media.
What should I watch? Not, just what can I watch.
What should I buy? Not just what can I buy.
Who should I vote for? Not just who’s on the ballot.
What does life expectancy and cost of health care trends imply and what should I do about it? Not, here is are the latest numbers.
Some might call this artificial intelligence, others call it smart computing, others call it computation. Call it whatever you want. The technology needs to start doing things, not just sorting and filtering. Analyzing, deciding, contacting, buying, reserving and so on. In small ways it does do that. Music playlist systems, spam filters, virus protection, news alerts, tivo, algorithmic stock trading all compute on the data and take action. These are terribly complicated functions nor do they dramatically impact how we live, but they are glimpse of what’s to come.
When you think about advertising (which is what pays for Google’s technology), that’s what it’s about getting you to make decisions and take action. Both the user need and advertiser need come together at the point in which data is sythesized and acted upon. Although a commercial flop, Facebook’s beacon was a daring attempt to bring advertising closer to this vision. Unfortunately for Facebook the user need wasn’t quite there and the implementation didn’t really DO anything other than create more data for users to look at.
To bring it all together – I hope internet innovators stop trying to help us index and find more data. Google and the other providers do that well enough. Personally, I don’t want to spend my time searching for info. I’d rather be creating or doing, not just sifting, browsing, surfing, filtering. And I want to be creating and doing interesting things, not mundane things like scheduling, routing through city streets, paying bills and so on.
P.S. Slightly off topic but relevant if you want to think through why Google can and will be overtaken by another tech company as king of the hill… it’s built on arbitrage. 30% of it’s revenue comes from Ad Sense ads it runs on other sites. However, most of those other sites generating that 30% get 50-80% of their traffic from searches on Google leading to their pages. Facebook, MySapce and Wikipedia are the rare exceptions that don’t need Google’s traffic and don’t generate big revenue (Facebook and Wikipedia don’t carry Google Ads at all and it pisses Google off). This is unsustainable. The marketing is just stuck for now ituntil advertisers demand more than tiny text links on mostly bad web pages. For now, that’s the best way to advertise online. It won’t stay that way. The banner ad gave way to the search ad. There will be something else. Even if it doesn’t replace the search ad, it will chew into its profitability.
Worse though is that the majority of the google ads are purchased by professional arbitragers. SEM firms, ad agencies, traffic specialists. They know how to buy clicks on google for .20 and charge advertisers/clients 1.00. As the tracking tools get better and more clients increase their knowledge, this scheme will breakdown. The prices for advertising are going to come way down making the arbitrage game very difficult. Without professional arbitragers playing on google, Google will lose a lot of revenue.
You can uncover this for yourself. Trace when Google’s revenues shot through the roof. It will coincide with them releasing ad features like “keyword replacement” which allowed big advertisers to insert the search keyword into generic copy. This meant that millions of search ads went online that really weren’t all that useful, but they had the right search keyword in the copy. You can see this at play today when you search for bizarre keywords and you’ll find and Amazon.com or Ebay ad. Click on it and see if there’s a real page there. Or consider an advertising like the one in this article. The worst possible scenerio – a professional arbitrage outfit that does reverse mortgages. They do $100,000 a month in ad words with Google. Do we really think this is going to last?
You can also correlate the google revenue growth with the advent of SEO firms who put up tons of worthless pages and helped legit publishers put up tons of worthless pages.
Lastly, because of how important Google’s traffic is to many online businesses, the general functionality of the web is less than it could be because everyone tries to make their pages Google search friendly. Google has actually significantly stunted the growth of useful web functionality. However, that trend is reversing with runaway, non Google supported successes like the iPhone, Facebook, Wikipedia, widgets, twitter and wordpress. Google is very slowly losing it’s grip as the only way to get traffic. And with experiences like Facebook and Twitter we’re seeing better functionality.
I’m not holier than thou. I’ve made plenty of money playing with Google traffic. I use Google non stop personally. It’s not going to go away. It’s not going to one day be running at a loss. It’s an essential company providing much needed and wanted services. My point in this post and the PS is that the margins and valuation they have isn’t sustainable at all. 2009 will showcase some of cracks as the ecosystem they’ve helped create begins to morph under the drastically different world we live in. This isn’t like after dotcom crash. This is bigger and Google’s one revenue stream is not market proof. It benefited from Google.com being the only game in town for finding stuff and Ad Sense being the only reliable source of paid advertising online. Advertisers aren’t going to pay the same amount for ads AND Google’s dominance on web traffic isn’t going to remain.
Social Mode 