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Understanding Google

Over the weekend I read Bill Gurley’s post from last week titled The Freight Train That is Android, courtesy of a pointer on AVC.  It is a brilliant post that made sense of Google’s strategy for me in a new way. 

Previously it had seemed to me that Google’s strategy was largely designed to find significant additional revenue lines to compliment and lessen their dependence on search.  You might call this ‘the Microsoft strategy’ as it copies Redmond’s move from being dependent on one great business (Windows) to multiple product lines (Windows, Office, Xbox, enterprise).  The Google parallels are of course search and Adwords as the original business and Android, maps, Chrome, enterprise, and various social products as the diversifications.

Gurley’s point is that there is an additional logic beyond diversification which underpins Google’s strategy – a defensive logic of protecting their search business.  He cites Warren Buffet’s quote on castles and moats to explain the point:

One of Warren Buffet’s most famous quotes is that “In business, I look for economic castles protected by unbreachable ‘moats’.” An “economic castle” is a great business, and the “unbreachable moat” is the strategy or market dynamic that heightens the barriers-to-entry and makes it difficult or ideally impossible to compete with, or gain access to, the economic castle. Here is a great post from the 37signals blog a few years back that walks through several different examples of potential moats.

With the exception of enterprise each of the diversifications I list above serve to protect Google’s search business:

  • Android is all about controlling search on smart phones
  • Maps is all about local search (mobile and desktop)
  • Chrome is attractive because controlling the browser means controlling the default options for search

Social is the one area where Google has consistently tried and failed to make inroads and once again that is about search, although in an indirect manner.  Social threatens Google’s position in search in two ways, firstly by providing an alternative method of discovery in the form of items liked or recommended by friends, and secondly because the data created by sharing, liking and commenting can be used in search algorithms to produce better results. Google’s  announcement last week of the +1 button is their latest attempt to protect their search franchise from Facebook.

So far Google’s strategy has yielded a lot of innovation and great products for consumers.  Over time however, if their moats and castles continue to make them stronger the innovation is bound to wane, as it did at Microsoft.  Some would argue that decay has already set in with Google’s core search product.  If innovation does start to wane then the way Google gives away products to protect their position will start to look anti-competitive in the same way as Microsoft’s bundling of Windows Media Player and Internet Explorer with Windows did.

Whatever the medium to long term future prognosis for Google’s rate of innovation right now they are crushing it with Android and maps and looking pretty good with Chrome, and all of these platforms are creating great opportunities for startups, which makes this a tough post to conclude.  I wouldn’t in any way want Google to stop what they are doing today – not least because we all need Apple to have competition in the smartphone world – but when I think about their innovation having a defensive logic I get a foreboding sense of storm clouds building on the horizon.

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  • http://iandavis.com/blog Ian Davis

    I agree, the whole reason for Google to get into the operating system, browser and spectrum arenas is a defensive play to counter threats from the iPhone and similar platforms. Google’s strategy is predicated on universal access to the web so they need to avoid being mediated by the likes of Apple or network providers.

  • http://twitter.com/picturetheuk James Penman

    Hi Nic,

    That’s an enigmatic final sentence. What do you mean? Most of Google’s recent moves seem to be very impressive and I remember a post you wrote about Google partially regaining its mojo. The Panda/Farmer update is massively more accurate from results I’ve seen here in the UK which seems to be evidence of this. Are you suggesting that a defensive logic will lead them down the path of, say, Apple towards a more closed outlook? Interested to learn how you think the theory of the above will play out in practice for a start-up. Cheers.

  • http://www.theequitykicker.com brisbourne

    Hi James – exactly, I think there is a very real risk that over time Google favours its own products within its platforms which will make life difficult for (some) startups in and around their ecosystem and ultimately reduce innovation. Right now though everything that Google is doing is positive.

  • http://twitter.com/picturetheuk James Penman

    Cheers Nic. Yes, already Google clearly moving through the verticals and favouring their products. ITA for travel and BeatThatQuote for financial products etc should be interesting. Mind you, whilst they kept shopping they took property out so I guess there is hope even if trying to compete on a tech level. Zoopla seems to have prospered in a vertical.

    April Fools post very good btw :)

  • http://www.theequitykicker.com brisbourne

    Tks :)

  • David C

    As well as the famous paper by Page and Bryn that described the Page Rank algorithm central to Google search, Google has published other papers describing the Google file system and the architecture of the data centres used by Google.

    These provide a means of streaming data with greater responsiveness, more scaleability and better economy, than is achieved by any competitor. Though it was first used in search, it underpins every service that Google has offered subsequently.

    Being able to deliver data on an industrial scale to users faster and cheaper than anyone else can is an edge to be reckoned with. It happens that search and related advertising are the services first built on this infrastucture, but that’s scarcely relevant. Just watch the rate at which Google Earth pours data to your workstation, and you will see that it exceeds anything called for by a simple text-based search result by a considerable margin.

    This capability is exactly what is needed to serve video on demand on a global scale, and it’s no accident that Google owns YouTube. The value of Google in my view is that it will own the world’s TV infrastructure in 20 years time, complete with the advertising that comes with it. In a sense, Google has already managed this trick: a typical Western teenager spends more time in front of YouTube than in front of network tv broadcasts. It’s just a matter of time before that is true of the majority of the population.

    We are all trained by business schools not to get hung up on a technology, but to think in terms of providing a solution to the customer’s underlying problem. For Google, that model leads in the wrong direction. For Google, the technology is the heart of the matter, and the myriad of things it can be applied to are a relative detail. It is for these reasons that I think that descriptions of Google in terms of search, or advertising, or Android, all miss the point.

  • http://www.theequitykicker.com brisbourne

    Hi David – Google is undoubtedly a technology power house, and that is a great strength, but I wouldn’t underestimate the challenge of finding commercially attractive applications of that tech outside of their existing products – e.g. in TV. There are a myriad of value chain and practical technical details which can bedevil even the largest businesses, particularly those which aren’t naturally good at partnering.

  • http://www.brandignity.com Brandignity

    I would really like to see Google make a large footprint in the social space but their “layers” have not even come close to sticking around in the web community. The +1 button is a nice attempt but it has to go further now. Maybe their revamp of the Google profiles will make way for a nice new robust social platform.

  • http://www.theequitykicker.com brisbourne

    Not many companies have cracked social and Google is having a hard time joining the list. +1 is hampered by their lack of social graph