Winner Gives All
Rich Skrenta’s analysis of Google’s winner take all positioning in search and advertising is a highly recommended read.
He helps value the start page and assumes that low switching costs enabled them to build a defensible brand.
Zero switching costs lead to a winner-take-all market for the leader. Even a modest initial lead will snowball until majority market share is reached and maintained. This is because, faced with a choice between two products, in the absence of switching costs users will choose the better one, even if it is only slightly better.
While I think this helps explain how Google became the search leader, I’m not sure the rule universally applies. When Google was young and small it innovated faster. Inevitably, despite their best intentions, as a larger company they will respond to changing consumer needs that drive better products. Small companies will always have time on their side, when you have enough of them.
When a switching cost is just a link, it is pretty damn cheap. But still, I even ran into a VC recently that couldn’t copy and paste one. Tools for linking are getting better, but what is driving this cost through the pavement is the army of link literate promiscuous bloggers and wiki editors. Especially when the market for attention favors those with the new.
The new lock-in tactic for raising switching costs is attention metadata. And the only things that keep it in check are privacy concerns, ownership, portability and all those things Steve Gillmor waxes poetic about.
Rich goes on to advise Yahoo! to capitulate on advertising:
Yahoo should accept Google’s search and monetization dominance. Yahoo will not recover the search application, and browse views are not competitive and cannot be made to be so. They should do a deal with Google for Adwords/Adsense across their entire network, as Ask Jeeves did. They should be able to obtain at least an 85% rev share; that would take them from $0.10/search to $0.17, a 70% increase in search revenue overnight.
That’s an extra $1.5B or so of yearly revenue being left on while they try to build a copy of Google’s revenue platform.
I don’t think they should give in just yet. Especially as metrics may shift to value where people spend time and how.
In explaining Google’s near anti-trust dominance, he suggests Microsoft has no more advantage on the Net than IBM did with the PC:
Stodgy old IBM was perfect to selling to Fortune 1000 CIOs and the government, but wasn’t configured to deliver PCs to consumers. The winner of that game was Microsoft. Surprise…the winner of the PC market didn’t actually sell PCs! How could IBM have known…
Which is the second place I might disagree with Rich. Could the winner of the search or advertising game be in an entirely different business? Asymmetric competition helped get Google where they are, but it cuts both ways. I think the answer to this question is yes, but you may have just a good answer to why.
If I’m wrong, then Rich has provided us with a first draft of where anti-trust should be paying attention in a market for attention.
Rich says Google marks the third age of computing, after IBM and Microsoft. When we enter into a fourth age, could it be man vs. machines?
He also writes Ross Mayfield’s Weblog which focuses on markets, technology and musings.