Saturday, September 13, 2008

Omnigoogle supplants Microsoft

As part of the celebrations this week for Google’s 10th birthday, a number of commentors have been doing retrospectives on the firm.

One of the more interesting retrospectives is by Nick Carr, the former executive editor of Harvard Business Review. Carr is best known for arguing that “IT doesn’t matter”, i.e. IT is a commodity that rarely provides opportunity for competitive advantage.

In his blog posting at the beginning of the week, Carr makes a number of important observations. One is that Google’s ad-based model encourages their plan for perpetual betas. In other words, if they were selling software they couldn’t sell a beta, but if they’re selling eyeballs to advertisers then there’s no disincentive against betas.

More fundamentally, Carr (correctly) draws the parallels between Google and Microsoft. Both make money off of cost reduction and expanding the supply of complements:

As more and more products and services are delivered digitally over computer networks — entertainment, news, software programs, financial transactions — Google’s range of complements expands into ever more industry sectors. That's why cute little Google has morphed into The Omnigoogle.

Because the sales of complementary products rise in tandem, a company has a strong strategic interest in reducing the cost and expanding the availability of the complements to its core product. It’s not too much of an exaggeration to say that a company would like all complements to be given away. If hot dogs became freebies, mustard sales would skyrocket. It’s this natural drive to reduce the cost of complements that, more than anything else, explains Google’s strategy. Nearly everything the company does, including building big data centers, buying optical fiber, promoting free Wi-Fi access, fighting copyright restrictions, supporting open source software, launching browsers and satellites, and giving away all sorts of Web services and data, is aimed at reducing the cost and expanding the scope of Internet use. Google wants information to be free because as the cost of information falls it makes more money.
Google’s business model is just Microsoft’s, only updated and done better:
Just as Google controls the central money-making engine of the Internet economy (the search engine), Microsoft controlled the central money-making engine of the personal computer economy (the PC operating system). In the PC world, Microsoft had nearly as many complements as Google now has in the Internet world, and Microsoft, too, expanded into a vast number of software and other PC-related businesses - not necessarily to make money directly but to expand PC usage. Microsoft didn't take a cut of every dollar spent in the PC economy, but it took a cut of a lot of them. In the same way, Google takes a cut of many of the dollars that flow through the Net economy. The goal, then, is to keep expanding the economy.

God or Satan? When you control the economic chokepoint of a digital economy and have complements everywhere you look, it can be difficult to distinguish between when you're doing good (giving the people what they want) and when you're doing bad (squelching competition). Both Google and Microsoft have a history of explaining their expansion into new business areas by saying that they're just serving the interests of "the users." And there's usually a good deal of truth to that explanation - though it's rarely the whole truth.

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