Posts Tagged ‘Google’

What’s the biggest threat to Google?

Thursday, October 22nd, 2009

Following from our previous article (see Google vs Rupert Murdoch- who will win?), we will look at what is the biggest threat to Google. For those who are interested in investing in the technology sector, this is one of the things to watch out for in your business analysis because it will have major flow-on implications on other technology and media businesses in the long run. For those who are thinking of starting an Internet/technology business, it will determine which sides of the dividing line (information as commodity vs free and expansive information) that you will be supporting (or switch sides to).

For starters, Microsoft’s new search engine, Bing, is not the biggest threat. Bing and Yahoo! are there to keep Google competitive, but they don’t pose a long term strategic threat to Google. So, assuming that information will remain free and abundant for the foreseeable future, what can deal a long term mortal blow to Google?

Remember, in our previous article, we wrote that

… information (collectively) is free and abundant, but consumers’ attention (for each individual information provider) is scarce.

And here is the beauty of Google’s business model- it sells access to consumers’ attention.

For a rival to erode the long term competitive advantage of Google, it must be able to:

    1. Steadily gain more and more attention of consumers over the years
    2. Shut out Google from what gained the attention of consumers

    Any rival that can fulfil these two conditions will undermine and erode Google’s capability to sell access to consumers’ scarce attention. Microsoft’s Bing may be able fulfil the first criteria, but it cannot fulfil the second one. After all, the search engine robots of both Google and Bing trawl in the same playground of freely available information.

    But there’s a potential rival in the horizon that fulfils both conditions: Facebook.

    At first glance, Facebook and Google seem to compete in two different market space. Some may argue that they complement each other. But there’s one problem for Google- its search engines cannot penetrate through the wall of Facebook and index the consumer-generated content. With each of the 300 million Facebook users who can potentially interact with each of the other 300 million users (via status updatess, posting and commenting of pictures, engage in forum discussions, play games and so on), plenty of content are generated everyday that is outside the view of Google.

    Then there’s a disturbing trend that may perhaps be happening right now- as people spend more and more time in Facebook, more and more ‘Internet’ activities are migrating towards it, which in theory can make it an ‘Internet’ within the Internet (we will call the former “Facebook world” and the latter “public Internet” from now on). For example, as Facebook contains more and more interactions between people, more people are using Facebook messages in favour traditional emails to communicate with each other. We can imagine a possible future where Facebook messages supplants traditional emails. Also, it is already possible to host forum discussions at Facebook groups within Facebook world, which in theory, can replace public Internet forums. Software developers can also develop Facebook applications, which in theory, can function as services (in Facebook world) normally found in the public Internet (which is the domain of Google). For example, what is stopping Facebook to host blogs, polls, newspapers, forums and other content inside Facebook world?

    Facebook is also intruding into the public Internet. Through its Facebook Connect feature, people can bring their Facebook identity into the public Internet to take part in discussions, which can then be tracked by Facebook. This feature serves to draw people from the public Internet into Facebook world.

    Obviously, Google has already seen this threat as you can see from this article. We believe that it is no coincidence that Google’s next big idea product, Google Wave, is a competitive threat to Facebook’s social media function.

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    Meanwhile, for those interested in trading the technology stocks, our friends in Market Club has this to say about Nasdaq- Is the NASDAQ Now in Thin Air?.

    Google vs Rupert Murdoch- who will win?

    Tuesday, October 20th, 2009

    We all know that News Corp’s Rupert Murdoch hates Google. Six months ago, he launched an attack on Google,

    Rupert Murdoch threw down the gauntlet to Google Thursday, accusing the search giant of poaching content it doesn’t own and urging media outlets to fight back. “Should we be allowing Google to steal all our copyrights?” asked the News Corp. chief at a cable industry confab in Washington, D.C., Thursday. The answer, said Murdoch, should be, ” ‘Thanks, but no thanks.’ “

    Google, with its huge armies of software robots and off-line human agents (e.g. the book scanning project, Street View), is like a huge vacuum cleaner that tries to suck in the entire world’s freely available information in order to index, analyse and categorise them.

    The end product of their effort is a wealth of meta-information (information about information) and information in which they grant access to the masses through their famous search engine (and other lesser known information services). In this information saturated world, the divide between the haves and have-nots lies in the line between those who are information-rich and those who are information-poor. Google, with their wealth of meta-information, is the gate-keeper for those who wants to cross from being information-poor to information-rich.

    Paradoxically (counter-intuitive, we would say), unlike conventional businesses, Google does not charge for access to their meta-information (who pays when doing a Google search?). For example, a large percentage of you reading this blog are brought here free-of-charge by Google’s search engine. Interestingly, you may notice that Google provides all kinds of free services (e.g. Gmail, Google Maps, Google Doc, Picassa, Google Reader, Blogger, YouTube, etc). So, how on earth does Google makes its money if it is giving things aways for free?

    To understand this paradox, we have to appreciate the entrenched position taken by two diametrically opposed camps in the digital world. We will requote Graeme Philipson from an article we wrote three years ago (see Analysing Web 2.0 businesses: Shoutwire vs Digg case study),

    We are not even a decade into the digital millennium and already the battle lines have been drawn. Two camps have emerged, each with widely divergent views on the nature of information, who owns it and how it should be distributed.

    The forces are at this stage evenly matched, and it is not apparent from the day-to-day squabbling which side will emerge victorious. But one side must, because their views are diametrically opposed and can?t coexist in the long term.

    On one side are those who believe information is a commodity that can be owned, bought and sold, and its distribution controlled. This naturally leads to a restrictive view of information. This group comprises most of the music, publishing and film industries, and most hardware and software companies.

    On the other side are those who believe that information by its nature should be free, and that its distribution should be uncontrolled. This viewpoint naturally leads to an expansive view of information. This group comprises the open software movement, a few far-sighted computer companies (Google is the best example, but also includes heavyweights such as IBM and Sun), and most consumers.

    Naturally, businesses that deal with digital information (e.g. data, music, software, movies, etc) will take the view that information is a commodity. Famous companies in this camps include Microsoft, Apple and as expected, Rupert Murdoch’s News Corp.

    On the other side, most who belong there (i.e. those who believe in free information) are not profit maximising businesses- they consist mainly of consumers (of course, who do not like free information, music, movies and software?) and non-profit open-source movement. Very few profit maximising businesses belong to this camp- the big names include IBM, Sun and the 600-pound gorilla, Google.

    So, at the very heart of Google‘s business model is the idea that information is free and abundant. Think about it: if information becomes a scarce commodity, Google’s business model will collapse- its ubiquitous search engine will die a natural death as it will not be able to index restricted information. Without its search engine, Google’s monopoly will cease and its revenue will dry up. That’s why Rupert Murdoch’s attack on Google is akin to trying to drive a stake at its heart.

    Now, let’s take a look at current reality. It’s true that most information is free (at least for the non-specialised ones that the masses are after). This blog that you are reading now is an example of free information. It is also true that there are too much information available than you can consume. For example, there are millions (okay we made that number up, but you get the drift) of investment blogs that can supply everyone with ideas, news and regurgitation of facts and figures and are vying for everyone’s attention.

    So, here comes the crucial point to understand: information (collectively) is free and abundant, but consumers’ attention (for each individual information provider) is scarce. Actually, each feed of one another in a positive feedback loop- to attract the attention of consumers, businesses are forced to give more and more information away, which in turn causes information to be more abundant (collectively), which in turn makes consumers’ attention even more scarce (for each individual businesses), which forces businesses to give yet even more information away.

    And here is the beauty of Google‘s business model- it sells access to consumers’ attention. For example, at any Google search results, you will find paid advertisements on the top and at the side. By using Google’s search engine, your attention is captured by Google. Then as you click one of the search results, you may stumble into say, this blog site. Here, we have captured your attention that we sell to advertisers, either directly or through Google. So, why is Google giving away so many free services (many of which are integrated with each other), so much so that you can even organise your life around it? The short answer is that it is trying to monopolise more and more of your attention within its domain.

    Now, let’s look back at Rupert Murdoch’s plan of bringing paid content into his agenda. Will his plan work? By introducing paid content, News Corp will lose the attention of millions of consumers who are not willing to pay. Not only that, the Google search engine will no longer be able to index and analyse News Corp’s information. That means it will lose even more consumers’ attention through the loss of search engine traffic.

    In a world where information is free and abundant and attention is scarce, that attention vacuum vacated by News Corp will be filled quickly by other information providers. In fact, this will be windfall for them and a mortal blow for News Corp. If News Corp attempts to make up its loss of attention by improving the quality of its information tremendously, no one will know about it because Google will likely to retaliate by imposing an information blackout on News Corp.

    Analysing Web 2.0 businesses: Shoutwire vs Digg case study

    Thursday, December 28th, 2006

    The advent of the Internet heralds the Information Age, which brings in radically different ways of doing business from the preceding Industrial Age. Unfortunately, the Information Age is relative new and many business people have yet to fully grasp and understand the implications of this paradigm shift. With the proliferation of Web 2.0 businesses (e.g. Digg, Youtube, Google, etc), how are we to comprehend the significance and viability of each one of them? Hence, we will look at the art of analysing Internet businesses for their investment merits, using Shoutwire as a case study. For today?s topic our recommended reading is New Rules for the New Economy, which among the books in the Recommended Books section.

    Before that, let us give a quick introduction to the idea of community-based news. The philosophy is very simple. An individual in the community will submit news stories to be voted (in favour of or against) by the rests of the community. Through voting, the community express its collective view on the value of the submitted story. Popular stories will be promoted to higher visibility whereas unpopular ones will be demoted to obscurity. Thus, the power of the community?s collective wisdom is harnessed to do the bulk of the dirty work of promoting, editing, filtering and censoring. This is a very powerful concept. A few web businesses emerged to implement this concept. To name a couple: Digg and Shoutwire.

    However, not all businesses are created equal. Some will survive and others will wither and eventually die. In this article, we will look at Shoutwire as a negative example of how not to do a web business. As Graeme Philipson said in this article, The coming digital showdown:

    We are not even a decade into the digital millennium and already the battle lines have been drawn. Two camps have emerged, each with widely divergent views on the nature of information, who owns it and how it should be distributed.

    The forces are at this stage evenly matched, and it is not apparent from the day-to-day squabbling which side will emerge victorious. But one side must, because their views are diametrically opposed and can’t coexist in the long term.

    On one side are those who believe information is a commodity that can be owned, bought and sold, and its distribution controlled. This naturally leads to a restrictive view of information. This group comprises most of the music, publishing and film industries, and most hardware and software companies.

    On the other side are those who believe that information by its nature should be free, and that its distribution should be uncontrolled. This viewpoint naturally leads to an expansive view of information.

    It would be clear from this article that which camp Shoutwire belongs to.

    First, we look at their submission policy, which in our view is detrimental to the long-run viability of their business: ?Remember that ShoutWire is primarily a news site and submissions which have little or no news value are more likely to be deleted than those that are news. It might seem like we delete a lot of stuff, but remember that ShoutWire is your site after we give you our brand of quality; besides that, all links that make the front page are decided by ‘you’. We?re just trying to ensure that the selection of links you have to choose from when looking for stories to shout is of the highest possible quality.?

    We have quite a number of criticisms on their submission policies because they contradict the original philosophy of having a community-based news. On one hand, they deemed that the ?the front page are decided by ‘you’?, yet on the other hand, they play the role of police and arbiter in deciding which news are worthy of be voted by the community. Our views are:

    1. Their staffs perform the role of the police and arbiter. We see a significant weak point in such business policy. Firstly, staff members are people who have their own personal bias, prejudice, predisposition and perspective. This implies that any news that can make it to the voting gallery are already ?censored?. That is why some people think that Shoutwire has an ?agenda??their very policy of ?management? (in the name of quality) doomed their stories to possess a slant.
    2. Such ?management? (censorship) implies that subjective judgements of their staffs will inevitably override some of the collective viewpoints of the community. This defeats the entire purpose of having community-based news in the first place.
    3. At this point in time, they have enough staffs to play the roles of police and arbiter. But how can they possibly continue to do so without being overwhelmed in the long run when the number of submitted stories grows in magnitude?
    4. There is no way for Shoutwire staffs to be an expert in all fields of human knowledge. As such, how is it possible for them to be competent judges on the quality of technically specialised stories? For example, this site holds contrarian investment viewpoints. Does that mean we are conspiracy theorist lunatics? Or are we independent thinkers? The only way to tell the difference is to study the merits of our arguments, reasoning, logic and the origins of the school of thought that influence us. A person without specialised technical knowledge is in no position to make such a judgement.

    We can see that Shoutwire?s insistence in controlling the quality of their news stories will be the cause of their decline in the long run. The whole point of having community-based news is to harness the collective power of the community to do the quality control. As such, do you think they have a cause to worry about angry teenagers, conspiracy theorists, spammers, advertisers, parasites, self-promoters and so on from ruining the quality of their stories? Such policies of theirs weaken the whole philosophy of their business model in the first place.

    Next, we look at the possible long run result of Shoutwire and their rival, Digg. As Kevin Kelly?s book New Rules for the New Economy says:

    Mathematics says the sum value of a network increases as the square of the number of members. In other words, as the number of nodes in a network increases arithmetically, the value of the network increases exponentially.* Adding a few more members can dramatically increase the value for all members.

    By frustrating their users through deleting their submissions and locking their accounts, Shoutwire is driving their users away to their rival, Digg, which adopt a more laissez-faire and liberal approach. As a result, Digg will grow more and more in size as their members and the number of news stories increases. This in turn will increase the value of Digg?s network exponentially (e.g. more members means that there will be more pair of eyes ensuring the quality of stories), which in turn will attract even more members and news stories submission. That in turn will further increase the value of Digg?s network exponentially. The curious nature of the network gives rise to what is called a ?natural monopoly? in economics.

    So, if Shoutwire continue such a self-defeating policy, we believe that the long run feasibility of their business will be put in serious question. So, after reading this article, if you are given a choice to invest in either Digg or Shoutwire, which one will you choose?