Why search competition isn't the point

This morning, in response to my Microhoo: Corporate Penis Envy? piece, Michael Arrington wrote The importance of a competitive search market.

First, let’s be clear. I agree with Michael that competition is a good thing, and that there’s a real risk that, absent competition, Google will become “evil,” as “absolute power corrupts absolutely.” Nonetheless, I thought I’d take a few moments to explore why Michael got it wrong, despite the fundamental appeal of his assertion, especially to people who grew up learning the lessons of the Microsoft desktop monopoly.

  1. To focus on search is to miss the big picture. Web 2.0 (or whatever the fullness of the Internet Operating System ends up being called) is far bigger than search. Yes, search is currently the most valuable and monetizable Web 2.0 application–or perhaps better-named, subsystem. But look back at 1984: Lotus was bigger and more valuable than Microsoft ($153 million in revenues to Microsoft’s $100 million, and growing faster — Lotus had tripled in size, while Microsoft had only doubled.) But we now know that Microsoft had the stronger position. As I’ve said in my Web 2.0 talks from the very beginning, a platform beats an application every time.

The key question is what kind of platform we’re collectively building.

There is strong evidence that the platform that’s emerging is more like Linux than it is like Windows. That is, no one player is going to own all the pieces. But that could change if someone owned enough of the pieces that everyone else became dependent on them. So I’d be much more concerned about a single player rolling up unrelated and complementary pieces of the larger internet OS till they owned critical mass in multiple areas than I would be about a single player owning a best of breed application in one area or another.

The sooner we start getting serious about interoperability between best-of-breed services (the next step up from first generation mashups), the safer we’ll be against a single dominant player turning their subsystem into the “one ring that rules them all.”

  1. I think Google understands the need for interoperability better than Microsoft. When Eric Schmidt says “don’t fight the internet,” I believe he means it. Google seems to be doing their best to balance competitive advantage with giving back and the overall health of the internet ecosystem.

  2. Even if Google does achieve true monopoly status, that monopoly will be short-lived. Just as Microsoft stumbled at what appeared to be the peak of its power, so too will Google. The pace of technology is increasing, and it’s rare for a company that led with one generation of technology to also win at the next. Take mobile, as hopmojo notes, or as I wrote myself in Static on the Dream Phone, mobile is going to be a make-or-break transition for Google.

  3. Many Web 2.0 applications tend naturally to monopoly, precisely because they harness network effects. In fact, one of my short definitions of Web 2.0 is the design of systems that get better the more people use them. Network effects apply to the Web 2.0 system as a whole as well as to any individual subsystem. In What is Web 2.0?, I wrote:

    The race is on to own certain classes of core data: location, identity, calendaring of public events, product identifiers and namespaces. In many cases, where there is significant cost to create the data, there may be an opportunity for an Intel Inside style play, with a single source for the data. In others, the winner will be the company that first reaches critical mass via user aggregation, and turns that aggregated data into a system service.

    The critical point is whether or not, having achieved critical mass, you take the next step and turn that aggregated data into a system service. If Google doesn’t do that, and the rest of us have done their homework, then someone else will beat them in search because the network effect of the entire system will be greater than the network effect of the search ecosystem alone. If Microsoft understood this, they’d be competing with Google by making search services that are more open, re-usable and re-deployable than Google’s search services. Since they aren’t operating this way, they ought to throw in the towel.

  4. We’re still so early! There’s so much yet to invent. Take what Amazon is doing with S3 and EC2. They broke new ground and took a leadership position in an emerging category, while A9, their attempt at incremental innovation in search, got them nowhere. If Microsoft and Yahoo! want to compete with Google, go where they aren’t!

True search innovation will come from something that doesn’t look like search. Google’s video search efforts foundered, while YouTube took off. (Google was smart enough to buy YouTube quickly.) Facebook took off in an area that could be characterized as “people search.” Tweetspace is becoming a hidden transmission channel for information, one that Google doesn’t yet search. Everything Microsoft (and other explicit search competitors, including most specialized search startups) is incremental innovation. Google’s search dominance will be toppled by a disruptive innovation that changes the game, not by playing catch-up at the same game. The challenges that keep Google on their toes, innovating in search, will come from outside the current system.

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