Understanding Google
Any understanding of Google as a business has to begin, I'm convinced, in the idea of complementary goods. In The Google Enigma, an article in the new issue of Strategy & Business, I argue that the wide scope of Google's interest and activity is a natural …
Context & Ripple Effects
Nicholas Carr has been circling this question all year: his Rough Type post on the five Google products argued in December 2006 that the company's output looks scattered until you find the unifying thread, and CNN ran earlier speculation in February 2006 about where Google might go next. The new Strategy & Business essay, 'The Google Enigma,' finally supplies the frame: complementary goods.
The frame arrives at a crowded moment for Google announcements — a My Maps feature letting users publish custom maps, a planned consumer service to store users' files on Google's drives, a renewable-energy R&D group with the stated goal of making clean power cheaper than coal, and an Open Handset Alliance that has signed up more than 30 companies for open mobile development. Read as a product portfolio, these are unrelated; read as complements, they are one strategy.
First-order effects
- Google's planned consumer file-storage service puts its servers in direct competition with Microsoft's desktop franchise, and the analysis argues it will accelerate the shift toward Web-based computing.
- The week's other moves — My Maps, the renewable-energy initiative, the Open Handset Alliance — stop looking like diversification and start looking like deliberate investment in goods whose cheapness expands overall Internet activity, the market Google's advertising monetizes.
Second-order effects
- Microsoft faces pressure to defend paid, installed software against free, ad-funded Web substitutes hosted by its rival, since every function Google commoditizes removes a revenue line Microsoft depends on.
- The 30-plus members of the Open Handset Alliance signal that carriers and handset makers would rather join Google's open mobile platform than bank on proprietary stacks, shifting alliance-building power toward whoever controls the complementary layer.
Third-order effects
- If the complements thesis holds, Google should keep entering fields with no apparent relation to search — energy, telecom, storage — because each expands Internet usage; observers who judge the company by product-line coherence, as the 'Enigma' framing suggests many do, will keep misreading the strategy.
- The broader pattern is margin migration out of paid software into free services subsidized by advertising, forcing every incumbent vendor to decide which of its products can survive being given away.
The trend: Analysis of Google is shifting from cataloging what the company builds to modeling how each new free good cheapens the inputs that grow the audience its advertising business sells.