The Omnigoogle

“Some say Google is God,” Sergey Brin once said. “Others say Google is Satan.”

The confusion about Google’s identity may not be quite that Manichean, but it does run deep. The company, which today celebrates the tenth anniversary of its incorporation, remains an enigma despite the Everest-sized pile of press coverage that has been mounded around it. People can’t even agree what industry it’s in. The many businesses that see the young company as an actual or potential competitor include software houses, advertising agencies, telephone companies, newspapers, TV networks, book publishers, movie studios, credit card processors, and Internet firms of all stripes. If your business involves information, you probably fear (and admire) Google.

The sheer breadth of Google’s influence and activity – just this past week it unveiled its own Web browser, introduced face-recognition software, and shot a satellite into orbit – can easily be interpreted as evidence that it is an entirely new kind of business, one that transcends and redefines all traditional categories. But while Google is an unusual company in many ways, when you boil down its business strategy, you find that it’s not quite as mysterious as it seems. The way Google makes money is straightforward: It brokers and publishes advertisements through digital media. More than 99 percent of its sales have come from the fees it charges advertisers for using its network to get their messages out on the Internet.

Google’s protean appearance is not a reflection of its core business. Rather, it stems from the vast number of complements to its core business. Complements are, to put it simply, any products or services that tend be consumed together. Think hot dogs and mustard, or houses and mortgages. For Google, literally everything that happens on the Internet is a complement to its main business. The more things that people and companies do online, the more ads they see and the more money Google makes. In addition, as Internet activity increases, Google collects more data on consumers’ needs and behavior and can tailor its ads more precisely, strengthening its competitive advantage and further increasing its income. 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.

There’s one more twist. Because the marginal cost of producing and distributing a new copy of a purely digital product is close to zero, Google not only has the desire to give away informational products; it has the economic leeway to actually do it. Those two facts — the vast breadth of Google’s complements, and the company’s ability to push the price of those complements toward zero — are what really set the company apart from other firms. Google faces far less risk in product development than the usual business does. It routinely introduces half-finished products and services as online “betas” because it knows that, even if the offerings fail to win a big share of the market, they will still tend to produce attractive returns by generating advertising revenue and producing valuable data on customer behavior. For most companies, a failed launch of a new product is very costly. For Google, in general, it’s not. Failure is cheap.

But while Google has an odd business model, it’s not an unprecedented one. The company it most resembles is, ironically, its archrival, Microsoft. 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.

Google differs from Microsoft in at least one very important way. The ends that Microsoft has pursued are commercial ends. It’s been in it for the money. Google, by contrast, has a strong messianic bent. The Omnigoogle is not just out to make oodles of money; it’s on a crusade – to liberate information for the masses – and is convinced of its righteousness in pursuing its cause. Depending on your point of view as you look forward to the next ten years, you’ll find that either comforting or discomforting.

This post draws on my article The Google Enigma, which was published last year in Strategy & Business.

15 Comments

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15 Responses to The Omnigoogle

  1. Best article about Google I read this year. Thank you!

  2. Any enterprise without significant competition should be a concern (Google’s market share went from 58% in March 2006 to 65.1% in January this year). Despite Google’s “do no evil” philosophy, and their contributions and promotion of ‘The Cloud’ (both in terms of services and infrastructure) which we all use and love, the label of an Enigma is fitting. Time will tell if their trustworthiness is warranted :)

    Great post Nicholas!

  3. George Geist

    Nick writes: “The ends that Microsoft has pursued are commercial ends. It’s been in it for the money. Google, by contrast, has a strong messianic bent.”

    As a long-time Microsoft employee, I think there’s actually a lot more commonality here that you may recognize, Nick. Back in the 90s — and largely still today — a vast number of Microsoft folks believed we were on a mission to bring the power of the PC to as many people around the world as possible. By standardizing the PC ecosystem through software, we made computing power widely accessible; witness the drop in prices for configured PCs between, say, 1990 and 2000. And our work, and that of our partners in the PC ecosystem, empowered not just folks in the wealthy nations but in second and third world countries as well.

    We’re in the make-lots-of-money business too, of course. However, “empowering people and businesses around the world to reach their full potential” remains a credo to which many here devote their full energies. This focus holds even for some — e.g., Bill Gates — who have left to take on new tasks.

    [Usual disclaimer: I work for Microsoft but do not represent them, and all opinions and statements are mine alone.]

  4. Jim Mason

    If you think Google differs from Microsoft in the manner you describe – liberating information for the masses etc. – all I can say is – How naive!

    Looks like Google’s got you hypnotized.

  5. Very interesting article!! From the perspective of content developers this must be a very scary thought!!

  6. Nick Carr

    If you think Google differs from Microsoft in the manner you describe – liberating information for the masses etc. – all I can say is – How naive!

    I’m a babe in the woods, Jim. A babe in the woods.

  7. alan

    “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).”

    Great article Nick, I wonder whether the greatest risk might not be the difficulty others might have to compete but the loss of privacy that will certainly come as Google reaches ever deeper into our online lives.

    Alan

  8. Google reminds me of AOL a decade ago; AOL was sort of a Frankenstein of different subsidiaries and product lines- a juggernaut that would change big media. Today its a relatively small player that may disappear entirely. Could that be Google’s fate? If the traditional Internet eventually evolves into just another data service like phone and cable, Google is going to have to morph into some kind of media company or break up and disappear.

    It seems to me that there is kind of a vacuum between traditional software/Internet companies and big traditional media. Neither culture is capable of coming up with a truly marketable hybrid. The good news is that there is a growing trend of people dropping out of the big players to start potentially profitable interactive media ventures: Big media exiles seek Web stars. Call me crazy, but to avoid becoming just another footnote in the history of media, Google is going to have to seriously give up the idea of being a code shop and move into the content product side. It’s time a put the lunatics back in charge of the asylum.

  9. So, Nick. Do you foresee Omnigoogle being dethroned as web deity ever? Will there ever be a day when ads are no longer needed? Or what catastrophe can Omnigoogle get into that will lead to a stumble from the perch? Privacy clamor?

    Great post.

    Best.

    alain

    mor.ph

  10. friarminor:

    >> Or what catastrophe can Omnigoogle get into

    >> that will lead to a stumble from the perch?

    How about government regulation? There was never a good business model that government couldn’t ruin.

  11. It’s far more easy to exchange search engines than PC operating systems for an unsatisfied user, isn’t it?

  12. Maybe we should just rewrite the 2nd epistle of Pope’s Essay on Man. Or should I say reread?

    It’s not Google which is our God, it’s our desire for knowledge and thus power which really makes Google big.

    Google is a great company, but the key to its power is in the hands of each of us.

    As with every religion.

  13. If Google didn’t already exist then Larry Page and Sergey Brin would have to invent it. (Sorry.)

  14. temujoe

    Thanks for writing this very interesting article. One thing I was a bit surprised you didn’t mentiong was Google’s work on artificial intelligence. Doesn’t that have vast implications for the future?

    Cheers

  15. George Geist : Well said.

    I think . It is to Google’s advantage that there vision and business sense are intersecting today and hence they are where they are.

    At some point that might not be the case. Google is ultimately a publicly traded company and lives within the confinements of the capitalistic society. Where the vision and business sense diverge it will be interesting to see how the – “do no evil” slogan evolves