Milestone Group Quarterly: January 2006
Articles
By Invitation:
Geoffrey Moore on Google (What's the Big Idea?)
Everybody gets that there must be a big idea behind Google’s googoolian market valuation. Obviously there is some sort of gigantic disruption under way. The question is what precisely is disrupting what?
Let me propose the following as Google’s “big idea:” Any stream of electrons delivered over the Internet to a human being is, regardless of whatever attributes it may also have, a form of media, and can be monetized as such.
Obviously this is true of digitized content in virtually any form. The interesting thought is that it is also true of products and services. Word processors, spreadsheets, presentation software, live updates, back-ups, auctions, VOIP, videos; if there is a human being in the room paying any attention at all, these are all forms of media. To be sure, some lack the capability to capture and redirect our attention in the moment, the classical way that media supports advertising, but all have at minimum the potential to characterize and therefore segment end users such that more targeted communications can be sent their way at a more opportune time. Thus even these streams can be monetized on a deferred basis.
So what? Well, for starters, anything, and I mean anything, that Google throws against the Internet wall that subsequently sticks will drive its media business model’s economic engine. So giving everyone one day a week to think up weird stuff makes all kinds of sense, more stuff to throw at the wall. And the more stuff that sticks, the more diluted the competitive advantage of media properties with traditional content, like Dow Jones or Yahoo, become.
Note that there is no customer intimacy in this strategy. Google is operating a sparse matrix model which does not reward early focus and commitment. It is conducting instead an explosion of technological self-expression, each entrant the passionate creation of an individual, in hopes that by the law of large numbers if nothing else, some will find the resonant frequency that leads to market adoption.
This is normally too expensive a strategy to fund, not to mention too messy a one to manage, but at the very beginning of a paradigm shift, at the moment of the Oklahoma Land Rush, there is a narrow window of time when it is the optimal approach. Specifically, as long as the first and second derivatives of Google’s revenue growth are positive, they can afford to take this approach.
Note that such conditions apply on the rarest of occasions. Therefore management teams should realize they have nothing to learn from Google. Shock, awe are OK, envy, less desirable, but certainly understandable. But lessons learned? Nada!
Perhaps the most important implication of this strategy is that, in any competition with a product provider, say Microsoft, to pick a non-random example, or with a service provider, say SBC to pick another, Google can give away the very elements which their competitors are looking to monetize. In the past companies like Microsoft and SBC have been able to respond to the open systems challenges of competitive paradigms like Linux and the Internet by giving away the base product or service and selling customers on the upgrades. But Google can afford to give away the upgrades as well, at least for the time being. How do you compete with that?
The answer is, patiently. Google’s second-derivative advantage is temporary. In the meantime, I would look for companies like SBC and its ilk to invoke regulatory strategies to protect their capital investments and Microsoft to refocus more energy on the enterprise where a media strategy does not obtain. The key thing is for neither company to panic, albeit they are in for rough go’s in the short term. At the end of the day value creation is about innovation that creates separation from competitive alternatives. Chasing Google may reduce its separation from the herd, but it cannot improve the chasing company’s valuation one iota.
As for Google itself, there is no advice to give except don’t stop, make the world stop you. In the end it will. All ecosystems self-organize to contain the expansion of dominating new entrants but there is no percentage in trying to call the time or place of this occurrence. Capture all the territory you can, follow Alexander the Great, and like him, weep when there are no more worlds to conquer.
Then read up on the Romans. They actually knew how to run an empire.
Geoffrey A. Moore is a Managing Director with TCG Advisors in San Mateo, CA and a Venture Partner with Mohr Davidow Ventures. Recognized for his expertise in market development and business and investment strategies, he serves as an advisor to many of MDV's portfolio companies. Geoff has made the understanding and effective exploitation of disruptive technologies the core of his life's work. His books,
Crossing the Chasm, Inside the Tornado, The Gorilla Game, and Living on the Fault Line are best sellers and required reading at leading business schools. Ideas in this article can be further explored in his new book, Dealing with Darwin: How Great Companies Innovate at Every Phase of Their Evolution (Penguin Portfolio 2006, www.dealingwithdarwin.com)
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