Google is an irresistable topic for me. They’re so big, and so influential, that everything they do gets endlessly scrutinized for strategic insight, good and bad. So forgive me for YAGP – Yet Another Google Post – this time about their recent public policy statement by Jonathan Rosenberg, Senior Vice President, Product Management on “The meaning of open”. Google does a lot of good stuff – I’m not bashing them. But I still wish Google was more comfortable with the truth about why they do all that good stuff. Their stated reasons reflect the conventional FOSS wisdom:
“To understand our position in more detail, it helps to start with the assertion that open systems win. [...] They are competitive and far more dynamic. In an open system, a competitive advantage doesn’t derive from locking in customers, but rather from understanding the fast-moving system better than anyone else and using that knowledge to generate better, more innovative products.”
This sounds great, doesn’t it? But the premise, that competitive, dynamic markets generate more profit, is inherently untrue. Competition and rapid change sap profitability. It costs a lot more money to win when lock-in is impossible. When all you’ve got to beat your competitors is brains and hard work, you have to continuously invest big money just in staying ahead.
Gartner’s Brian Prentice offers a pointed analysis of Rosenberg’s article, in which he sums up the revenue picture quite well:
“The truth is that closed systems still win. Open systems, practically speaking, are basically good for making others lose.”
True, but also misses the key point. Google is not trying to crush their competition in search advertising: they already have. Their biggest problem isn’t competition, it is market saturation. The market for search advertising can only grow as fast as the demand for searching, which in turn grows along with the use of the Internet, and Google’s ability to index ever more of the Net. Another way to put this, is that Google’s addressable market is driven by adoption of the Internet itself.
“Open” is an incredibly important strategy for Google, because it drives greater adoption of the Internet. The money quote from Rosenberg:
“Our commitment to open systems is not altruistic. Rather it’s good business, since an open Internet creates a steady stream of innovations that attracts users and usage and grows the entire industry.”
Bingo. Google understands the adoption-led business strategy better than any other enterprise today. With their enormous scale and technological might, they relentlessly develop new, seminal Internet infrastructure that digitizes and shares more and more of the world’s information. And then they open that infrastructure. Remember: they don’t sell maps, books, document storage, music, collaboration, or mobile phones (yet). They sell search advertising. The more adoption of the Internet for accessing all of these newly digitized artifacts, the more and better targeted search advertising they can sell. They don’t sell the things they open, they sell something else that scales with adoption of the open stuff. That is the genius of Google’s business model.
Google doesn’t do “open” to compete. They do “open” to drive adoption. But if you sell something that Google offers for free, tough luck! It sure feels like competition! Google Docs feels like competition to Microsoft. Android feels like competition to Symbian and Palm. Chrome feels like competition to Mozilla, and Google is Mozilla’s biggest benefactor!
Rosenberg says that “An open Internet transforms lives globally. It has the potential to deliver the world’s information to the palm of every person and to give everyone the power of freedom of expression.” He is absolutely right. But Google doesn’t do “open” because it is some benevolent force for the good of humanity. But if closed and bare-knuckled competitive warfare would drive more adoption of the Internet and thus more search advertising, Google would be doing that instead.
Another quote from Google’s article:
“We can do these things because they are information problems and we have the computer scientists, technology, and computational power to solve them. When we do, we make numerous platforms – video, maps, mobile, PCs, voice, enterprise – better, more competitive, and more innovative.”
Why won’t Google, in the spirit of transparency, tell the truth, which would read something like this (my words, not theirs):
We do these things because we need more and more of the world using the Internet in new and different ways, so we can sell more ads and continue to grow. We’re genuinely gratified that doing so makes numerous platforms – video, maps, mobile, PCs, voice, enterprise – better and more innovative. We’re not trying to compete in these areas but the effect of our adoption-led strategy is to make it very hard for others to make money doing these things. Still, it is fortunate for both end-users and for us that Google’s search ad prosperity is driven by Internet adoption. We reap great rewards for delivering awesome technology and information to the world, for free!
Those are my words, not Jonathan Rosenberg’s. But really, wouldn’t a transparent explanation of their business model be a better message?
Excellent article! I think you’re spot-on throughout, but I’d look closer at your “transparent” statement at the end. I agree with all but the third sentence: “We’re not trying to compete in these areas but the effect of our adoption-led strategy is to make it very hard for others to make money doing these things.”
This is true, but I don’t think Google thinks about this that much. My analogy is that Google’s information business is like a tower in the woods. It’s a beautiful tower and provides great intelligence to all who climb it. In order to provide better access and clearer vision over more of the land – Google is cutting down all of the trees that surround the tower. So, they’re busy cutting down the desktop productivity app woods, the mobile platform woods, the app server woods, etc.
This is fine for the end customer at first glance – Android is cool, Google apps is great, calendar/email all good — but what happens to those markets when the woods are all gone? Will innovation or creativity be stifled as Google cleans out those businesses in service of it’s own ad business?
If those businesses can be cleaned out, then perhaps they need to go, but it doesn’t feel right to me and I worry about the law of unintended consequences here.
Keep up the great writing!
@Dave – you’ve got that right! Google doesn’t care if they clear cut the forest. Regulators, competitors (legal, patent, etc.) and creators (writers, etc.) might care though. And Google’s “Don’t be evil” philosophy is, I think, not merely glad-handing but something they really believe. In 2010, their ability to crush whole markets as those markets become digitized will get governments’ attention, I think. It sure is an interesting question whether such “market failures” are actually failures or just the Innovator’s Dilemma writ large, and an inevitable consequence of 21st century business. Whether govenments ought to bail out markets that get clear cut by Google and the Internet, or regulators step in and halt the chainsaws, is a question for politicians.