Google: The New Market Gorilla

Every company, big or small, faces unfavorable market conditions at some point in its trajectory. The common sense thing to do is to try to adapt—modify the business strategy to survive and continue thriving. Unfortunately some companies, especially big and successful ones like Google or Microsoft, are stubborn and prefer that the market adapt to them. It really is difficult to hit the ‘Back’ button, throw away what you’ve built, and try something completely new. It is far easier—at least it seems so at first—to create publicity designed to adapt the market to your own needs.

The problem, for both Microsoft and Google, is that it rarely works. Let me show you why.

The Old Market Gorilla

Microsoft made and continues to make most of its fortune by selling users an electronic piece of paper (the End User License Agreement) that says what they are allowed to do with its software. Users don’t own the software in the traditional sense; they have simply bought permission to use it. Until now, this has proved an excellent business model because, while it costs a lot to produce software, you can sell an infinite amount of copies and the cost-per-unit becomes minuscule.

Then came the open source software movement and it broke all of Microsoft’s business rules. Software is given away for free, even its source code, and users not only own it in the traditional sense, but they can also modify and adjust it to their needs as long as they understand the programming language. Companies can still make money, but they do so in other ways—by selling support services, value-added packages or even through ads. The open source model has produced a wide variety of successful products and profitable companies: Linux, the Apache web server, Mozilla FireFox to name just a few.

What has Microsoft’s response been against its formidable new adversary? It tries to spread fear, uncertainty and doubt (FUD). Unfortunately for Microsoft, this hasn’t worked so far and is never going to work. It may be a huge market gorilla, but it cannot bully the entire market. In a few years’ time, we’ll see if the gorilla can even keep up. 🙂

The New Market Gorilla

Google and most popular search engines are making their fortune by selling clicks. Philosophically, it is not so different than Microsoft. Software is what they produce and using their software is what they sell. The key difference is that they don’t charge users of the software, they charge advertisers: companies that want to tap into their software’s user base.

Of course users are paying indirectly for the use of Google’s software with the most valuable currency in today’s economy: their click stream of intentions. Looking at Google’s valuation and revenue numbers, the model has been extraordinarily successful so far. Its success, however, comes primarily from the premium value of links to web pages. But other people and companies are creeping in to take some of Google’s pie. They are trading, buying, selling or stealing links to profit from Google’s ecosystem themselves.

Just like Microsoft’s loathing of the open source community, Google is similarly peeved that its financial foundation is being attacked. And not surprisingly, the company’s response is just like Microsoft’s: they try to spread FUD, this time among webmasters. Google requests that webmasters adapt to its way of doing business rather than trying to adapt itself by revising its original assumptions about links as votes, or looking for stronger and potentially better solutions.

Again, this is not going to work. One single company, no matter how big, cannot police the whole Web. No matter how hard it tries, people will keep finding ways to exploit link vulnerabilities(via searchenginepeople.com).

Google likes to say that all top search engines are affected by the paid links problem. Well, apparently one Ask.com scientist doesn’t think so:

Apostolos Gerasoulis, executive vice president of search technology at Google competitor Ask.com is equally pessimistic about the search industry’s battles with Webmasters who manipulate results. He says that Ask doesn’t suffer from paid links schemes as much as Google, thanks to an algorithm that only counts links between sites about the same subject. But sites that manipulate search results, he says, plague the entire industry. Google’s public criticism of such tactics won’t make them go away.

“We know better than to say anything,” Gerasoulis says. “The more pressure you put on them, the smarter they become. This war between spam sites and the search engines has no end.”

The evolution of the market and the danger of stagnation

The good thing about this type of attitude is that when big players refuse to adapt, they open the door to more flexible competitors. Look, for example, at how Digg users are giving life to Mixx thanks in part to Digg’s stance on trying to adapt its user base to the company. Perhaps we should start spending more of our ‘click power’ and use alternative search engines such as Ask.com more often. In the end, webmasters provide the content and searchers provide the clicks. Without them, Google’s software is useless, and the gorilla gets left behind again.

What do you think? Should the Web adapt to Google or Google adapt to the Web? Sound off in the comments!