January 1st, 2007

Google's run is more than half done

Posted by Mitch Ratcliffe @ 8:37 pm

Categories: Business & Technology

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Skrentablog welcomes our new insect overlords from Google, arguing that the company has won the battle for market dominance in the "third age of computing." Google has, according to this thinking, and it is compelling, become the environment in which all other companies must compete because it enjoys a 10 billion-to-one "fan-out effect." In other words, because Google links everywhere,Google has a year or two of dominance left. it is the starting point for almost all Net usage.

But I want to point to an important fact that Skrentablog doesn't address, even though it raises the question in the first few lines of a long, worthwhile posting:

IBM                1950-1980
Microsoft       1984-1998
Google           2001-

What stands out in those dates?  IBM enjoyed 30 years of dominance. Microsoft 14 years. That suggests that the half-life of the value of market dominance is falling by more than 50 percent in each "age" of computing. Extrapolating from that trend, if we can call it that based on only two ages of computing, Google in 2007 has a year or two of dominance left. 

And, I think, it is reasonable to say this contraction of the dominance cycle is real, as computing is the continuation of earlier information ages that have lasted roughly half as long as the preceding ones: Bureaucratic management and storage of information (approximately 100 years, from 1850 to 1950); printing (1500 to 1900); scribal recording networks maintained by church and mosque (600 to 1450).

Today's high CPMs at Google—Skrentablog's are suspiciously high based on my analysis of Google's business, though John Battelle affirms them—are not evidence of a sustainable model, as all previous forms of advertising have shown. The only thing CPMs do is shrink. In Google's case, I suspect that some CPM inflation is due to defensive purchasing of keywords by brands seeking to usurp competitors attempting to hijack interest by searchers, a phenomenon that could have drastic consequences if the spell of search marketing shows any cracks.

Skrentablog also points to low switching costs as evidence that Google will continue to grow market share beyond today's alleged 70 percent to 80 percent of searches. This is also a reason that Google must spend more to acquire additional traffic according to New Lanchester Strategy, an intriguing approach to understanding the dynamics of monopoly and competition. It is very hard to acquire more than 83 percent of a market without experiencing skyrocketing costs of customer acquisition. In Google's case, those costs might include having to buy upstart competitors that, facing very low costs of entry in a vertical search category, start to hive off Google's most valuable traffic.

Google's time is shorter than anyone is ready to acknowledge, as everyone is too busy trying to figure out how to profit from working with Google. That's the wrong place to be focused, if you want to build your business on stable ground.

As I mentioned the other day, feel free to ring me up on Skype (godsdog is the handle) to discuss in a podcast. (I'd give you a direct link, but ZD's blog platform breaks Skype tags.) 

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