July 10, 2006
In the software industry, economies of scale do not derive from production capacity but rather from the size of the installed user base, as software is made of electrical pulses that can be downloaded by the users, at a relatively small cost to the producer (or virtually no cost if using the P2P model of the Web.) This means that the size of the installed user base replaces production capacity in classical economic terms.
Just as Microsoft used its economies of scale (i.e. its installed user base) as part of a copy-and-co-opt strategy to dominate the desktop, Google has shifted from a strategy of genuine innovation, which is expensive and risky, to a lower-risk copy-and-co-opt strategy in which it uses its economies of scale (i.e. its installed user base) to eliminate competition and dominate the Web.
The combination of the ability to copy and co-opt innovations across broad segments of the market together with existing and growing economies of scale is what makes Google a monopoly.
Consider the following example: DabbleDB (among other companies) beat Google to market with their online, collaborative spreadsheet application, but Google acquired their competitor and produced a similar (yet inferior) product that is now threatening to kill DabbleDB’s chances for growth.
One way to think of what’s happening is in terms of the first law of thermodynamics (aka conservation of energy): if Google grows then many smaller companies will die. And as Google grows, many smaller companies are dying.
It is not any better or worse than it used to be under the Microsoft monopoly for companies that have to compete with Google . But it’s much worse for us the people because what is at stake now is much bigger. It’s no longer about our PCs and LANs, it’s about the future of the entire Web.
You could argue that the patent system protects smaller companies from having their products and innovations copied and co-opted by bigger competitors like Google. However, during the Microsoft dominated era, very few companies succeeded in suing them for patent infringement. I happen to know of one former PC software company and their ex CEO who succeeded in suing Microsoft for $120M. But that’s a rare exception to a common rule: the one with the deeper pockets always has the advantage in court (they can drag the lawsuit for years and make it too costly for others to sue them.)
Therefore, given that Google is perceived as a growing monopoly that many see as having acquired too much power, too fast, without the wisdom to use that power responsibly, I’m not too surprised that many people have welcomed the Wikipedia 3.0 vision.
1. What leaps to mind as far as Google’s lack of wisdom is how they had sold the world on their “Do No Evil” mantra only to “Do Evil” when it came to oppressing the already-oppressed (see: Google Chinese censorship.)
- Wikipedia 3.0: The End of Google?
- P2P 3.0: The People’s Google
- Google 2.71828: Analysis of Google’s Web 2.0 Strategy
Posted by Marc Fawzi
8 Comments »
- Google is large and influential. That doesn’t make it a monopoly.They have 39% market share in Search in the US – http://searchenginewatch.com/reports/article.php/3099931 – a lot more than their closest competitor, but it’s wrong to describe them as a monopoly. A monopoly has a legal entitlement to be the only provider of a product or service. More loosely, it can be used to describe a company with such dominance in the market that it makes no sense to try to compete with them. Neither apply to Google. I think your correspondents are simply reacting against the biggest player because they are the biggest, the same way people knock Microsoft, Symantec, Adobe, etc.
Certainly, Yahoo!, MSN and Ask Jeeves, etc. aren’t ready to throw in the towel yet. Arguably, if they were struggling, and I don’t know if they are, DabbleDB would need to differentiate a little more against Google to make their model work as a business. I am not sure they need to.
One last point, there isn’t a finite number of people looking for spreadsheets, etc., online. It’s a growing market with enormous untapped potential. The winners will be those best able to overcome the serious objections people have towards online apps – security & stability. Spreadsheets and databases are business apps – it will not be good enough to throw up something that is marked beta and sometimes works and might be secure. I think people dealing with business data *want* to pay for such products, because it guarantees them levels of service and the likelihood that the company will still be around in a year.
- I don’t think any company can compete against Google, especially not small companies. If MS and Interactive Corp. are having to struggle against Google then how can any small company compete against them? They have economies of scale that cannot be undone so easily, except through P2P subversion of the central search model (See my Web 3.0 article), which is going to happen on its own (I don’t need to advocate it.)Having said that I did specify ways to compete with Google in SaaS in the post titled Google 2.71828: Analysis of Google’s Web 2.0 Strategy
But in gerenal, it’s getting tough out there because of Google’s economies of scale and their ability/willingess to copy-and-co-opt innovations across a broad segment of the market.
“A monopoly has a legal entitlement to be the only provider of a product or service.”
The definition of Monopoly in the US does not equate to state run companies or any such concept from the EU domain. It simply equates to economies of scale and ability to copy and co-opt innovations in a broad sector of the market. Monopolies that exist in market niches are a natural result of free markets but ones that exist in broad segments are problematic to free markets.
- Don’t forget that Google prevents AdSense publishers from using other context-based advertising services on the same pages that have AdSense ads.Comment by drew — July 12, 2006 @ 12:23 am
- That’s a sure sign that they’re a monopoly. Just like MS used to force PC makers to do the same.Marc
- […] impact it has over a worldwide, super-connected tool like the Internet. An article by Marc Fawzi on Evolving Trends expressed this effectively […]Pingback by What Evil Lurks in the Heart of Google | Phil Butler Unplugged — November 6, 2007 @ 11:46 pm
- […] with existing and growing economies of scale is what makes Google a monopoly,” states Evolving Trends. As Google grows, many smaller companies will die. In order to set up its monopoly, Google is used […]Pingback by Google: pro’s and con’s « E-culture & communication: open your mind — November 14, 2007 @ 6:42 am
- Contrary to what the Google fan club and the Google propoganda machine would have you believe, Here are some real facts:- People do have a choice with operating systems. They can buy a MAC or use Linux.
- Google has a terrible tack record of abusing its power:
- click fraud lawsuit where they used a grubby lawyer and tricks to pay almost nothing.
- they pass on a very small share to adsense publishers and make them sign a confidentiality agreement.
- They tried to prevent publishers from showing other ads.
- Google Adsense is responsible for the majority of spam on the Internet.
- Google has a PR machine which includes Matt Cutts and others, who suppress criticism and even make personal attacks on people who are critical of them. They are also constantly releasing a barrage press releases with gimmicks to improve their image with the public.
Wake up people. Excessive power leads to abuse.
Comment by Pete — January 26, 2008 @ 1:25 pm
- I think this is a really important discussion which has been started here, thank you Marc.
I got suspicious today when I heard about MS wanting to take over Yahoo! – or will it be Google…Anyway, this is really crucial stuff here, it’s the much praised freedom of the information age and hence the real hope for a truly open world which is at stake here, I hope there’s some degree of acknowledgment on this.
So to feed the discussion more,
- what can we do as users?
- are there alternative independent search engines out there?
- should we think of starting new strategies in information retrieval?
- what ideas are around?
Is there a good active community somewhere discussing these issues? would be interested in participating…
Comment by Fabio — February 4, 2008 @ 11:42 am