"Google does not reap the benefits of significant network effects because its search algorithms are centered on the analysis of links, and operate essentially the same way whether one person or six billion are using it." -- said Randall Stross in his Digital Domain column today in the New York Times.
- While I enjoy Mr. Stross' weekly column and also enjoyed reading his book "Planet Google," the characterization above on "network effects" appears to be another significant antitrust misrepresentation coming from Google.
- May I apologize upfront to Mr. Stross, if I am incorrectly assuming that he got fed this preposterous characterization of "network effects" from Google's antitrust Pinocchio squad that has given us:
Given that Mr. Stross' article is trying to make the case that Facebook has lots of network effects and "Google does not reap the benefits of significant network effects," it appears that Google is trying to spin a new antitrust defense tall tale that Google faces lots of competition from the likes of Facebook... to create some "reasonable doubt" for upcoming antitrust jury trials that Google is not a monopoly.
While Facebook clearly enjoys powerful network effects, Facebook has no where near the number and power of the network effects that Google has.
As I documented for antitrust authorities and others in "Googleopoly II: Google's Predatory Playbook to Thwart Competition:"
"...it is critical to understand the varied, powerful, and inter-related sources of Google’s exceptional market power. Simply, Google has mastered at least twenty six sources of market power in its market.
A. Google’s scale efficiencies:
1. Biggest global Internet audience wins as it generates highest ad rates;
§ Google’s audience is ~4x larger than Yahoo’s, ~7x times larger than Microsoft’s;
2. Biggest network of advertisers wins as it generates most cash flow to reinvest;
§ Google has ~1,000,000 advertisers, Yahoo ~300,000, Microsoft ~75,000;
3. Biggest network of publisher relationships wins as it attracts most advertisers;
§ Google has hundreds of thousands of relationships vs. thousands for competitors;
4. Most search market share wins as it funds more users, advertisers and publishers;
§ Google has ~70% U.S. search market share, ~90% share in Europe.
5. Most information searched wins as it attracts the most searchers;
§ Google has indexed a trillion web pages vastly more than any competitor;
§ Google uniquely is copying all books, photographing every street view, etc.
6. Most traffic acquired from top sites wins as it funds highest traffic acquisition price;
§ Google pays more to acquire search traffic, than competitors’ search revenues;
7. Most sites using outsourced search toolbar wins as it attracts the most search traffic;
§ Google’s search is used by ~65% of the top 50 websites that outsource search;
8. Largest server-farm network wins as it has the lowest operating cost structure;
§ Google operates million plus servers, hundreds of thousands > competitors.
B. Google’s scope efficiencies:
9. Broadest Internet use tracked wins as it enables targeting of most relevant advertising;
§ Google can track ~90% of all Internet users, dramatically more than competitors;
10. Broadest web application platform wins as it enables the widest variety of uses;
§ Google dominates in video streaming, blogging, news aggregation, Earth, etc.
11. Broadest offering of languages and translation wins as it enables most use and users;
§ Google has interfaces in ~118 languages, several dozen more than competitors;
12. Broadest ad syndication deals wins as it facilitates most ad brokerage/ad exchange;
§ Google has several times more ad syndication deals than either Yahoo/Microsoft;
13. Broadest advertiser tools platform wins as it enables broadest campaign measurement;
§ Google-DoubleClick dominance in usage data makes tools platform most useful.
C. Time efficiencies:
14. Fastest search wins as it encourages the most users and usage;
§ Google has much faster loading homepage and search response than competitors;
15. First mover releasing new applications wins as it lands early adopters who improve apps;
§ Google routinely/frequently releases apps in beta to keep first-mover advantage;
16. Fastest crawler of the web wins as it provides most up-to-date results for breaking news;
§ Google crawls web many times more an hour, or a day, than any competitor;
17. First to offer integrated cross-platform ad management wins with first-mover advantage;
§ Google is far ahead competitively integrating search, TV, audio, classified, etc.
E. Google’s standards efficiencies:
18. Most recognized search brand wins as it attracts the most users, advertisers and publishers;
§ Google is the world’s fastest number one brand ever;
19. Most used search engine wins in that it becomes the de facto technology standard;
§ “Google’ has become a verb, defines the category -- diminishing competitors;
20. Most used retail search engine wins as it becomes the wholesale standard as well;
§ Google’s competitors are not one click away, most sites wholesale Google search.
F. Google’s bundling efficiencies: (Primary driver of Google’s inexorable market share gains.)
21. The default search download of Adobe software wins large steady market share gains;
§ Google is downloaded with every upgrade of Adobe’s 98% dominant software;
22. The default search download of Mozilla’s browser wins large steady market share gains;
§ Google search is downloaded with every Mozilla (and Chrome) browser adoption;
23. The default search download of Real Networks software wins steady market share gains;
§ Google search is downloaded with every Real Networks upgrade.
G. Google’s network effect efficiencies:
24. Scale efficiencies compound – audience x advertisers x publishers x traffic…
25. Scope efficiencies compound – users x data x integration x languages x tools…
26. All efficiencies compound – scale x scope x time x standards x bundling x network effects…
In short, Google arguably enjoys more multi-dimensional dominating efficiencies and network effects of network effects of any company ever – obviously greater than Standard Oil, IBM, AT&T or Microsoft ever were ever able to achieve in their day."
Finally, Mr. Stross said: "...its search algorithms are centered on the analysis of links, and operate essentially the same way whether one person or six billion are using it."
- That understanding of search algorithms could not be less accurate.
- One of the greatest strengths of Google's algorithm is that they have over a billion people using it, giving their algorithms vastly more data, insight, and queries to determine what people are really looking for, especially in the long tail.
- More searches helps identify most common misspellings, misinterpretations, mistakes, meanings, etc.
- More searches means more "learning effects," one of the most powerful network effects imaginable in a field like search, which is all about artificial intelligence.
Simply, Google enjoys more network effects than any company in history -- by far.
- It is also why Google will be such an enduring monopoly long term.
