The Free Cycle: Every Market Incumbent’s Achilles Heel
I read about the Google lawsuit that was settled in France where Google was forced to pay a fine as they were, “harming,” an incumbent’s market by offering their product for free (Maps) as this is subsidized through their leading Search product which in France and elsewhere in Europe, has an overwhelming share. In the US, they may only hold 60-70% share but in most of Europe, they hold 90% or more. What I find fascinating about this settlement and the French government’s attitude in particular is that the stance is particularly anti venture capital.
What does this have to do with the free cycle of disruption?
It’s pretty straight forward. Google disrupted search results by offering less advertising overall. Eventually, their search grew because instead of riding two horses with their product, they focused with single minded determination on giving you the very best product they could. In turn, they eventually figured out how to make a great business out of a far less, “monetized,” experience than their rivals.
Enter Wall Street and the kings of short term focus, which results in ever increasing ad creep where now, the majority of their customers get advertising only above the fold and sometimes, it’s hard to tell visually what is an ad and what isn’t. If you compared the Google of yesterday with the Google of today, you’d find the same pattern as Google experienced with Yahoo – the experience today is clearly designed, far more than before, to entice people to click on ads more often.
Facebook and Twitter as search engine disruptors
Facebook and Twitter more than any other over the last decade have replaced for specific reasons Google as the navigational tool of choice. For Facebook, it’s been to find people you know, which is a large class of queries in an of itself. Now with Pages and other offerings, they are absorbing more and more of Google’s free traffic for themselves, where the advertising is reversed: the experience is free of any advertisements until you login. The reason for that is Facebook’s system is only valuable in light of your personal information.
For Google’s system, all they need is your intent, even though they can monetize your data far more effectively if they have a profile to back up the query intent. Twitter has replaced Google as the tool to find up to the minute news. Earlier today, I was reading about Maldives and how according to Google news, nothing else had happened in the last seven hours. In the middle of a possible coup d’etat, it’s crucial to get information as fast as it’s available. Enter Twitter, where there were many articles, links and even photos of the protests by police. Even in the news area, Twitter had Google beaten by a mile.
Neither experience, Facebook or Twitter, is as ad laden as it will be in the future. Wall Street and investors, in general, think only about the next quarter, while paying lip service to a longer term orientation. To pay their investors back, Facebook will eventually add more and more advertising, until their experience matches Google and the incredibly monetized experience they have. By following this cycle, Facebook and Twitter are both doing to Google what the venerable search engine did to their predecessors, the AOL’s and Yahoo’s of the world.
MySpace, due to its rocket like trajectory of uber social to uber crazy advertisement laden nightmare, was a mere flash in the pan but could be shown to exhibit the same arch. To tie this back to the French court ruling on Google, it’s a bit rich to indulge in this lawsuit, as the economics of the situation are clearly out of the grasp of the court system. In every single instance of technology disruption online from entrenched leader to transformative newcomer, the pillar strategy was eyeballs first, monetize second.
Amazon an exception to the rule so far?
Remarkably, Amazon has yet to display this kind of shortsightedness in their online processes, as their digital strategy is clearly to cater to heavily internet connected users with a subscription of digital content at their core. For free, they throw in free shipping throughout the year as well, to ensure that they can effectively compete on a marginal revenue basis with any other distributor of real world goods. While Amazon continues this practice, they effectively block any other goods distributor from beating them on margins, in addition to the mental effort it takes to convince yourself to buy elsewhere, because you already paid for the shipping in advance on Amazon.
It remains to be seen whether or not Amazon can continue staying true to the low cost strategy online. Their recent decision to pull the product catalog from Goodreads.com, a competitor to Shelfari, an Amazon company, says they might have turned a corner. I’m still optimistic eventually Amazon will simply provide the catalog as web service and charge a usage fee, similar to what Google Maps has started doing along with many other popular web services.
Seeing this trend of being the low cost, free disruptor happen many times online, it’s an interesting notion for France to have decided Google somehow abused their power. Online, the next disruptor is only a click away and the worst enemy of any venerable company is not outside, but inside, as hubris and over monetization get put ahead of traffic acquisition and life time value. Google has already overly monetized their experience compared to Facebook and as a public company, they can’t force the growth to slow as that would lower their market capitalization and shareholder value.
Facebook, on the other hand, only recently filed to go public and they have a few year gap before they run out of monetization options on their site, due to the distance between their experience and Google or Yahoo’s. Venture capital fuels a lot of the main stream new media successors, including Facebook, Twitter, LinkedIn, Pinterest and more. Rather than aiming at the incumbent player who will eventually get replaced by an upstart, the French courts should have tried the venture capital industry, or anyone who plays at economic arbitrage. Like it or not, a digital powerhouse could in theory be born anywhere and their values may or may not jive with those of the foreign markets they eventually come to rule.
What’s a small, less well resourced player to do in the face of these macro economic trends?
- Offer a service or product for free and it will be a very powerful tactic for market entry. After that, implement a master word of mouth marketing strategy and other strategies which yeild the highest life time value.
Did you enjoy this article? Please leave a comment and share your thoughts below. For more educational articles please subscribe to the RSS-feed and follow Inspirationfeed on Twitter+ Facebook! If you enjoyed the following article we humbly ask you to comment, and help us spread the word!