What #googlefail Tells Us About Markets

by on May 18, 2009 · 10 comments

Google recently experienced failures of its core services — a phenomenon that quickly spawned the hashtag “googlefail” on the popular social networking platform Twitter.  These failures show that a company once thought of as the odds-on favorite for dominating the global market in all things web — the monolith of Mountain View — is looking more and more like a search-only player.

Big firms consistently fail to use their “market dominance” to take over adjacent markets, something that should give antitrust warriors in the Obama administration reason for pause.  The renewed call for tough antitrust enforcement comes at a time when Google, a poster-child for market dominance, simply can’t leverage its position at all.

Google Apps
Google’s most recent outages, along with past outages of Google’s “GMail” email service, show that Google is not yet in a position to use its popularity in search to take on the likes of Microsoft Office and other productivity suites.  Only last year outlets such as USA Today, ABC News, and PC World speculated that we may see a war between the GooglePlex and Redmond over the productivity space.  Continued outages, not to mention the failure to improve Google Apps functionality, makes this seem very unlikely today. #dominancefail

Streaming Video
YouTube was also part of today’s #googlefail.  When Google bought YouTube in 2006 the purchase had to be approved by the FTC.  Looking back, this seems just silly.  Not only has YouTube failed to become a money-making behemoth, it’s failed to make a money at all.  It seems clear now that while consumers absorb a lot of YouTube clips, the real money — the only money — is in premium content such as Hulu’s ad-supported video, iTunes’s piecemeal sales, or Netflix’s  subscription model.  While Hulu’s profitability is unknown, none of these competing video sites seem to be as incredible a loss-leader as YouTube.  The FTC may have approved the Google-YouTube merger more quickly had it known YouTube would turn into a video money pit — one that could be seen as a competitive disadvantage to Google. #dominancefail

Smart Phones
While not part of the recent #googlefail problems, the G1 phone has failed to become a strong competitor to RIM’s Blackberry line or the iPhone.  Granted, RIM has been around for years and the iPhone has been on the market for nearly two full years, yet the G1 has still experienced dismal sales considering Google’s considerable clout and credit with the tech set.  Piper Jaffrey projects that iPhone sales will top 45 million units this year.  Compare that to the G1 — heralded as the first of many phones using Google’s Android operating system — which is trailing at a distant 5th in the smart phone sales rankings. #dominancefail

Google’s failures aren’t the result of failings specific to Google, but rather evidence that companies that become excellent in one field aren’t necessarily capable of achieving excellence in another.  Rewiring even a portion of a multi-billion dollar company to provide a totally new product is a near impossible task.  The incentive structures, hiring practices, corporate culture and myriad other factors necessary to be world-class in one endeavor may be very different for another.  In short, market advantage is not much of an advantage in today’s economy, but instead can prove to be an incredible hindrance to expanding into new markets.

This is especially true in the tech industry where barriers to entry are low, investor eagerness is high, and new competitive spaces are opening constantly.  This is why big players emerge so quickly — like Google — and fade so fast.  Think AOL, AltaVista, Compuserve, etc.

So, rather than focus on how to punish big players in a given market, the Obama administration should focus on how to free up capital markets to allow money to flow to the best technologies so that competition remains vibrant.  Repealing onerous regulations like Sarbanes Oxley that make it harder for companies to go public would be a good start.  Refraining from locking-up capital markets further by layering on morepseudo-accountability rules is also key.  Additionally, as the Cato Institute’s Jim Powell points out, allowing venture capitalists to do their jobs — something Mr. Obama’s budget discourages — is key for competition and furthering innovation.

If any additional evidence is needed that big firms don’t always stay big and can even fail, members of the administration need only visit Google News…if it’s up.

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