If Search Is Google's Castle, Android Is the Moat

Hugh Pickens writes "Warren Buffet once said that the best businesses were economic castles protected by unbreachable moats. Now, Erick Schonfeld writes that if search is Google's economic castle, Android is a moat, Chrome browser is a moat, and Google Apps is a moat — all free products, subsidized by search profits, intended to protect the economic castle that is search. 'Android, as well as Chrome and Chrome OS for that matter, are not "products" in the classic business sense. They have no plan to become their own "economic castles,"' says Benchmark Capital VC Bill Gurley. 'They are not trying to make a profit on Android or Chrome. They want to take any layer that lives between themselves and the consumer and make it free (or even less than free).' So don't measure the success of Google's new businesses by how much revenue or profit they generate directly but measure it by how much they shore up Google's core search business. 'Google is ... scorching the earth for 250 miles around the outside of the castle to ensure no one can approach it. And best I can tell, they are doing a damn good job of it.'"

Comments

I LOVE ANALOGIES!

[Shikaku]

Where's badanalogyguy when you need him? Or pizzaanalogyguy?

Re:Google is the best company ever

[redemtionboy]

So a company having a successful business model and dominating the market is evil? Got it. If all markets were dominated by companies like Google, the world would be a much better place. Are they perfect? No. But they're trying dammit.

Re:So they're being anticompetitive

[ZankerH]

IIRC "Windows" has never been synonymous with operating system

For the sole reason that MS's target audience can't tell the difference between an OS, a computer and a browser.

Re:Google is the best company ever

[Zandamesh]

Everyone remember: Google promises that they will do no evil, so you know it's true. After all... they say so.

Well, if I had to pick which one of the major software companies is the least evil, it would be Google. They're open source friendly, create innovative products, I've never read of Google patent trolling other companies, they generally have a good reputation.

Search isn't the product.

[Anonymous Coward]

If it's been said once, it's been said a million times. Search isn't the product. Viewers are the product and they're being sold to advertisers. The moats are there to keep you in, not to keep other people out.

Re:Search isn't the product.

[bgarcia]

If it's been said once, it's been said a million times. Search isn't the product. Viewers are the product and they're being sold to advertisers.

Yes! Someone who gets it!

The moats are there to keep you in, not to keep other people out.

Wait, what???? No, no, no!
Look, Google does a damn good job of giving advertisers targeted viewers.
And they get LOTS of viewers because the viewers like the products that Google entices them with (search), and are willing to pay the cost (advertisements).
Google doesn't have to keep anybody in - the people want to be there!

So what does Google perceive as a threat?
Simple - anything (and I mean anything) that keeps people from being able to access their products.
Browsers suck? Well, let's build a browser that's fast. Google doesn't care if it wins the market, as long as all the other browsers become faster in an effort to compete.
Cell phones too locked down? Let's make an open operating system for phones, and make sure that at least one phone model is standard setting. Google doesn't care if that phone wins the market, as long as it sets a standard for all the other smartphones.

Perhaps the analogy works better if you say that search is the castle, the competitors keep people from the castle with their moats, and Google's ancillary products are the various drawbridges made to make sure the plebs can always access the castle.

Exactly! Why use an analogy in this case?

[khasim]

Analogies are useful for explaining complex concepts to people using concepts that they're already familiar with.

What's complex about Google's business?

YOU are the product. Google sells YOUR eyeballs to advertisers.

Google attracts YOUR eyeballs by offering YOU "free" services. "Free" in that you do not pay for them.

Just look at /. !!! You can use it for free. The owners sell ads. You can also pay for the service.

Fuck castles and moats and all the other analogies. The analogies are more complex than the concept they're supposed to be explaining.

Re:Exactly! Why use an analogy in this case?

[NeutronCowboy]

Or it could be that you missed the entire point of the article. The point of the article is that the only product that Google really cares about is search, and that everything else is just filler that doesn't even have to be bring in any revenue on its own. From that perspective, the analogies are actually quite illuminating.

Re:Exactly! Why use an analogy in this case?

[Jeff DeMaagd]

The part I don't get is how Android, Chrome and Chrome OS is "scorching the earth for 250 miles around Google". What are those offerings doing that prevent a viable search competitor from rising?

Re:Exactly! Why use an analogy in this case?

[grcumb]

Google's position is extremely precarious for two reasons. First, there isn't anything that prevents the majority of its users from switching to a rival search engine.

Oh, but there is: Google is better. At least, that's the premise on which Google operates. They do what's necessary to make the Web and the Internet in general more amenable to sharing data, searching, etc. and use their engineering skills to separate themselves from the pack.

Recently, they realised that the only way they could maintain a landscape conducive to their style was to give Microsoft a kick in the pants. Hence the Chrome browser. Likewise, Apple's walled-garden approach was a threat to their long-term survival, so they created Android. The 'scorched earth' phrase is a poor one, because Google is really doing the opposite, they're opening fertile new ground in order to give the population somewhere to move.

If we absolutely need a territory-based analogy, then Microsoft is a slumlord. It didn't set out to be, but all those little ticky-tacky sheds quickly degraded and the poor roads and communications made policing difficult. Apple, on the other hand, is a city planner. It creates gated communities that offer you everything they imagine you could want, all within the perceived safety and comfort of their ivy-covered walls.

Google wants something completely different. They want an Oklahoma Land Rush - rather than seeking to contain and corral people into their own plantation (sorry), they want a generation of homesteaders. They're confident that the homesteaders will keep coming to them for materials because they believe in the quality of their engineering.

Second, the vast majority of its users cannot reach its services except by using Microsoft products. Therefore Microsoft is trying to leverage its monopoly position on the desktop and in IT to nudge people away from Google toward Bing.

Hence the need for Google to move the stakes. They're not interested in fighting over Microsoft's turf; they're interested in creating new territory. Territory that, not coincidentally, they feel confident they can dominate.

Microsoft is playing itself into a holding action. They are on the defensive, trying to hold onto what they have, and all the while people are leaving the slums for an often ragged and imperfect existence, free however from the constraints that once bound them.

None of this should be taken as an endorsement of one tactic over another. The preceding is simply an effort to explain the lay of the land.

User != Customer

[crf00]

Although there are already many startup advices that ask entrepreneurs to identify who is their customers, it is only until recently I understand what it really means.

Customers are the people who pay you money, and products are the things that your customers is paying for. People who *don't* pay you are not your customers, and things that you give away for free is not your products.

Web technology companies have more complicated business models because it is usually not just about building something that you call "product" and sell it to your customers. Instead, most web sites use their core technology to build something that is free and give it away to people, who we call the users. When there are enough users, the websites turn the users into products and sell it to their customers.

Google is a typical example of such business model. Almost all of the Google "products" that we know today, including the search engine, Gmail, Google Maps, YouTube, Android, Chrome, etc are NOT Google's products - because Google is giving them away freely. Free services are NOT products because there is no way to get money from it. To understand what is Google's products, we have to see where it's revenues come from - Adsense, that's right, is Google's real product.

But if Google Search et al. are not Google's products, does this mean that they are not important? No, because those are what allows Google to make great products - it's users. Google will continue to provide more free services to it's users as long as the added cost is believed to directly bring more revenue to Google.

Ok but everyone understands that, but what's the point of identifying what is product and what is not? Well, the notion of products and non-products is very important when it comes to competition. When a non-product enters an existing market to compete with other products, it becomes disruptive and can potentially make many competitors out of business. This is because non-product can be given away free but products can't.

This is why Gmail was disruptive to the email market because it was the first email service that do not rely on pro accounts as their product. Google identified that Gmail is not their product and therefore willing to provide so much storage space and features because they believed that doing so allows them to build better products (more users) and get more revenue from their customers (advertisers). When Gmail competed as a non-product, it became almost impossible for competitors to compete unless they changed their business model to something else other than pro accounts.

The same could be say for Microsoft IE vs Netscape. While Microsoft could be partly blamed for their anti-competitive practices, it is also clear that Netscape had a fatal business model of identifying the wrong thing as their product, making it failed to compete with IE when it became a non-product.

I had a hard time to understand how YouTube really works as a business, because it's so hard to understand how to pay for so much bandwidth just for users to watch free videos. But the answer is actually quite simple - YouTube is free because it is NOT Google's product.

If something is not your product, do NOT ever think of getting your money back from your users. Just give up your damn mind and give it away free generously, as long as you can make a product out of it.

You should have also realized that Android is not Google's product. But there is an important distinction on the business model between Android and iPhone - Google do realize that Android users are the product to sell to the App developers, who are the customers; but for Apple it's products are the iPhone and it's apps, and it's customers are the consumers who buy iPhones. The difference in business model makes it obvious how Android is different from iPhone - that Android developers are Google's top priority while Apple treats it's iPhone developers badly; Apple's iPhone is designe