Thursday, April 22, 2010

Google’s Monopoly: My Achy Breaky Digital Heart

It's funny. Something struck me recently, and after all my hopeless infatuation, I’ve decided to walk back my unadulterated Google love. I realized it’s what equal opportunity agitation dictates. I can't believe I'm saying this, but Microsoft – I'm with you. Don’t stop plugging away as the scrappy #2. Keep on keepin' on, as you keep Google honest.

I realized… yes – Google's heading-toward monopoly is good at the moment. I don't mind if it's printing money, as for now, it’s coming largely from the staggering inefficiency of traditional advertising. There’s of course plenty of this to go still, and to its credit, Google has taken an impressively progressive approach to market building – helping drive the Internet, to some extent at the expense of other communication media, but mostly on top of it, creating entirely new modes of human communication and collaboration.

In the way of heading-toward monopolists, Google has thus far proven relatively benign. In part, this is of course simply because their business model has been so staggeringly profitable that for now, they can afford the luxury of corporate good citizenship (if things were ever to get a bit leaner, I suspect wills might prove less firm). I think it’s also in part though genuinely a function of a particular corporate culture, resulting from a unique management team and a web-era evolution in which significant independent scaling allowed bridling of early institutional influence.

But a monopoly is a monopoly is a monopoly. And assuming scale remains a-if-not-the critical quality sought by advertising – and I see no reason to believe otherwise– dominance in search indeed amounts to an entrenched position. Like all businesses with network externalities, search supports an industry structure of ‘winner take most,’ where the largest player controls the overwhelming share of the market, with the shares of all subsequent players dropping off geometrically.

Especially in the world of the future, where ‘search’ is a matter not just of query but of prediction and recommendation, if Google ever controls 90% of the market, no one is going to waste their time passing money to potential competitors fighting for life in that last 10%. Google could begin raising premiums at its discretion, which would then be passed through to consumers in the price of products. Because it would be indirect monopoly rent, consumers would never recognize.

Google’s ‘openness’ you’d think might support the ability of entrants to challenge their dominance. But note, like all companies, Google is only open when it’s convenient to them – even if for now, that’s a fairly profound swath of territory. Open web standards, open books, open access, open OS, open social… but whoa. Open search? Open ad targeting algorithms? Get the hell away from our black boxes of gold!

I love Google. For the time being at least, I think the danger of their monopoly power is far outweighed by their potential to disrupt more immediate, more entrenched monopolies such as the publishing industry and, with products like their rumored set-top-box, the cable industry. But with a role as critical as the one Google plays today – for all intensive purposes the backbone of the Internet – it's something we need to be aware of and vigilant about.

So Jason, thank you for the ridiculous persistence of your curmudgeonly bastardam on the subject. Dad, thanks for your cool-headed rejection of my first digital love, and telling me I couldn’t bring her home for dinner. And Microsoft, thank you for keeping up the fight. I’d worry about you dropping out, but I know, there’s no ire like the jealousy of the former pretty girl on the block.

(Note, Facebook’s announcement yesterday of its plans to impose a proprietary semantic markup on web, finally bringing about that Berners-Lee vision that no democratic process has yet been able to produce, mitigates some of this argument, which I’ll look to discuss in a future post)

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