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Google and What it Means to Be a Market Leader

[Editor's Note: Inspired by Google's announcment of a Chrome OS and this Jeff Jarvis post in response to it I decided to publish one of my half-written blog posts (I have a folder labeled that on my desktop). This particular post was actually more like 80 percent finished, I just added on a last paragraph.]

Back in October of last year, Nick Carr had a great breakdown of the different network strategies. His point was that everything is often lumped under “network effect” when the reality of the situation is that it’s seldom that pure. (His network effect definition: “It exists when the value of a product or service to an individual user increases as the overall number of users increases.”) He breaks the strategies down to data mining, digital sharecropping, two-sided markets, economies of scale and complements.

While the whole post is worth a read, it’s the latter that I want to focus on. Google, as Carr points out, is the ultimate complement company. After all, as he points out “Google makes more money as all forms of Internet use increase.” In fact, Carr expanded on this idea back in September in a post specifically about Google:

Google’s protean appearance is not a reflection of its core business. Rather, it stems from the vast number of complements to its core business. Complements are, to put it simply, any products or services that tend be consumed together. Think hot dogs and mustard, or houses and mortgages. For Google, literally everything that happens on the Internet is a complement to its main business. The more things that people and companies do online, the more ads they see and the more money Google makes. In addition, as Internet activity increases, Google collects more data on consumers’ needs and behavior and can tailor its ads more precisely, strengthening its competitive advantage and further increasing its income. As more and more products and services are delivered digitally over computer networks — entertainment, news, software programs, financial transactions — Google’s range of complements expands into ever more industry sectors. That’s why cute little Google has morphed into The Omnigoogle.

This is a point I’ve been trying to make to people (and clients) for a long time. Google has a few very unique things going for itself as a business, but it also has some not so unique things that it just seems to understand better than the other businesses out there. The most important of these is the role of a market leader.

Put simply, when you’ve got the kind of market share that Google has (72 percent in the US as of February) its cheaper for you to acquire new internet users than it is to steal share. This works pretty much across the board, but very few companies are willing to accept it because it means that some of the money you spend on acquiring customers is actually going to the other guy.

What that means is everything Google does is about getting more people to use the internet more. Use Android as an example: It is absolutely in Google’s best interest to release a mobile OS that makes it easy to browse the web because that means more people using the internet more which means more searches on Google (because of that market dominance) which means more clicks on the paid ads. Voila, you’re rich.

So, turning attention back to the Chrome operating system, basically it doesn’t matter to Google how things turn out with it. It’s a win-win for them: If they get huge pickup on it, awesome. If this causes Microsoft to build an OS for netbooks, awesome (as that would mean more people using the web). Just look at the story of Chrome, all of a sudden Microsoft and Firefox are working harder than ever to get new and improved versions of their browser out, all of which will just mean more people using the web more and therefore using Google more which will lead to more clicks on those damn ads. Not a bad deal.

July 9, 2009

Comments

  • Marci Ikeler says:

    Excellent post Noah. Another area in which this point is relevant is social networks – brands can get a lot more leverage by integrating with market leaders (Twitter, Facebook) instead of maintaining their own communication silos.

  • Denise Lee Yohn says:

    this is really insightful, noah — 2 points in particular stand out as a-has for me:

    1. complements — the idea that companies grow by what other companies do — while this is an obvious fact of business life, i don’t think we see many companies overtly exploiting this — i wonder if it would make sense for battery companies, for example, to run (or support) ads for battery-operated toys, etc.

    2. category growth (vs. brand growth) — for most brands, it’s imperative their marketing efforts differentiate their offering from competitors’ — however, when a brand enjoys a strong market share, say over 70-80%, it probably makes more sense for them to focus on stimulating increased category usage vs. brand usage specifically

    hmmm…i’m going to chew on these for awhile — thanks!

  • LeeAnn says:

    Smartest business model I have ever seen. What other businesses have you noticed this effect in? Hmmm. Innovation opportunity in other arenas perhaps.

  • Being a Market Leader | Noah Brier dot Com says:

    [...] written about it in the past, but Google is one of my favorite examples of a market leader marketer. Their dominance in search [...]

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