Google seems to be releasing or acquiring new products almost daily. It’s one thing for a couple of programmers to hack together a side project. It’s another thing for Google to put gobs of time and money behind it. The best way to predict how committed Google will be to a given project is to figure out whether it is “strategic” or not.
Google makes 99% of their revenue selling text ads for things like airplane tickets, dvd players, and malpractice lawyers. A project is strategic for Google if it affects what sits between the person clicking on an ad and the company paying for the ad. Here is my rough breakdown of the “layers in the stack” between humans and the money:
Human – device – OS – browser – bandwidth – websites – ads – ad tech – relationship to advertiser – $$$
At each layer, Google either wants to dominate it or commoditize it. (For more on the strategic move known as commoditizing the complement, see here, here and here). Here’s my a brief analysis of the more interesting layers:
Device: Desktop hardware already commoditized. Mobile hardware is not, hence Google Phone (Nexus One).
OS: Not commoditized, and dominated by archenemy (Microsoft)!! Hence Android/Google Chrome OS is very strategic. Google also needs to remove main reasons people choose Windows. Main reasons (rational ones – ignoring sociological reasons, organizational momentum, etc.) are Office (hence Google Apps), Outlook (hence Gmail, etc.), gaming (look for Google to support cross-OS gaming frameworks), and the long tail of Windows-only apps (these are moving to the web anyways, but Google is trying to accelerate the trend with programming tools).
Browser: Not commoditized, and dominated by arch enemy! Hence Chrome is strategic, as is alliance with Mozilla, as are strong cross-browser standards that maintain low switching costs.
Bandwidth: Dominated by wireless carriers, cable operators and telcos. Very hard for Google to dominate without massive infrastructure investment, hence Google is currently trying to commoditize/weaken via (1) more competition (WiMAX via Clearwire, free public Wi-Fi), and (2) regulation (net neutrality).
Websites/search (”ad inventory”): Search is obviously dominated by Google. Google’s syndicated ads (AdSense) are dominant because Google has the highest payouts since they have the most advertisers bidding. This in turn is due largely to their hugely valuable anchor property, Google.com. Acquired YouTube to be their anchor property for video/display ads, and DoubleClick to increase their publisher display footprint. On the emerging but fast growing mobile side, presumably they bought AdMob for their publisher relationships (versus advertiser relationships where Google is already dominant). The key risks on this layer are (1) people skip the ads altogether and go straight to, say, Amazon to buy things, and (2) someone like Facebook or MS uses anchor property to aggressive compete in syndicated display market.
Relationships to advertisers: Google is dominant in non-local direct-response ads, both SMB self serve and big company serviced accounts. They are much weaker in display. Local advertisers (which historically is half of the total ad market) is still a very underdeveloped channel – hence (I presume) the interest in acquiring Yelp.
This doesn’t mean Google will always act strategically. Obviously the company is run by humans who are fallible, emotional, subject to whims, etc. But smart business should be practiced like smart chess: you should make moves that assume your opponents will respond by optimizing their interests.
