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Sunday, June 18, 2006

Who Rules the Info Space?

In 1961, Yale political scientist Robert Dahl published a landmark study of power, Who Governs? Democracy and Power in an American City. By analyzing who seemed to hold sway over important local political decisions (who "won" on key issues), Dahl's analysis laid out what would later be called "Power 1" by political scientists -- a kind of simplified study of power based on clearly identifiable "wins" on contentious issues. Dahl's conclusion was sanguine. Even at the local level, American society was blessed with enough checks and balances that decision-makers were kept on their toes. No one faction "owned" the town.

Ten years later, Dahl began to change his mind. By the end of his career, his position on the relative power balance in American society had changed radically, though his interest in democratic process had not.

Recently, questions have arisen about Google's ability to win share in any product category but its core search areas. Google Finance, for example, is #42 in the business information vertical, while #1 favorite Yahoo Finance garners fully 35% of user activity.

In Local Search, even, where Google has a very cool product with considerable momentum, they are up against serious competition against older listings businesses. It's by no means a foregone conclusion that a cool product will win. So here again, yellow pages businesses act as a countervailing force, ensuring that no one player gets too powerful. Users and advertisers alike can shift their dollars and eyeballs, keeping the leaders honest and spurring innovation.

Can this "stalemated" or "competitive" environment last?

I suppose we might draw two conclusions. First, that the various checks and balances involved in having a variety of successful Internet giants are proof that no one holds sway over consumers' choices to an unhealthy degree. The second, related conclusion might be that consumers are choosing products based on this healthy competitive atmosphere.

I think both conclusions might be hasty.

To take the second first: Google's dominance in search, as well as its laggard position in things like email and business information, may be proof that consumers only "choose" to a certain extent. Once a product or service satisfies a need, extra research and a decision to switch are simply not warranted. Many simply find Yahoo Finance good enough. All Google does by releasing a new product full of "AJAXY GOODNESS" is to give Yahoo ideas as to how they might perfect their own offering.

Popular lore has it that another web site or another web service are "only a click away." From what I've observed, a lot of people are more inclined to switch cars or dishwashers than they are web services. The "one click away" thing is a bit of a red herring. A car (or a dishwasher) actually cost quite a lot of money, so the extra research is well warranted, to say nothing of a lot of fun. Doing more research on "how to use local search" is for many like pulling teeth. If something seems easy to an intermediate-level user of web services, and they remember it was actually a bit tedious to get up to speed on it in the first place, I'm betting they'll cling to it like a barnacle. So sure, it's easy enough for the very young to play with new services like MySpace. But in general, as we've seen from the GMail rollout and so on, there isn't incredible volatility in people's web habits. Switching one's routines and rituals is like moving house -- you'd rather not do it every year.

Now - about that healthy "stalemate" type competition, where Microsoft, Yahoo, and Google (and Amazon, and eBay, traditional media and traditional listings/classifieds businesses, and, we hope, plenty of up-and-comers) all have leadership in different areas. Yes, that's sort of true for how things currently stand, but it's a status quo most of these competitors wish they could break out of, by going up a level or two and gaining unfair distribution advantages. Microsoft is legendary for it. The others are going to be thinking about how they can do it. That's perhaps why debates about Net Neutrality are important. It's also why companies like Google and Yahoo are looking for deeper and deeper platform advantages. You still wonder why they haven't made more powerful overtures to traditional companies in sectors like hotels, autos, home building, and so on. Not to have them as advertisers, mind you, but as distributors.

In large part, the stalemate is about valuations. If someone (or a couple of the leaders) can break from the pack financially to the extent that they're able to consolidate with very large partners and competitors on favorable terms, suddenly the $200 billion giant is beating the tar out of the little $25 billion companies in the space. I do think some kind of shocking consolidation moves still make sense in the "info space." Companies like Google will someday need to admit that they don't have all the answers or all the assets, and other companies out there do. Consumers, meanwhile, are craving simpler answers... they do not, by and large, want to become expert searchers, schooled in figuring out where "else" to go when their search engine or key vertical app doesn't quite measure up.

It's interesting to watch the stubbornness of Microsoft, still believing it can "play catchup" in search, as it did with Internet Explorer. Can it? And is Google now falling victim to the same optimism in the many verticals it's gone into, thinking it'll catch the leaders but finding itself languishing?

Perhaps the takeup of the new GBuy service -- until we hear otherwise, this is still taking direct aim at PayPal -- will be a real bellwether as to whether Google really merits that big "S" it seems to wear on its metaphorical chest.

Posted by Andrew Goodman




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