Monday, September 18, 2006
Reports that Google has climbed above 60% in US search referral market share (according to Hitwise's latest report) have buoyed Google stock.
So when does this plateau? Do the others fight for the remaining share for awhile? Does #2 continue to lose share, or does a new #2 emerge? Or does #1 go to 90%, becoming a de facto standard?
It's just an impression based on a couple of industries with dominant players/standards (no, let's not talk Coke/Pepsi), but I tend to believe that at a certain point, the #2 option starts to make sense again, often when everyone had given up on competition.
Case #1: men's razors/blades. Gillette, through as many iterations as one can count (Trac II, Sensor, Sensor Excel, Mach III, Mach III turbo, Mach III turbo with iTunes and universal remote, plus, now, the new ludicrous five-blade Fusion, and I'm sure I'm forgetting some), has been the clear leader. But those poor saps, Schick and whoever, never gave up. In business story after business story, we were fed the wisdom that because Gillette invested so much in R&D and in their brand, the lead was safe. But is it really necessary to invest *that* much in a shaver? Isn't it possible to just rip off the main ideas, differentiate somewhat, get more aggressive in your marketing, and grab a good 25% of that market? And if so, isn't it good to be #2? You'll still get shelf space. You'll still make outrageous profits. For the first time ever, I thought about getting a Schick razor, partly due to the ads, and the fact that the four blade concept doesn't make me laugh. This must be because there's no need to be loyal to one razor brand -- if you're being frugal, you wouldn't have two different systems, but then again, if you were being frugal you'd probably find a bunch of Trac II's in a warehouse somewhere. So... why not have a couple different ones? People have two cars and seven phones. From what I'm reading, Gillette still has 75% of the North American market for blade systems. But does it feel like maybe the tide is turning?
Case #2: Chips. The computer kind. Again, remember the incessant hype about the industry standard, Intel, being able to invest so much in R&D that it would crush rivals like AMD, reducing their market share to 1% or less. "AMD in trouble" was a common theme for many years. Then Intel made a misstep. AMD actually got a lead on them in some areas and Intel made way too many dual-core products which seem not to be that great a deal for many users (but they have to unload them, which is why Intel propaganda is creeping into the distribution channel so they can dump the higher-end chips when the lower-priced ones are just as good for most purposes). Today, AMD's market share is above 20%, and climbing. There are worse fates.
So to search. Yahoo's 22% seems like it'll need to fall further, perhaps below 15%, if the "temporary long-term dominance scenario" of Google reaching 80%+ is to happen. If and when that happens, will Yahoo or someone else be there at #2? And how will recent long-term trends of Google increases be reversed?
As things stand, I don't see it happening, for the same reason people stuck with Gillette and Intel for so long: demonstrable superiority of product in an area deemed to be mission-critical by the consumer. Google's product is superior on many levels, when push comes to shove. We can debate this, and certainly it's actually worse than some competitors in areas like news search or blog search, but by and large, it's got so much that is faster and cooler, it's way ahead. (It's *not* ahead in many verticals, however, which is one way the others might win -- if the verticals themselves turn out to be fundamentally as important as "search" in some larger sense.)
Longer term, how a #2 player really solidifieds their position seems to depend on similar factors to my above two cases. (1) Affluence and interest in novelty. Search, like razors, isn't mutually exclusive. Or, if you prefer, like chips, it's possible to re-evaluate every few years and make a new choice, getting rid of the incumbent because it's fallen behind. (2) Disruption. There are so many devices, distributors, and choke points emerging, that new "default search tools" could easily emerge. Me, I'm looking forward to a new Blackberry device, and it happens to be very Google-compatible. But that's how the competition can come in - by exploiting niches, coming up with partnerships and new distribution methods, etc. That's why, if we're looking far down the road, say 5-7 years, the #2-search-engine-of-choice could well turn out to be neither Yahoo nor MSN. I'm not going to count page-view-based juggernauts like MySpace, but it is interesting to see how quickly new environments and trends do arise, so when I say 5-7 years, it could be 2-3.
At the end of the day, the argument here is essentially one that mirrors or marvels at the power of business-building technologies and reverse engineering to create knockoff businesses at much lower cost than the leaders spend. The salesman at a men's store won me over with a charming joke that they have "architects" working on today's garments (to the tune of $170 trousers). One soon finds that they have the same "architects" working on very similar pants that run $35, albeit with cheaper fabric.
Yep, come to think of it, given how much you can accomplish with even 5% of Google's R&D budget, there's no reason to think the #2 search player in five years will be any of the names on today's leaderboard. And people will opt for them because they're no longer convinced the leader is so great.
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