When my mother, who didn’t own a mobile phone, or a computer and had never been on the internet asked me if she should invest in Google at the time of their IPO I told her that I thought she should invest in companies she understood and was interested in. Kind of a dodge, but I’ve found it helps not to be too definitive with my mother.
The truth was that I was unsure myself. On the one hand you had the massive build up in publicity, the utility of the service, and the fact that they became an eponym almost overnight. On the other, you had their insecure business model. In a classic case of over-thinking I reasoned that their long-term performance was too indeterminate to invest in because I couldn’t see how they would develop sustainable advantage — would brand be enough?
See, the thing about Google is that they are incredibly vulnerable. Despite all the hooha around them, if the day after their IPO someone else came along with a better search engine they’d be toast. We would all just log onto that. In business-ese this is to say that their vaunted simplicity model – no learning required, just pull up the site and search – is also their weakness. They have no switching costs, no learning economies, no network economies, etc. What they do have (now) is a wickedly powerful brand and the money and intellectual resources to buy or out-market any superior solution that comes along.
Well, sort of.
The folks at Google are working feverishly to develop new service lines and revenue sources. At least in part, I suspect this is because they are aware that they are vulnerable. See, despite the successes of Android, Chrome, Maps, etc. these folks primarily make their money through on-line advertising. And they make that money either because people are seeing the ads, or because they are clicking on them. And this is their Achilles’ heel.
When I first heard about Siri I thought it sounded cute. A little voice to help you set your alarm, or get directions. But as I thought about it a bit, and its implications I had another thought — “I wonder if I should short Google now?’
