Strategies for a discontinuous future.

Wednesday, March 30, 2005

How Yahoo Got Google's Mojo

Om had a nice piece recently about how Yahoo got it's mojo back - how it's created a fair bit of momentum and buzz with new products and revamps to old ones.

I think another way to look at it might be that Google's lost a great deal of mojo, and Yahoo's stepped into the huge strategic gaps that Google's exposed nicely.

Case in point: I haven't blogged for the last few days because every time I try, Blogger's down. This is kind of absurd. Google acquired Blogger a long, long time ago (in Net time)...and has yet to do turn it from asset into complement. Put another way, Google's done a nice job of extending AdSense into blogs - but this is incremental innovation.

As it's competitors continue to push the rate of innovation, as new standards get established, and as new platform complementarities emerge, Google loses market space exponentially. What's the point of having a huge share in a mature market? Not much...price competition from MSN and Yahoo is gonna erode AdSense/AdWords margins, and new segments - my money's on micromedia - are gonna be the high growth/high margin segments.

Google's lost the innovative edge in more space than it's sustained it - Froogle, Orkut, Google News, etc, are all essentially third-tier competitors in winner-take-all markets. The really important point to note is that in each market, Google established an early-mover-advantage...but never sustained it to first-to-scale, by building strong imitation barriers via differentiation (in target market - Orkut vs LinkedIn/Ryze/MySpace) or radical innovation (G News vs Topix/Technorati/Bloglines, each of whom massively leveraged RSS to solve distributor fragmentation).

The most obvious way Google could have sustained early entry to first-to-scale was via platform economics and hypercomplementarity - make the returns to using to the total vastly greater than the returns to using just one product. Because it's failed to deter not just imitation but competitor innovation, switching costs in it's core markets are declining fast. My switching costs in Blogger are not nearly as high as they were a year ago, because competitors offer me hugely more benefits than Blogger. At the same time, competitors have locked huge user bases into high-growth segments with sharply differentiated products offering discontinuous value creation (think LinkedIn/BlogLines) - Google's ceded these markets.

All of which begs the questions - why does Google lack a follow-through? The rumblings I've heard are that the same chaos that creates cool things fast is also hard to rein in when the times comes to standardize, modularize, differentiate, market, and integrate those cool things - those activities don't need genius strategists or engineers, they need grunts.

Now, I'm pretty sure Goog's answer to this would be: a) we're not worried; and b) we are going to surprise you all by launching the beta test of Cybertron in 4Q 05. That may be the case...but the opportunity cost of whatever Google's got in the pipeline has been pretty high.

In fact, almost exactly a year ago, Yahoo was my favorite target. They made nice strategic errors for me to comment on almost weekly (and I had a lot of fun pointing them out). The worm's turned - kudos to Yahoo for not only being able to read the tea leaves, but also being able to match vision with execution.

-- umair // 3:57 PM //

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