NB: I am posting this for MP, because I think he posted it to the wrong place.

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Good post, Umair...

Would you think Yahoo! is "less efficient" because they have a lot more robust array of services whereas Google is still trying to get into the game beyond search?

And what happens as Google gets hundreds of millions of users into each of the services like mail, IM, etc.

Does their marketplace become less efficient because the points of intersections have to occur in a lot more vertical service silos?

Thanks.
 

Hi Michael,

Those are very interesting questions.

I think the notion of efficiency is fundamentally about liquidity.

This is interesting, because Yahoo has way) more users than Google.

But Google's market is simply more liquid, because it's more microchunked: it has more queries, and a wider network of microcontent, so more inventory on both counts. I think these are really the crucial leverage points.

Think abut it this way: as queries/user decline, liquidity falls disproportionately.

That is, there is a liquidity premium. Now, this also implies that this premium will grow in users (verticals, etc) because it's those that make the market liquid for advertisers.

Now, you said, as the number of verticals explodes - what I call microniches, essentially - transaction costs for both advertisers and consumers begin to rise.

But I think it's exactly microchunking that enables these to emerge. That is, it's the fact that these costs *don't* exist that lets the Google market trade microniches.

Think about it this way: in the real world, these microniches wouldn't be liquid enough to transact with. But because Google can aggregate them frictionlessly, they become very, very valuable.

So I think Google's competences - what I call edge competences - are in exactly this: microchunking stuff so it becomes liquid. Once it's liquid, it's tradable - and Google can take a cut.

I'd be surprised if this hurt Google; if anything, it should *help* Google (but hurt Yahoo, because they distinctly are not developing this competence).

I hope this made kind of sense, I am struggling to express this stuff as I develop it sometimes :)
 

Nice post!

Could you unpack this statement a bit further? "For Google, a world ofhyperefficiently allocated attention is costly, because clicks get vaporized."

Thanks!
 

Google is very profitable now, because the majority of their profits come from search... search is going to grow primarily (as a function of total searches) in the East over the next 10 years, so those investing in Google must be assuming that Google will lead searching in China, India, E. Europe and other developing search markets.

But what I wonder about is that for Google to keep growing, it will need to dominate markets which are much less profitable then search. Their margins will have to shrink a lot as they expand into other markets, but how much?
 

AQ,

All this stuff (Print, Base, etc) creates huge amounts of new inventory to put behind the search model. I don't think search revenues are going to run out of steam any time soon.
 

It may be a huge new inventory, but does it represent the same level of interest by the consumer?

Look what people are searching for-- and look even closer at the things they are searching for which create high value clicks-- the vast majority of it is not to be found in books.

Base is something else, but it's hard to say if it will succeed, and if it will contain the type of information people are actively looking for.

I'm not convinced that Google has a huge new area to expand when it comes to finding things people are looking for that coincides with the type of customer marketers are looking for.
 

AQ,

That's a good comment.

But it's also exactly why Google is disrupting marketing.

The entire point of 1.0 style marketing is find out "what people are looking for".

They spend endless amounts of money on focus groups and other cheezy techniques which don't really work, and give us nice things like Lunchables.

Google's playing a different game, IMHO.

By making stuff plastic and liquid, they're unlocking value by exposing information they can sell to the highest bidder.

In fact, if you think about it, the 1.0 style cheeze only happens because info *isn't* plastic and liquid.

So right now, it's difficult to tell if books are "high-value clicks"; we can't really search inside them too well (barring Amazon's attempt).

Even then, perhaps they won't be the highest-value stuff.

But as long as those clicks are more valuable than the the marginal cost of indexing those books, Google wins. Now, this is probably a good bet.

And note, this is a first-order analysis. It doesn't take into account how Print raises switching costs, increases liquidity for advertisers, b-model apart from PPC, etc, etc.

So, in sum, I think it's more important to look at this from the edge competence POV than the clicks POV.