Tuesday, November 01, 2005

What's Up At Google?

Two things about Google interest me. The first is their stock price, and to what is that price vulnerable over time? The second is their recent, highly-visible fight with the publishing industry over Google’s plans to scan, without payment of royalties, large numbers of books into a searchable database. What is really afoot with this project?

I think that the two guys who founded google are very smart. They built a better search engine, but they realize the next great search engine is likely to surpass them, just as they dethroned Alta Vista. Yes, there actually were search engines prior to Google. A friend mentioned to me a few months ago for how little Alta Vista was ultimately purchased by some European company. It was pathetic.

I believe that the owners- excuse me, senior executives now- of Google realize that their best hope for continued consistent value, and thus wealth, creation is to become so entangled in the online habits of their customers that Google is no longer perceived as a search engine. Otherwise, they face the ever present threat of rapid decline.

Consider this. The two founders of Google probably don’t spend as much time creating new and better search procedures as they once did. Further, current students at better engineering schools across the country now have something at which to aim. By virtue of its current dominance, Google probably can’t take advantage of the next smart search engine designer’s new twist. And, to be honest, using a new search engine is ultimately as simple as going to a new website.

Thus, the rapid expansion by Google into, well, just about anything online that can tie your behavior into their brand, rather than their search engine, per se. For example, email services, instant messaging programs, a whispered foray into the remains of AOL, wifi rollouts in San Francisco, and, now, a voluminous database of searchable literary content. They must be really worried. Because very little of these enterprises, by themselves, require integrated consumer behavior. Rather, a single company offering all of them hopes they can bend consumer behavior to their version of service packaging.

Not likely in this internet and information age, is that?

As to the book scanning effort, that is perhaps the most intriguing of Google’s current projects. It is disingenuously portrayed as a simple case of Google spending it’s money, and lots of it, I would guess, to provide, for free, a database of searchable texts. What could possibly be avaricious about that?

True, their promise to provide only the undefined “snippet” of any search result is itself a loophole. And their explicit attempt to avoid securing permission to copy in a manner which, for anyone else, would require a copyright owner’s permission is worrisome. One gets the sense that they realize they have no chance of affordably tracking down the owner of every book they may scan. So, instead, they appear to be generous, allowing publishers to “opt out” on the copyright owners’ behalfs. How accommodating of Google.

But all this, I think, misses the real sizzle of this business concept. While maintaining the searchable text database as free in perpetuity, the mere ownership of this valuable trove provides for many as-yet-unspecified uniquely profitable opportunities. This is the sort of dream situation the authors of the Clayton Antitrust Act had in mind- one product is inexpensive, but is tied to another that is monopolistically controlled.

In the case of Google’s searchable database, the other, monopolistically controlled products, or services, may include: links to book sellers; extensive bibliographies of authors; access to information derived from Google’s ability to search the database in ways that are different than those it provides to free users.

The underlying opportunity in all these examples is some unspecified value-added product or service which is not the database, but is derived from ownership of the database. Particularly important, I am sure, is Google’s ownership of, and control of access to, that database. For instance, you don’t see Google, at this time, offering to share funding and control with, say, Yahoo, Amazon and Microsoft. No, they, or some of them, are now purported to be in their own discussions with publishers, to accomplish similar ends to that of Google.

As a closing note, this is now reminding me of two other investment “opportunities” of the last 150 years. Those are, American railroads of the late 19th century, and airlines in this century. British investors lost tons of money buying equity in fledgling US railroads during the late 1800s. The net cumulative cashflow of the airline sector, from birth to now, I have read, is negative. Which is to say, just because seemingly smart, well-heeled corporations and people throw wads of money at a concept doesn’t actually mean it will profit them. You and I may well enjoy a phenomenal benefit of online text search and procurement in the years ahead, at absolutely no cost to ourselves. And several seemingly invincible, or at least pretty powerful, technology titans will be poorer for our pleasure.

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