GenuineVC David Beisel's Perspective on Digital Change

January 4, 2007

I’ve enjoyed reading all of the blog discussion in the past few days in response to Rich Skrenta’s Monday “Winner-Take-All” post. He deemed Google the winner in this “third age of computing” (2001-) having succeeded the prior two of Microsoft (1984-1998) and IBM (1950-1980). A post well worth reading, as he is correct in assertion that “Google is the start page for the Internet,” and the solid analysis which follows in his post is compelling.

Yet his conclusion that “it’s conceivable that they [Google] could actually end up owning the entire net, or most of what counts” is too strong, in my opinion. He argues that because user switching costs are zero, a winner-take-all market paradoxically results in all other lucrative destination verticals. However, one failure in this analysis is that many of the emerging online vertical applications contain a social component to them – these create robust network effects that do yield rather high switching costs for users. If web applications evolve towards not just finding information, but rather participating in it, there are compelling reasons to start with communicating and not searching. As we continue to see greater trends towards social media, users will seek services which add value from other users, not because a service has a better fundamental underlying technology or because they go there out of habit; rather, users will seek services which provide established rich interaction.

Moreover, Mitch Ratcliffe counter’s Skrenta argument with other good points, citing historically effective CPM rates for Google and increasing customer acquisition costs. Ratcliffe further goes on to state that if one extrapolates from those periods of dominance (quickly becoming shorter) that “Google in 2007 has a year or two of dominance left.” I would put forth that the “fourth age of computing” (following the above meme) is going on a different platform – a mobile-based one – and from this perspective, Google has anything but a dominant position. While the vision of many in the industry is for “one web” in which “the same information and services available to users irrespective of the device they are using,” the road towards this point will be a long and winding (uncertain) one. There are too many interested constituents in the value chain with real power (like the domestic carriers and handset manufacturers) for the battle for dominance over mobile applications to be already won by the likes of Google.

So while I agree that Google currently dominates search now, I have difficulty believing that they will “own the entire net” as we know it today, and there is certainly much question about who will dominate the apps of the mobile device web of tomorrow.

  • http://blogs.zdnet.com/Ratcliffe Mitch Ratcliffe

    Dave — thanks for the comments on my posting. Seems to me that the fourth age (if we must follow Skrenta’s trope) will not be just mobile, but encompassing of personal interests and preferences across many sites and devices. Of course, I have some ideas about how to do this….

    Mitch

  • http://worcester.typepad.com/pc4media Peter Caputa

    I agree that Skrenta is talking out of buttocks on the inverse relationship to switching cost BS. And I love your insight about vertical applications with network effects. But, mobile? I guess we’ll see.

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