Thursday, October 5, 2017

"Google’s Search for the Sweet Spot"

From Stratechery:

...Apple’s Sweet Spot

Steve Jobs’, in his last keynote, framed that slide as a new direction for Apple after the company’s brilliant digital hub strategy, introduced ten years prior:
In fact, though, Apple was building Digital Hub 2.0, with the iPhone at the center:
Sure, iCloud kept files in sync (usually), but the iPhone was the juggernaut it was because it hit the perfect sweet spot of company, market, and value chain:

Company: Apple from the very beginning has been premised on the idea of integrating hardware and software, and the iPhone was the ultimate expression of that premise.

Market: The smartphone market was the best market technology has ever seen: not only did everyone need a phone, but in developed countries carriers subsidized top-end models because they drove higher average revenue per subscriber. Moreover, because a phone was something you took with you everywhere, there was far more value placed on non-technical attributes like fit-and-finish and brand.

Value Chain: Apple’s integration delivered sustainable differentiation in the smartphone value chain, forcing every other element, from suppliers to network providers to app makers to modularize themselves around Apple’s integration.
The result was the most successful product ever.

Google Search’s Sweet Spot
Given that Google is the second most valuable company in the world (after Apple), it is quite clear the company has found a sweet spot of its own. Indeed, Google Search ticks the same boxes as the iPhone:

Company: Google is built around the idea that superior technology is all that matters; that was certainly the case with search, which brilliantly leveraged the connectivity inherent to the web to make itself better; unlike its competitors, the bigger the web became, the better Google itself became.

Market: The truth is that the best technology does not always win; what made Google search the dominant force that it was and remains was the openness of the web. The less friction there was in the traversal of information the more that sheer technological prowess matters.

Value Chain: Google is the king of aggregators because, when information shifted from scarcity to abundance, discovery became the point of leverage, and Google was better at discovery than anyone. That allowed the company to integrate end users and discovery, making search the single best place to advertise for all kinds of industries.

Building truly transformative products requires all three: a company that is the best at serving a market at the point in the value chain where integration can drive sustainable profits.

Google’s Differentiator
Last year, after the company’s first ‘Made By Google’ event, I framed the company’s hardware efforts in the context of the search business model. Specifically:
A business, though, is about more than technology, and Google has two significant shortcomings when it comes to assistants in particular. First, as I explained after this year’s Google I/O, the company has a go-to-market gap: assistants are only useful if they are available, which in the case of hundreds of millions of iOS users means downloading and using a separate app (or building the sort of experience that, like Facebook, users will willingly spend extensive amounts of time in).

Secondly, though, Google has a business-model problem: the “I’m Feeling Lucky Button” guaranteed that the search in question would not make Google any money. After all, if a user doesn’t have to choose from search results, said user also doesn’t have the opportunity to click an ad, thus choosing the winner of the competition Google created between its advertisers for user attention. Google Assistant has the exact same problem: where do the ads go? ...