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Summary:

Internet has a deflationary effect on every industry it touches, whether it be financial services, travel, printing & publishing, media & entertainment, or telephony. Google’s strategic plan it seems is to obviously leverage deflation to its own advantage. Free, is the only model that works against […]

Internet has a deflationary effect on every industry it touches, whether it be financial services, travel, printing & publishing, media & entertainment, or telephony. Google’s strategic plan it seems is to obviously leverage deflation to its own advantage. Free, is the only model that works against a well oiled business machine like Microsoft. Google’s recent moves show that they are using “free” to gradually devalue of Microsoft’s assets, and thus its market cap. This is part of a mutation of the OS into a whole new animal. Jason Kottke had a nice post about the evolution of operating system, and Google’s role in that evolution. My dear friend, and occasional guest poster, Robert Young, who recently theorized on Rupert Murdoch’s intentions for MySpace, in an email suggested that it is not as much an evolution, as a mutation of the OS into a whole new species. Here are his thoughts.

Guest post by Robert Young

Google’s mission statement is “to organize the world’s information and make it universally accessible and useful”. At this stage, I think it should be more along the lines of Honda’s original mission statement, which was, “five Honda’s in every garage” (e.g. car, motorcycle, lawnmower, etc.). I say that because it certainly seems, with every new Google service that comes to market, my garage… er, desktop, is filling up with their stuff! So, what is Google’s master plan? These days, that’s the *big* question everyone seems to be asking (it used to be: “What’s the next killer app?”). Just to add more fuel to the fire, I’ll speculate alongside the rest of you. But before I provide my answer to the big question, allow me to digress a little to provide some background and perspective.

Over the years, I’ve noticed that Google’s success has largely been based on their ability to be highly counterintuitive. For instance, they started a search engine when everyone thought that game was over. They started to place ads in search results when everyone thought it was highly controversial. They introduced simple text ads when everyone was developing rich media ads. They designed an ad engine to rank the placement of ads by their effectiveness (click-through-rate) when everyone else was placing ads based on the CPM rates they were able to sell. Their performance-based ad model enabled them to initially build their business on “mom-n-pop” small business advertisers (generating billions of dollars in revenues from the long tail) when everyone else was chasing after Fortune 1000 brand advertisers.

More recently, Google has introduced services that clearly indicate their desire to build a comprehensive “platform,” one that challenges Microsoft’s dominance in this area head on (Gmail, Desktop Search, now GD2, and Google Talk). So what is Google’s master plan? I believe they are once again going counterintuitive, but in a manner that hits Microsoft where it hurts most. Google will make Microsoft’s entire strategic plan and mission, which revolves around the continued proliferation and dominance of the desktop PC operating system, obsolete by making Google itself the operating system. The model they are pursuing is very similar to Sun Microsystems’ (Jonathan Schwartz’s) vision of turning computing into a utility, like electricity. The only difference is that Google is already almost there.

To some extent, Google is bringing back the architecture of the mainframe to render Microsoft obsolete. In the future, all computing devices, whether it be the PC, mobile phone, TV, etc., will simply be terminals that “plug-in” to Google’s massive server grid and application services. With the increasing price/performance of CPUs, memory, bandwidth, and storage, Google’s strategic edge will be based on their advantageous cost of processing bits. And as long as users are comfortable sharing their private data and behavior with Google, all services will remain free (and supported by advertising).

It’s not too difficult for me to imagine a day, very soon, when I rely on Google for almost all my computing needs and I buy hardware devices based on such criteria. That’s the day Google will have become my operating system. We all know that the internet has a deflationary effect on the assets of every industry it touches, whether it be printing & publishing, media & entertainment, telephony, etc. If what I pose above is indeed true, Google is using the internet to systematically devalue Microsoft’s assets. Perhaps there will be a day on Wall Street sometime in the future that’ll be known as “Microsoft’s Black Monday.”

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  1. Hans Van Deun Friday, August 26, 2005

    I’ve been thinking about this, too. Google is clearly trying to become a portal – but not in the conventional sense. They want to be a portal for all information management: search on-and-offline, blogging, mail, news, driving directions, IM, and so on. If their wager works, the OS (ie, Windows), will be reduced to a mere layer to manage the PC hardware; Office, Enterprise Software, and other content creation tools will still exist, but once you want to organise the content you’ve created, you’re going to be using Google.
    MSFT, on the other hand, is trying to integrate information management tools in their OS, so that it’s still a valuable asset. I suspect Vista will contain many information management tools, similar to Google’s current offerings, making them redundant.

    Who will win? I don’t know. If Google can persuade a lot of people to migrate entirely to Google products before the release of Vista, they will not need to upgrade. If Google hasn’t captured the market when Vista is released, I guess they will be crushed – like netscape, OS/2, and many others.

  2. Alec Saunders .LOG » Blog Archive » Google vs Microsoft Friday, August 26, 2005

    [...] Over on Om Malik’s blog this morning he has a guest post from Robert Young titled Google, the Ultimate Deflator.  It’s Google vs Microsoft, wi [...]

  3. Alec Saunders .LOG » Blog Archive » Google vs Microsoft Friday, August 26, 2005

    [...] Over on Om Malik’s blog this morning he has a guest post from Robert Young titled Google, the Ultimate Deflator.  It’s Google vs Microsoft, wi [...]

  4. Alec Saunders .LOG » Blog Archive » Google vs Microsoft Friday, August 26, 2005

    [...] Over on Om Malik’s blog this morning he has a guest post from Robert Young titled Google, the Ultimate Deflator.  It’s Google vs Microsoft, wi [...]

  5. Robert,

    I think Google is great – but you’re giving them way too much credit for ideas that were already out there.

    You wrote:
    “They started to place ads in search results when everyone thought it was highly controversial. They introduced simple text ads when everyone was developing rich media ads.”

    Uh, Overture was doing this for years before Google was on the scene. And they were doing it when everyone was saying that ranking search results based on who paid the most was offensive to the average web user.

    Google had a wonderful asset – their search engine. But they had no real way to monetize this until they decided to borrow Overture’s model (actually, they’ve paid Yahoo quite a bit for it).

    In terms of a “master plan” – I think Google is throwing stuff at the wall and seeing what sticks. I think people are reading way too much “master plan” into a company that seems to just release whatever they think of – regardless of commerical implication.

  6. TechnoMagicians Weblog Friday, August 26, 2005

    Google’s Mission Statement

    Excellent observations by Om about Google posted today:

    Over the years, I’ve noticed that Google’s success has largely been …

  7. Michael Savoy Friday, August 26, 2005

    If what I pose above is indeed true, Google is using the internet to systematically devalue Microsoft’s assets.
    ————————————————————-
    This post presents brilliant perspective and insight into precisely how Google has evolved and positioned itself into the role as ultimate Microsoft slayer.
    As presciently laid out in this post, I believe there has got to be genuine anxiety if not outright fear within Microsoft as to the very nature of an imminent paradigm shift you’ve divined, this time the scenario hhas Microsoft with absolutely no defense.

    It’s like hearing the warning of an oncoming tornado. You know its approaching, the only option you have is to steel yourself and hope for the best.

    The last time Microsoft faced a similar threat was with
    the introduction of Netscape. Only at the very last moment, almost too late in fact, did it dawn on Bill Gates how Netscape had the potential to undermine everything Microsoft had nutured up until then.

    Like everything else Microsoft did to vanquish all and every one of its its competitors, it was only a matter of throwing enough money in conquering whatever
    market Microsoft wanted all to itself.

    But now, the incredibly delicious irony is that whatever
    real or imagined threat Google may pose for Microsoft
    the huge repositories of cash Microsoft has socked away will soon become as worthless as the hyper- inflated billions of Weimar Republic Reichmarks of late 1920’s Germany in saving their precious Windows- based empire from ruin.

  8. More on the WebOS

    Interesting post at kottke.org on WebOS. Lots of references to another post on by Adam Rifkin – check out both of them. A lot of what they’re talking about I’ve been see on SymphonyOS. UPDATES: Cnet has an article about…

  9. Google, the ultimate deflator

    Robert Young writes about Google’s long term strategy in a guest post over at GigaOm.
    Google will make Microsoft’s entire strategic plan and mission, which revolves around the continued proliferation and dominance of the desktop PC operating …

  10. the possible impact here goes deeper than the OS. imagine a world where intel machines (and maybe even AMD driven ones) can offer you a power-up choice of booting in to Windows OR in to a browser only or “net-only” mode where EVERY app can be run and your data can be local or in the ‘cloud’. technically, it is possible today — even Phoenix ships a pre-boot browser today and with companies like XENSOURCE (once they get rid of their oh-so-oxford pedigree) and VMWare (once it is free of EMC in a spin-out IPO), i look forward to the day when i have an instant-ON machine which only boots in to Windows when I really need to manipulate a “legacy” document locally (powerpoint, excel, word) – all other times i can just launch Firefox or Google widgets (sidebar is plain ugly – something better will come along) and browse, edit, post, see, read, watch tv — all WITHOUT Mr. Gates’ invention impeding me. now Intel and Microsoft may team up not to allow this at all (what with the EULAs and all) but will Intel risk this “legacy” OS path vs. a much broader play in the general consumer market (pentium X shipments = TV shipments worldwide!)? Perhaps not. And goofy names like “ViiV” notwithstanding, I dont think Intel gives up the broader play. I believe they already have $-driven relationships with both VMware and Xensource (their Vanderpool spec has learnt from both) and Google just makes the eventual “virtual machine” more real than just running XP in a linux kernel…

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