Thursday, February 2

Is it in the corporate DNA?

Recently, my roommate (who is an analyst for a NY hedge fund) wanted to discuss the differences between the three big Internet players - google, Microsoft and Yahoo! As I began to describe the three companies - I drew out a map of the Internet ecosystem and realized that the inherent cultural DNA governs these three companies and their overall strategies. And, once again, I do not suggest I am uncovering anything new - only presenting what I assume most strategists are thinking - in more laymen's terms.

Manage from the center or the edge
All three players are vying for control of access - from each and eveery way you currently connect to the processes and information that you use to perform your daily tasks or desires. In network terms (Ed. Note - I used to work for Interoute, a pan-European telco), there is the carrier's backbone, the metro networks (fiber in the cities) and the local connections (e.g. fiber to the office or the home). If you take this general structure and consider those three regions as battlegrounds (center, metro and local), the battleground begins to make more sense.

Microsoft - own the edge, build up the center
At it's core, Microsoft has always been an edge device player - the OS exists on devices close to the user - on the order of hundreds of millions - and has had to build a corporation based on the management and optimization of these edge devices. Consider the logistics, the problem solving techniques Microsoft has had to build to handle the challenge of managing the OSes and applications that exist on the platforms. Note how it has been very patient in building it's presence on mobile devices, gaming platforms and cable devices (okay, maybe not so good on WebTV) - but as it continues the inexorable march forward - it has to contend with various challenges (Linux, PalmOS, Lindows, Netscape, Firefox, Sony, Nintendo, etcera) - and then extend itself into other markets (MSNBC, But, for all of it's vaunted brainpower - it has an incredible challenge when it faces the two areas that Google and Yahoo exist in: search and media.

Yahoo! - own the center, leverage editorial and the community
Yahoo started as a directory managed by a team of editors - focusing on indexing the Internet the old-fashioned way: using humans to index content in a human-understandable form. In the world of databases, indexing means a hash value that points to some content. Yahoo! built it's value on the human-understandable index of content that a person could look through. The inherent interconnection of content became centralized at Yahoo! - you could find the links between content in the Yahoo! index - all editorialized at the Yahoo! offices. As John Battelle's book points out, Yahoo! now provides additional guidance on the search of information through it's editorial offices - they become the aggregator of taste with the Yahoo! brand. And, if you consider that most people are searching for a strong aggregation brand (think of why we read newspapers or watch a favorite news channel or listen to a particular radio station), Yahoo!'s centralized strategy is just another conception of the media play - become the world's Internet destination and provide the best Yahoo! branded content - which means Yahoo! owns the channel and the influence over the "best" content. And since it owns the content and the community (think of all the boards and eGroups and other community aggregation spaces), it has a pulse on how it's editorial choices are influencing the community - Yahoo! is it's own focus group organization and content "generation" organization.

Does it focus on the edge? Why should it - when the media model is about managing the content and the brand - it is not a tools developer, it uses content and software to create Internet content - not manage how you get to it. Yahoo!'s need for better search is not because it is a search engine, it is because Yahoo! needs to have you (the customer) rely on Yahoo content - and the "good enough" should be there for you to discover their content.

google - own the center with algorithms and sensors
Google's DNA is about search - plain and simple. It has never been about editorial - outside of what the "community" thinks is editorial - using algorithms to determine taste and interest in a "real time" fashion. Think of google as the world's biggest pollster - asking questions and doing deep database analysis on the questions asked. When you get into google's past - it has always been about optimizing clustering - and determine the best "answer" from aggregated data. google's foree into Desktop apps? Is it because it wants to compete with Microsoft? Not exactly.

google needs to be on Desktops simple because it needs more information - and by owning the center - and it has built one of (if not the) best polling systems (read: web crawler), it needs more information. Because now - when news breaks, people publish their opinions, websites change their content - google's crawlers can not be everywhere all the time. But, given the fact that the world is online - each computer becomes google's crawler - and now, when we are told of a new website through our personal network, and we go to it - where is google? On our search bar on the browser, on the desktop search app, on the google Talk, at the website itself in the google analytics - consider how many ways google can now watch your every move. And can they target an individual? As John Battelle points out, absolutely.

This means that google is still centralized - tweaking algorithms, optimizing data storage, running their own data OS across the world (yes, they have been on a buying spree for data centers and bandwidth) - and we are the crawlers. The optimal distributed effort - all of us working for google to optimize the search engine - and reaping the benfits through advertised search.

And the winner is?
Truthfully, I do not see "a winner". Microsoft will always be there on the OS play - even if google developed their own Windows-killer, all of the software that Microsoft has to manage the customer relationships with - google is ill-equipped to create an entire customer service and sales team to handle it. Think of all of google's apps - how many of them offer "customer service"? How many complaints have you heard of in trying to reach a customer service person? And, aside from the sales team, what is the bulk of google's efforts: engineers, project/product managers and sales engineers.

If we are optimizing return on investment - google is a sure fire winner since the service it offers, the reach it has and the efficiencies it has give a better return on capital - when you do not need to handle all of the customer issues (which tends to be the bulk of a corporation's costs), the efficiencies are evident.

Yahoo! - now there is an interesting challenge. Simply - as the other players in the media market gear up - how does it play out? Yahoo maintaining it's Swiss-like state is perfect for aggregating media across the world - providing the Yahoo! channel for all to see. And by managing the brand effectively - they will continue to be the "media channel" of choice for the coming years.

tags: Yahoo microsoft google business models

1 comment:

Edward Vielmetti said...

Sanford, thinking about this a bit -

I'm growing increasingly tempted to refocus my energy and attention away from Google properties towards Yahoo properties. It so happens that a bunch of things that used to be independent organizations are now Yahoo (flickr, delicious), and I've been using Yahoo Groups since it was eGroups. So there's some possible compelling reason to switch search over to them just because if they do ever figure out how to sanely mush in the other social stuff I do it should be better.

Google for all its goodness as a search engine has a bunch of other properties that are not as good, or more to the point don't seem to ever grow organically once they are rolled out. What's the recent innovation track record for Google Mail, adding a delete key and more intrusive ads?