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May 25, 2008

Search, Internet, and Innovation - Advice for MicroHoo and Start-Ups

Ed: Buried in the obsessive conversations and advice for MicroHoo is a gem. The Internet is a platform for collective innovations. Many killer apps will emerge.

Both Mr. O'Reilly and Mr. Arrington point in multiple directions for innovation by large and small companies. Cnet's Mr. Asay adds more.

How will you contribute?

MicroHoo: corporate penis envy?

After reading endless pieces about Microsoft's obsession with search, I am forced to offer the following theory: penis envy (from Wikipedia):

...Microsoft has long operated on the model of platform as lever for lock-in and competitive advantage, or as Tolkien put it, "One ring to rule them all." But as I've been saying in my advocacy about Web 2.0 from the beginning, there is another model, represented by both Linux and the Internet, that might be called small pieces loosely joined. (I don't use the term in quite the same way as in David Weinberger's eponymous book (linked just previously), but the phrase is just too right to ignore.) The Unix philosophy, laid out so brilliantly in The Unix Programming Environment, is of a network of cooperating tools, each doing one thing well. This philosophy took root on the internet as well, and has proven to be an enormous engine of innovation.

I believe that we're collectively working on an Internet Operating System, and that it will ultimately look more like Unix than it looks like Windows. That is, it will be an aggregate of best of breed tools produced by an army of independent actors, all playing by the same rules so that those tools work together to produce a whole greater than the sum of the parts...

The Importance Of A Competitive Search Market

from TechCrunch by 
... There are so many areas on search that remain to be conquered. Semantic search. Real language/AI search. The deep web. Media search. Today search basically returns web documents. What I want is for search to complete tasks for me. We’re no where near that today...

Search Monopoly And A Healthy Internet Are Mutually Exclusive

Search is important because it is the starting point for most commercial intentions on the Internet.As I wrote earlier this week, 68% of online purchases begin at a search engine or shopping comparison site. That drives revenue, and a lot of it. About 40%, or $16 billion, of the $40 billion collected in online advertising comes from search. And 80% of that $16 billion comes from commerce related searches...

We’ve already seen what happens if there is a dominant player in search - little effort is put into innovation, and the not enough revenue flows to companies that add value to the system. The risk of the entire ecosystem is put at risk.

For example, the CPC (cost per click) model is flawed, but in Google’s favor because it puts fraud risk inefficiently on the advertisers, who have no way of controlling it at the search engine level. CPA (cost per action) models work much better, but Google has done little more than test them. The current system is great for Google and bad for advertisers. But advertisers have nowhere else to go since Google has 60+% of the search market (and perhaps as much as 90% of search revenue), so they have to live with it. Microsoft’s recent Live Search Cashback initiative shows that competition can and will create more efficient systems.

On the publisher side things are even worse. Google doesn’t share enough revenue with content sites that show their ads. The only thing keeping them even close to honest is the fact that Yahoo and Microsoft will occasionally compete for those partners. Take that away, and Google will go back to keeping the majority of advertising revenue generated at those sites (their only competition will be other types of advertising, which generate far less revenue). That is a terrible outcome when you look at it from the perspective of the health of the Internet.

Who will bury Google and Microsoft? We probably don't know...yet

Larry Dignan asks a potent question: Which startup will topple the giants of today, Microsoft and Google?

As I've written, I believe Google will cut Microsoft off from its future, leaving it to dwindle into its past. It will take some time (Microsoft has more cash than the US federal government), but Microsoft's every effort to become relevant in tomorrow's most important markets have met with resistance and, ultimately, futility. Google is the death of Microsoft on the web.

But what about Google? I had suggested that mobile may be the answer, but in reality I suspect Google has several more years of dominance. We won't know who will challenge it until it's at the very height of its hubris, just as with Microsoft. It's when we're strongest that the cracks start to show.

Larry is rightly digging around for the source of Google's downfall, but I think it's a pointless errand at this point. We'll yet see Google extend its dominance in search to another adjacent market, just as Microsoft did with Office. It's when Google will have seemingly wrapped up the web forever that another startup will be born to topple it, with Google's insistence on doing things the way it always has sowing the seeds of dissatisfaction that will power this new startup.

My own bet? Instead of search, the next big winner will be the one that focuses on "found." Google is all about someone proactively going out to look for what they want, and often finding it. But I think the real future is a product that lets us dictate what we want, and then passively sit back while interest flocks to us. Think RSS. Then extend the idea to commerce.


  1. Best Blog Post In A Long Time

    from A VC : Venture Capital and Technology by Fred
    I totally agree with Tim O'Reilly's post about Microsoft/Yahoo! and the web as a platform. If you care about the web, where it is, and where it's going, you need to read it in it's entirety. It's awesome.

    I've been saying for months that Microsoft should not buy Yahoo!, that Yahoo! should outsource its search to Google, and that Yahoo! should get leaner and meaner and focus on the things it does better than anyone else on the web. I've said this so much that I can't link out to all of the posts where I've argued this point, but here is my opening argument on the subject.

  2. The bottom line is you must do some combination of :

    - stopping the illegal publishing of the content through laws and/or technology

    - providing a means of monetizing free-for-all publishing through a tax of some sort

    - finding an advertising model on the net that really works broadly -- so far most advertising outside of search has failed (including YouTube) or is failing, and music download ads have failed horrifically.


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