Destruction of Wealth? Better Google Google!March 30th, 2011 at 20:01
There have been innovative alternatives emerging in cyberspace over the last couple decades to challenge the traditional models of selling people “stuff” (in this case hardware and software) to facilitate their use of electronic media for information gathering, development, storage and distribution. Many of these new models have been challenges to “the Man”, that is the big global businesses (like Microsoft, Apple, AT&T, Verizon, etc) that have been dominate players in an information-industrial complex.
Shareware and freeware models like Linux, and for love-not-profit enterprises like Wikipedia are beginning to make significant inroads against for-profit computer operating system, encyclopedia and other business products.
But perhaps ironically, a more traditional 20th Century profit model applied to the facilitation of electronic information gathering, development, storage, distribution and commerce is powering the emergence of a new for-profit juggernaut that may be making the other traditional for-profit cyberspace companies and their profit-models obsolete. It certainly has positive ramifications for a more egalitarian access to the tools and benefits of the information age, but also possibly negative ramifications in terms of sheer size and concentration of power and money involved.
My son Eric (who I have come to count on to give me a heads up on important new happenings in the world) shared this article from Gizmodo, “Android May Be the Greatest Legal Destruction of Wealth in History”, by Bill Gurley. Eric’s comment along with the link was…
I certainly hope we don’t end up looking back at Google saying to ourselves, “What have we done?”
As one always trying to come up with provocative titles for my pieces to get more people to read them, I have to take my hat off to Gurley for his title. I mean how could I resist reading that piece!
Gizmodo summarizes Gurley’s piece with the following teaser…
Bill Gurley thinks that Android is an unstoppable freight train that will prevail against all its rivals. For Google, Android is not even a product with a business plan. It’s just a weapon at the service of their master domination strategy, a way to destroy any potential threats that may eventually kill their search monster. This is how they are doing it and the potential consequences.
Though it is not made clear in Gurley’s piece, Android is an operating system environment that can be used on a variety of electronic computing devices, particularly the plethora of new hand-held ones. Microsoft remember, has made billions when they once had a near monopoly in selling their Windows OS on umpteen PCs. Rival Apple has also raked in the money selling you their well-crafted proprietary devices with their proprietary operating systems. Google in contrast is giving theirs away for free.
With their Android OS as exhibit A, Gurley goes on to describe how Google has developed a model where they are giving computer products away for free in exchange for your participation in their information network on which they sell advertising in an innovative model they call Adwords. Google’s advertising sales are big-time, bringing in billions of dollars yearly including a handy profit. So far its been mostly free software, but why not move in the direction of free or nearly free hardware and Internet access as well, taking this approach to its logical conclusion.
Funny, but Google’s is the business model that built the commercial radio and over-the-air television businesses during the 20th Century, the latter made obsolete to some degree by the pay-for-subscription cable/satellite TV business model in the last decades of the century, and to a lesser degree the satellite radio model of the early 21st. Now the commercial pendulum seems to be swinging back in that direction… go figure!
So from the point of view of a more egalitarian access to technology, I (who tends to see things in an optimistic light) applaud the Google approach challenging the proprietary you-got-to-pay-to-play approaches of Microsoft, Apple, Verizon, and others. But I’m not naïve enough not to realize the dangers of any monopolistic concentration of economic power, and as Peter Townsend said in his band The Who’s song “Won’t Get Fooled Again”, after the revolution…
Meet the new boss… same as the old boss… Parking on the left is now parking on the right…
“The Man” by any other business model is still “the Man”.
Gurley cites Warren Buffett’s “castle and moat” analogy for what makes for the most successful businesses. The “castle” is the money-making offering (in Google’s case highly targeted advertising) and the “moat” is the defensive aspects that protect it from being challenged (all the free software and other stuff Google is giving away to get you to play in their sandbox and have your “eyeballs” available to their advertisers).
So given all that, what’s this whole “destruction of wealth” thing? Google threatens entire areas of the for-profit software industry…
The combined market capitalizations of companies that build desktop operating systems, handset operating systems, mapping software (they give this away with Android also!), as well as internal software that helps to differentiate mobile devices is well over $100B, and may be several times that. Yet, there is no economic law that necessitates that these industries remain in their current form.
The giver’s away of stuff for both social consciousness (Linux and Wikipedia) and for profit (Google) may triumph in the information marketplace, and in Google’s case in particular, be the “new boss” or the “new man”. But according to Gurley it is not a monopolistic business practice in any traditional sense…
One might yearn to suggest that there is a market unjust here that should be investigated by some government entity, but let us not forget that the consumer is not harmed here – in fact far from it. The consumer is getting great software at the cheapest price possible. Free. The consumer might be harmed if this activity were prevented.
So it’s a brave new world where its hard to tell if Sherwood Forest’s newest high-profile inhabitant could be Robin Hood or could in fact be the new Sherrif.
But for better or for worse, it appears that the communication revolution catalyzed by the Internet will have a profound impact on the world akin to the impact print and movable type technology had on the Medieval world. In the case of the earlier innovation, it spawned an egalitarian revolution that toppled monarchies, brought on an age of citizens rather than serfs, exploration and discovery. Of course on the darker downside, also colonialism, nationalism, totalitarianism and unprecedented concentrations of political and economic power.