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startups book

startups book

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Published by Chris Dixon

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Published by: Chris Dixon on Apr 19, 2011
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07/10/2013

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December 30, 2009

Google seems to be releasing or acquiring new products almost
daily. It’s one thing for a couple of programmers to hack together a
side project. It’s another thing for Google to put gobs of time and
money behind it. The best way to predict how committed Google will
be to a given project is to figure out whether it is “strategic” or not.

Google makes 99% of their revenue selling text ads for things like
airplane tickets, dvd players, and malpractice lawyers. A project is
strategic for Google if it affects what sits between the person
clicking on an ad and the company paying for the ad.
Here is
my rough breakdown of the “layers in the stack” between humans
and the money:

Human - device – OS – browser – bandwidth – websites - ads – ad
tech – relationship to advertiser – $$$

At each layer, Google either wants to dominate it or commoditize it.
(For more on the strategic move known as commoditizing the
complement, see here, here and here). Here’s my a brief analysis of
the more interesting layers:

Device: Desktop hardware already commoditized. Mobile hardware
is not, hence Google Phone (Nexus One).

OS: Not commoditized, and dominated by archenemy (Microsoft)!!
Hence Android/Google Chrome OS is very strategic. Google also

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needs to remove main reasons people choose Windows. Main
reasons (rational ones – ignoring sociological reasons,
organizational momentum etc) are Office (hence Google Apps),
Outlook (hence Gmail etc), gaming (look for Google to support
cross-OS gaming frameworks), and the long tail of Windows-only
apps (these are moving to the web anyways but Google is trying to
accelerate the trend with programming tools).

Browser: Not commoditized, and dominated by arch enemy! Hence
Chrome is strategic, as is alliance with Mozilla, as are strong
cross-browser standards that maintain low switching costs.

Bandwidth: Dominated by wireless carriers, cable operators and
telcos. Very hard for Google to dominate without massive
infrastructure investment, hence Google is currently trying
to commoditize/weaken via 1) more competition (WiMAX via
Clearwire, free public Wi-Fi) 2) regulation (net neutrality).

Websites/search (“ad inventory”): Search is obviously dominated by
Google. Google’s syndicated ads (AdSense) are dominant because
Google has the highest payouts since they have the most
advertisers bidding. This in turn is due largely to their hugely
valuable anchor property, Google.com. Acquired Youtube to be their
anchor property for video/display ads, and DoubleClick to increase
their publisher display footprint. On the emerging but fast growing
mobile side, presumably they bought AdMob for their publisher
relationships (versus advertiser relationships where Google is
already dominant). The key risks on this layer are 1) people skip the
ads altogether and go straight to, say, Amazon to buy things, 2)
someone like Facebook or MS uses anchor property to aggressively

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compete in syndicated display market.

Relationships to advertisers: Google is dominant in non-local
direct-response ads, both SMB self serve and big company serviced
accounts. They are much weaker in display. Local advertisers
(which historically is half of the total ad market) is still a very
underdeveloped channel – hence (I presume) the interest in
acquiring Yelp.

This doesn’t mean Google will always act strategically. Obviously
the company is run by humans who are fallible, emotional, subject
to whims, etc. But smart business should be practiced like smart
chess: you should make moves that assume your opponents will
respond by optimizing their interests.

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