I.
For all the attention paid to the
secrets-of-success business book genre (see last October’s newsletter), very
few U.S. companies that win one round of a competition can dominate a second
time. Whether or not they are built to last, big winners rarely dominate twice:
-Sports Illustrated did not found ESPN.
-Coke did not invent, or dominate, energy
drinks, or bottled water for that matter.
-IBM has yet to rule any market of the many it
competes in the way it dominated mainframes. For many years, the U.S.
government considered breaking IBM into smaller businesses, so substantial was
its market power. Yet as of 1993, the company nearly failed and posted the
largest loss ($8 billion) in U.S. corporate history.
-Microsoft did not dominate search, or social
software, or mobile computing in the decade after the U.S. Department of
Justice won a case ordering Microsoft to be broken up. (President Bush's
Attorney General ordered the case closed upon taking office.)
-The Pennsylvania Railroad became irrelevant
shortly after reaching its peak passenger load during World War II: the 6th
largest company in the nation became the largest-ever bankruptcy.
-Neither Macy’s nor Sears is faring very well
in the Wal-Mart/Target axis.
-It’s hard to remember when Digital Equipment
Corporation employed 140,000 people and sold more minicomputers (mostly VAXes)
than anyone else. Innovation was not the problem: at the very end of its
commercial life DEC had built the fastest processor in its market (the Alpha),
an early and credible search engine (AltaVista), and one of the first webpages
in commercial history.
-After 45 years, Ford, GM, and Chrysler have
yet to make a small-to-medium car as successful as the Japanese. Some efforts —
notably the Pinto — are still laughingstocks.
2013 automobile estimated sales by model (excluding pickup trucks and
SUVs), rounded to nearest thousand (source:
www.motorintelligence.com via www.wsj.com)
Toyota Camry 408,000
Honda Accord 366,000
Honda Civic 336,000
Nissan Altima 321,000
Toyota Corolla 302,000
Ford Fusion 295,000
Chevrolet Cruze 248,000
Hyundai Elantra 248,000
Chevrolet Equinox 238,000
Ford Focus 234,000
Toyota Prius 234,000
II.
There are many reasons for this state of
affairs, some enumerated in The Innovator’s Dilemma: managers in charge of
current market-leading products get to direct R&D and ad spend, so funding
is generally not channeled in the direction of new products. In the tech sector
particularly, winning the next market often means switching business models:
think how differently Microsoft circa 1996, Google in 2005, Apple as of 2010,
and Facebook today generate revenues. Finally, many if not all of the lessons
learned in winning one round of competition are not useful going forward, and
usually hamper the cognitive awareness of those trying to understand emerging
regimes.
Unlike automobiles or soft drinks, moreover,
tech markets tend to extreme oligopoly (SAP and Oracle; Dell and HP on the
desktop; iOS and Android) or monopoly (Microsoft, Intel, Qualcomm, Google,
Facebook). Thus the stakes are higher than in more competitive markets where
45% share can be a position of strength.
All of this setup brings us to a
straightforward question for January 2014: how will Google handle its new
acquisitions? The search giant has been acquiring an impressing stable of both
visible and stealth-mode companies in the fields of robotics (Boston Dynamics),
home automation (Nest), and artificial intelligence (DeepMind). When I saw the
Boston Dynamics news, I thought immediately of the scenario if Microsoft had
bought Google in 1998 rather than the companies it actually did target: WebTV
($425 million in 1997), Hotmail ($500 million in 1997), or Visio ($1.375
billion in 2000). That is, what if the leader in desktop computing had acquired
the “next Microsoft” in its infancy? Given corporate politics in general and
not any special Microsoft gift for killing good ideas, it’s impossible to
believe ad-powered search would have become its own industry.
Google’s track record in acquisitions outside
advertising (DoubleClick being a bright exception) is not encouraging:
GrandCentral became Google Voice and was orphaned. Dodgeball was orphaned, so
its founders started over and maintained the playground naming scheme with Foursquare.
Pyra (Blogger), Keyhole (Google Earth), and Picasa (photo sharing) all remain
visible, but none has busted out into prominence. YouTube is plenty prominent,
but doesn’t generate much apparent revenue.
Let’s assume for the moment that the internet of things and robotics
will be foundations in the next generation of computing. Let’s further assume
that Google has acquired sufficient talent in these domains to be a credible
competitor. There’s one question outstanding: does Google follow its ancient history
(in core search), or its post-IPO history?
That is, will great technologies be allowed to mature without viable
business models, as was the case with search before ad placement was hit upon
as the revenue generator? Or will the current owners of the revenue stream —
the ad folks — attempt to turn the Nest, the self-driving car, the Android
platform writ large, and people’s wide variety of Google-owned data streams
(including Waze, Google Wallet, and the coercive Google+) into ad-related
revenue through more precise targeting?
Just as Microsoft was immersed in the desktop metaphor at the time
it didn’t buy Google and thus could not have foreseen the rise of ad-supported
software, will Google now be blinded to new revenue models for social
computing, for way finding, for home automation, and for both humanoid and
vehicular robotics? Is Google, as one Twitter post wondered, now a “machine
learning” company? Is it, as a former student opined, a de facto ETF for
emerging technologies? Most critically, can Google win in a new market, one
removed from its glory days in desktop search? Google missed social networking,
as Orkut can testify, and CEO Larry Page sounds determined not to make that
mistake again. It will bear watching to see if this company, nearly alone in
business history, can capture lightning in a bottle more than once to the point
where it can dominate two distinct chapters in the history of information
technology.
Posts
