Understanding Google

By Jefferson Goethals

This is not an obvious energy post, but future posts will refer to it. Google is the leader in information, and energy depends more and more on information.

Google copies a business model that has been used successfully by broadcast and print media for generations: provide content to users and charge advertisers for the right to reach those users.

Traffic—the aggregate use of Google’s services and network sites—is Google’s raw material. It provides value that Google can sell to advertisers, and monitoring traffic helps it identify emerging trends, new threats and possible acquisitions. Users are its suppliers. Google pays its suppliers by providing quality services for free.

Traffic adds to the world’s largest database of intention (DBI). Coined by John Battelle in The Search (2005, Portfolio Publishing, Boston, MA), a database of intentions is the aggregate record of every search ever entered, every set of results ever returned, and every link followed from those results. A DBI is also a record of human behavior; it is a vast set of anthropological data, the analysis of which has nearly unlimited potential applications.

Google is a value multiplier. It does not create content—one of the most commonly perceived sources of value on the internet. Instead, Google has positioned itself as a ubiquitous environment through which information is accessed and exchanged. The most obvious tool for this is search, but Google aims to facilitate communication and information exchange in any way that it—or anyone else—can imagine.

In addition to content accessed through search, Google has become host to a significant amount of user-created content, such as YouTube, Blogger, and Picasa. These are sites for which users provide the content, while Google facilitates the exchange of that content. Google does not edit or prioritize; it lets users determine what content is accessed and—largely—how it is organized.

Google provides easy access to content created by others through over 100 distinct services available free to users. Easy access multiplies the value of the content, and creates a traffic feedback loop. Users create the initial value (content), while Google multiplies the value (enabling access). The value draws more users, who create more content, and more value, which Google multiplies. More users creating and accessing more content creates more traffic, which Google can sell.

This feedback loop also protects Google from its competition. Technological progress happens at an exponential pace, not at the linear pace we intuit, and the curve is steepening. The rate of paradigm shifts is also increasing. Game-changing threats to technology companies emerge with startling regularity.

Google’s solution is truly elegant: it is becoming the field in which innovation grows. Google is building an innovation feedback loop by encouraging software developers to use Google as a platform for development. In this way it harnesses the talent of both its employees AND its users. This does not make Google invincible, but it does give it a huge advantage in surviving the most volatile business cycles.

This post drawn from work done with Chris Johnson, Peterson Handjaja, Dharaiv Dalal, Karan Checker, and Eric Burns.