To start, I am not a fanboy of any particular technology over another. I am a firm believer of no technology religion, using the best product or service that fits the job I want to do for the best price. With my personal disclaimer out of the way, the question remains... is Google the Walmart of the technology industry?
Recently, the news has blown up with companies becoming increasingly aggressive in protecting their market turf through patent litigation, communitiy messaging, and media coverage. As one company in technology succeeds with a breakout product, it is reasonably assured that 15 other companies will chase to build nearly identical products to flood the market. It is a continuous cycle, in which companies such as Microsoft have been supremely successful. But because the tech industry is a particularly entrepreneurial and idea driven community it raises the well known cry of "COPYCAT!"
So first, the business strategy. Standard competitive strategy teaches that when new innovations occur (i.e. market transitions, market disruptions, tipping points, etc.), revenues and profits are generated. If profits are extra-normal, then it is assured that competitors will be attracted to the same market because the market has room to accomodate them. As such, those competitors strive to furnish products that look, feel, and function as a near match to the initial innovation, i.e. a copycat. So entrepreneurs and idea people beware... if you have a great idea, nothing is stopping anyone from making a copy. Now you can protect yourself and errect barriers to entry, such as patents, lobbying, market consolidation or whatever your creative and expensive brain can concoct, however, it isn't a matter of if, but when will a competitor come knocking.
As noted in a previous rant, in many cases the markets can sustain a number of large competitors in oligopoly, while numerous solid lifestyle businesses service the niche related markets and fight for industry scraps. In most cases, companies find pricing parity and work in unsaid collusion to maintain prices and profitability. But, where it gets ugly is when companies break from the pack, make bold strategic moves, and price competitors out of the market. While initially great for consumers because it lowers prices, it can mean slow, painful death for competition.
By the above graphic you may think I hate Walmart... I envy Walmart. I think Walmart is an amazing company with awesome people. They solve all my needs in one place and I thank them for it, but this is Walmart's alleged strategy. To be the Low Price leader Always... no matter what. They have been notorious for allegedly entering communities and offering whole sale generic products at prices that are impossible to maintain for local businesses. In turn business is sufficiently wounded for surrounding entrepreneurs that they end up selling their business or going down with the ship. Once the market has consolidated, Walmart is free to offer whatever "low" prices they desire.
So is Google no different than Walmart? They have brilliant strategists that have taken competition to a whole different playing field. Google, like Walmart aims to be the 'Low Price leader Always' in everything but except probably search. Like Walmart, they know that if they can grab you to use one of their 'free' services like Gmail or Google+, then they can own your data, serve you ads, and drive you to spend more time using their search products. And when you generate as much cash as Google does from a virtually infinitely profitable business model, you can focus on creating a whole host of context products to pull through more growth and more profitability. If a competitor has a core product in one of your hot 'target' growth markets, Google gives them the option to sell and assimilate or go down with the ship. If the target doesn't sell or can't be bought (in terms of larger competitors like MSFT or Apple) it builds and deploys a 'copy' product, smashes the price to nil and burns the market to ashes in perfect competition. It completely and utterly disrupts the business. Customer's love it in the short term and it limits the possibility that the competitor ever can really reciprocate. Brilliant...
We are seeing it again today. Google+ recently added functionality for social gaming, probably one of the best and most powerful features facebook had to offer to its user community. facebook makes money hand over fist by charging a generally market standard 30% fee for digital purchases through its platform, basically matching market pricing parity with Apple for platform marketplaces that have large user bases. facebook can charge this premium fee because it has relatively the best game in town as far as social platforms, and relies on these type of fees to feed other inventions and innovations within its model. Games, unlike your recent status post about what food you just ate, provide tangible entertainment value and stickiness to facebook and is most likely considered a core functionality of their business. Seeing that games and digital purchasing was core to the social platform business... Google+ had to launch games.
Now Google could have played it nice, came in at price parity for the revenue split fee at 30% and stuck to the industry standard, but that isn't the Walm... ahem... Google way. Instead, Google launched a promotional digital goods fee of only 5% to entice developers to add Google+ to their radar. This 'beta' digital goods fee may or may not remain 5%, but it is hyper-competitive behavior and a Vegas sized signal to facebook that there is no intention to play nice. The point is that there is room for both Google+ and facebook in the marketplace, but hubris and ruthless strategy dictate that like the immortal Highlander... there can only be one!
Rightly so, the case for Walmart comparisons can be made for other tech companies as well, but Google has definitely been the most visible and aggresive as of late. While Google might not particularly like being branded the modern Walmart (or even worse to them, the modern Microsoft), their intentions are clear... burn the villages, storm the castle, and take no prisoners. Its all fair play, and it is brilliant strategy. So the next time Google comes calling with a nice little acquisition offer... remember that you have been duly warned. At the same time, can Google realistically maintain victorious by fighting a digital war on all fronts? Right now, it seems so.
-K
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