Castles and Moats: Commentary on Bill Gurley

Bill Gurley has a super-interesting post about how to view Google’s non-search ventures such as Android and Chrome.  His thesis is that the “castle” is search (and the related advertising) — the source of 95% or more of Google’s revenues.  Google has often been criticized in connection with its non-search ventures for not generating revenues.  Gurley’s take is that not generating revenues is part of Google’s plan as a way to protect the search business. 

Until this point, I basically agree.  But I take slight issue with the metaphor with which he compares these non-search businesses to “moats” and to a “scorched earth strategy” where google is scorching the earth for 250 miles trying to prevent anyone from approaching the search advertising castle.

I have several comments on these metaphors, which I think suggest Google’s position is more invulnerable over time than I think it is.

First, it’s perhaps subtle, but I think Google’s Android/Chrome/other strategies are about laying bridges across potential moats set up by others that otherwise might keep users from approaching Google’s castle rather than about building moats to keep competitors out (I see how the distinction can get blurred in terms of Apple and Microsoft).  Google is rightfully worried, as Gurley mentions, that without its own browser/mobile offering that it’s easier for a user to be steered away from Google’s search.  By providing its own competitive solution, Google builds a bridge to its castle over such moats for those who choose Chrome or Android.  I don’t think this is a revolutionary strategy.  Companies in other industries who find or believe themselves without adequate distribution to customers will build their own distribution outlets or channels.  In retail, this is how many brands operate by creating their own stores.  Google is essentially protecting its distribution opportunities through products that otherwise would be dominated by strong, not necessarily friendly companies (Apple in mobile, and Microsoft in browsers).

Second, in reading this, I thought of Microsoft with Internet Explorer and what the government alleged Microsoft did to Netscape.  There, the government claimed that Microsoft saw Netscape as a potential challenge to the operating system and thus it pursued its multi-pronged strategy around Internet Explorer. I don’t see that story here at all.  The Apple iOS and Internet Explorer are under no threat to be vanquished from Android and Chrome, in the same way that Netscape was, nor by creating these products does Google lock up search for itself.

Third, the search advertising “castle,” I would argue, is vulnerable despite Google’s “moats” or “bridges.”  If someone starts a better search engine, or perhaps more likely a non-search business that redefines how content is organized and found from the variety of “post-google search” projects that people are working on, users can and will move on at least some of the time.  Chrome or Android cannot stop that.  People’s choice to use Google and the resultant success has been incredible, but my belief is that Google’s position in search is more vulnerable than Microsoft’s position in operating software (or at least was back when the Netscape episodes were taking place).  It’s just that much easier to type another web address in your browser or download another app.  I don’t buy that there is a “unbreachable moat” or that Chrome or Android raise barriers to entry to competing with Google.  If there is a better product, it is more likely to find its way to users than a competitor to Windows OS could back in the day.

Fourth, Gurley says that this is “the greatest legal destruction of wealth in history,” because it devalues competing products.  I don’t really see it.  I’m still paying a premium for my iPhone and its associated iOS despite some cheaper Android phones in the market, so there is still money to be made in these markets despite Google “giving it” away.  In terms of browsers, the “free” price had been set long before Chrome entered.

This was a brilliant post that got me thinking and does shed light on why some of the criticisms of Google’s non-search ventures miss the point.