Google, Yahoo and the industry structure of the new web economy at the close of 2005. Ten trends that are changing the way we live, create, and invest.
Oct 8th, 2005 by jimmoore
1. Strategic convergence has come to the new web: Business strategist Gary Hamel coined the term ”strategic convergence” for the industry situation where companies race to match each other point for point, feature for feature, and grow ever more similar over time. Google and Yahoo are rapidly converging toward each other–both have newsreaders, email, news, targeted ads, search, small business services such as site traffic analysis, etc. etc. etc.
2. Google and Yahoo have converged at the strategic level. Google and Yahoo are essentially identical clusters of services. The two companies have differing interfaces, but this is a difference at the level of style and the cognitive path for the user, not information architecture.
Google starts each experience with an open text-line-based search, and has directories of ways to specialize a given search. Once a search is specialized, it again usually continues with an open text-line-based search.
Yahoo shows you sample content as early as possible. Yahoo email shows you a summary of Yahoo news. The main Yahoo the front page is filled with celebrity photos, teasers for dating, news, weather and so on. When you are attracted to a particular category of content, one click takes you to more content. You are more or less continually awash in content.
Both styles have their advantages, but neither is in itself an innovation any more. Portal concept plus unifying user interface style is not original in 2005.
3. The portals including Google and Yohoo are pouring resources on innovation in the wider web community. What is much more interesting now is the industry structure that strategic convergence is creating. Given that the portals have no real differentiation at their core, portal-to-portal competition has shifted to a race to stay on top of and integrate innovation created in the wider web community. The interest and money and distribution power of the portals is providing food, fertilizer, and water for innovation in the wider community.
Innovation in the wider community is of two broad classes–the user-based do-it-yourself movement (DIY) and what I like to call “edge companies.”
4. DIY is going wild: On the one hand, individual innovation is expanding explosively in mash ups, hacks, and web services that nestle like birds and beeds into the ecosystems establshed by the big portals. Here is a cool example.
5. Edge-companies are taking root: Commercial-grade innovation is adding daily to a booming population of edge companies. These companies are being funded mostly by angels, and are designed to be purchased by Google or Yahoo (preferred) or Microsoft or AOL.
6. Light companies rule: In this new world of web services Google and Yahoo buy light companies. What is purchased are not armies of people but the allegiance of creative leaders, a bit of technology, and a user community attracted to some fascinating new web service–and associated web-based experience. What is purchased are not so much companies as that most valuable and intangle element of business success, market momentum.
7. VCs are business brokers not business builders: In some cases they move to acquisition from the angel stage, but more often they move through the VC community. However, the VC community is not adding much value other than as M&A advisors. They have connections both on the edge and within the portal purchasers, they can track the needs of the big players, and the emergence of solutions among the edge companies. They matchmake.
8. Industry structure centers on the relationships among big portals and edge companies: Industry structure is a favorite concept of academic business strategists, and industry economists, because it describes the environment that we create companies within. Industry environmental effects are very powerful, and yet sometimes unnoticed by those building companies. Today, we as a web community of investors, innovators, and portals have replicated the industry structure of internetworking ten years ago, where Cisco ruled sucking up innovative companies that were designed for it in partnership with venture capital firm Sequoia. Bay Networks, Lucent, Nortel and others were the also rans in the innovation acquisition game during that period, and have barely survived.
9. Life on the ege is fun: I like life on the edge. I like living in a time of bloom on the edge. It is going be interesting to see what germinates over the next few years…ok, the next few months..and whose gardens various seedlings become a part of..
10. Life at the center is about buying plants and populating your gardens, and attracting members. The cool jobs in the big portals for the next few years are going to be focused on acquisitions. Key success factors will be acquisition strategies (see AOL’s new moves in the past few weeks for an indication of some new ideas), deal-making, and post-merger integration of creative teams and the web services they have established, as well as the user communities that make them successful. Community members are fauna to a portal’s flora. “User community post-merger integration and development” will become a particularly valuable skill as portals mix, merge, and expand their communities of users.