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Geoffrey Moore

Managing Director, TCG Advisors Venture Partner, Mohr Davidow Ventures

Geoffrey Moore is a best-selling author, a Managing Director at TCG Advisors and a venture partner at MDV.  More...

November 2008

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Google—What’s the big idea?

Everybody gets that there must be a big idea behind Google’s googoolian market valuation, but what exactly do we think it is?  Not product innovation, although arguably their original claim to fame, Google Search, was just that.  Not acquisition innovation, especially if you can believe BusinessWeek’s write-up of December 5.  No, the only way to decode their market cap is to say it is yet another public market attempt to value disruptive innovation. 

Our view on this is that public markets do not ever get this valuation right, and therefore that the stock is a horrible investment vehicle, but frankly there is little Google can do about that, and almost no upside to any action they might take.  We and they just have to let that scenario play out.

The more interesting question is, what exactly is the disruptive innovation that Google represents?  What is the big idea here?  Let me propose the following:  Any stream of electrons delivered over the Internet to a human being on the other end, regardless of whatever attributes it may also possess, is a form of media, and can be monetized as such. 

Obviously this is true of content.  The interesting thought is that it is also true of products and services.  Word processor, spreadsheet, presentation software, live update, back-up, auction, VOIP, video—if there is a human being in the room paying any attention at all, regardless of their other value, these products and services are all forms of media.  To be sure, some lack the capability to attract and then divert our attention in the moment, but all have the potential to help  differentiate and characterize us as end users, and that information can be used to create more targeted communications to be sent our way at a more opportune time.  Thus all can be monetized in an advertizing based modek, on a deferred basis if not in real time. 

So what?  Well, for starters, anything—and I mean anything—that Google throws against the Internet wall and that subsequently sticks will drive its media business model’s economic engine.  So giving everyone one day a week to think up weird stuff makes all kinds of sense—more stuff for the wall.  And the more stuff that sticks, the more diluted the competitive advantage of media properties with traditional content, like Dow Jones or Yahoo, becomes. 

But most importantly, in any competition with a product provider—say, Microsoft, to pick a non-random example—or with a service provider—say, SBC to pick another—Google can give away the elements which their competitors must monetize.  They have nothing to lose.  By contrast, their competitors have everything to lose, and therefore cannot counter their assault directly.  They must maneuver to respond, which takes time and costs them the initiative.

Is it any wonder that the osmotic migration of talent is moving toward Google at this time?


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Alexander Muylle

I have been reading about the S-curve and different kinds of innovations.

Adoption rate for an interactive innovation (ebay, goog) is faster than the adoption rate for a non-interactive innovation (CSCO, ORCL..). So growth for an interactive innovation in the initial phase is faster, but slows down more rapidly."

In other words the S-curve for an interactive innovation is steeper, but flattens much more quickly.

Clearly there are network effects for GOOG (the more popular the search tool, the more advertisers that will use GOOG....). Yet the network effects from a "real" tech company (enabling technology like MSFT, INTEL, ORCL..) are much more sustainable because their is much higher lock-in (switching costs are very high, unlike with GOOG)

Right now GOOG is valued for hyper growth, and that most likely won't last

Anyway, one really has to wonder the upside to this stock, when almost every article talka about goog being the next MSFT.


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