When Google became an established source of traffic and revenue in the early 2000s, it was a goldmine for companies that understood how to mine it. The more companies invested, the more they got out of Google. The search engine turned into a monopoly and an accessible database of the world's sites and information. It also provided the first free and scalable traffic channel. The pact was simple: websites provide amazing results, Google provides traffic.
Google broke this unwritten pact when it started to answer searches directly without sending traffic to other sites. Why send users to other sites when they could get the answer right in the SERPs (search engine results pages)? The new strategy reduces friction for users, keeps Google’s growth rate high, and shareholders happy.
Other companies are not in Google’s equation, at least not for organic (free) results. For them, the traffic faucet is slowly giving less and less traffic. Instead, brands are commoditized and asked to pay for higher positions. But the biggest problem is that organic traffic made many companies very successful. So much so, that they got hooked.
Google is a drug for businesses. The problem with drugs is the decay over time. After 20 years of addictive traffic, it starts to show nasty side effects.
How Google turned into a drug for businesses
Google is one of the most profitable companies and maybe the most successful startup in history with nearly guaranteed +20% YoY quarterly revenue. Fusing superior search results with a bidding marketplace for ads has turned out to be a genuine idea and gave birth to the biggest online ad platform in the world with over 36% market share.
Along the way, Google pushed paradigms like mobile-first and speed to keep the quality of search results high and address users where they are. But the decision to serve answers instead of results is a tectonic shift in Google’s environment. It wants the whole cake.
Sundar Pichai made no secret of this strategic shift. He mentioned it in his address at Google I/O in 2017: "We are moving from a company that helps you find answers to a company that helps you get things done."
Ben Gomes, SVP of News, Assistant, and Search, wrote about it on the Google blog in 2018 (emphasis mine):
“As Google marks our 20th anniversary, I wanted to share a first look at the next chapter of Search, and how we’re working to make information more accessible and useful for people everywhere. This next chapter is driven by three fundamental shifts in how we think about Search:
The shift from answers to journeys: To help you resume tasks where you left off and learn new interests and hobbies, we’re bringing new features to Search that help you with ongoing information needs.
The shift from queries to providing a queryless way to get to information: We can surface relevant information related to your interests, even when you don’t have a specific query in mind.
And the shift from text to a more visual way of finding information: We’re bringing more visual content to Search and completely redesigning Google Images to help you find information more easily.”Google Blog
Heck, I wrote about it shortly after in A new Google - from search to discovery engine. I should have called it "from search to answer engine".
The new trajectory makes Google a competitor for everyone. A universal competitor.
The growing list of complaints and fines tells a story about unfair competition:
- Local reviews company Yelp has been caught in a feud with Google for ages and even runs a whole website on the issue called Focus on the User.
- Lyrics and songs site Genius recently sued Google for missing proper attributing of content from the site (again), which caused it to drop from 70% down to 10% CTR in some cases
- “[...] Google has designed its lyrics Information Box in a way that discourages users from seeking another result, and, in many cases, directs them toward other revenue-generating Google products.“
- Over 40 companies signed a letter to the European Commissioner for Competition Margrethe Vestager complaining about Google violating Google Shopping practices that have already caused a $2.72b fine in 2017.
- 48 State Attorneys General are investigating in an antitrust case against Google.
- The DoJ (Department of Justice) has started investigations.
But how did we get to this point? In my mind, three big reasons turned Google into the universal Competitor it is today besides the unique combination of ad bidding and free services.
Quality and price = quick adoption
The first and most important reason for Google's success is that users like Google’s products. They’re valuable. Helpful. The company wouldn’t be so successful in this consumer-empowered world if its products weren’t good.
To get a taste, go to My Google Activity and look at all the activity Google tracks of you. It's... a lot.
This adds to the complexity of the problem because it's not an easy anti-trust. Google’s strategy feels anti-competitive but is supported by users who mostly decide not to use an alternative, even though they could.
Part of Google’s product value is the price: almost all products are free, at least to a certain point. The Freemium model allows Google to collect valuable data to make products even better and lower the hurdle of adoption to the bare minimum.
The strongest network effect comes from the data Google gets. Every behavior signal, whether click or interaction with a product, gives Google more information about what we like and want. At scale, this provides a flywheel for Google that gives it an edge of any other type of company. Google has understood how to trade free products for data even more than Facebook with half the privacy concerns.
Lock-in effects through integration
Lock-in effects describe the pain when switching from one software or device to another. Think of 12-months phone contracts or having all your friends on one social network. Being very invested in a product makes consumers less likely to switch.
Google understands this perfectly and integrates products like Google travel guides with videos from Youtube, local reviews, and maps results into an ecosystem that's hard to leave. Gmail integrates with Google Search and even shows you upcoming flights or emails that fit your search. Google Drive integrates with Gmail by making it easy to attach files to an email. Google Analytics integrates with BigQuery and makes it super simple to create data warehouses. A connected product portfolio creates strong lock-in effects.
This was made possible by Google’s approach to modularity, the opposite of integration. Apple products, for example, can only be used on Apple devices, while Android isn’t limited to the Pixel phone and Search isn’t limited to Chrome users. That allows Google to cast a wider net and collect data from all sorts of devices because it’s present everywhere.
Google aims to take this a step further with “Ambient Computing”:
“We want our products to work harder for you, in the context of your job, your home, and your life. And they all share a single goal: to be helpful, so we can be there for you in moments big and small over the course of your day. For example, helping you write your emails faster with automatic solutions from Smart Reply, and giving you the chance to take them back if you didn’t get it right the first time, helping you find the fastest route home at the end of a long day, and when you get there, removing distractions so that you can spend time with the people most important to you.”I/O Keynote 2019
In other words, Google wants to be everywhere, all the time. In Google’s world, all of its products talk to each other and to you, the user.
“Smartphones and other mobile computing devices have changed the world, giving you access to technology almost anywhere you go. It’s been super useful to have a powerful computer everywhere you are.
We think technology can be even more useful when computing is anywhere you need it, always available to help you. Your devices fade into the background, working together with AI and software to assist you throughout your day. We call this ambient computing.“Rick Osterloh, Senior VP of Devices and Services, at the 2019 Made By Google conference
Power over demand
Google sits on the top of the funnel. Search is the starting point for problem-solving, from homework to changing a tire. Because Google owns search, it has power over demand - a very comfortable seat to take on the www train. That gives Google control over the lifeline of many companies.
Knowing what the world searches for also allows Google to see (and predict) trends or upcoming products. It has the best data about web traffic of all companies and institutions with Google Search, Android, and Chrome. It can strategically build products based on what people want and understand humanity at a whole other level.
Together with frictionless integration of products and top of the funnel ownership, Google can quickly enter markets and gain a significant share. Not always is the goal to dominate the market. Just keeping up with competitors can be good enough because Google's moat comes from product synergies.
Googlezon commoditizes brands
The Google drug and flywheel of hell are part of a big trend across tech companies: the commoditization of brands. It’s not just Google; Amazon is guilty of that as well. The impact is disastrous.
One example is Google Flights, a commoditization of OTAs (Online Travel Agents).
“Last month, Google revealed its streamlined trip-planning platform, Google Travel, which brings Google Flights, Google Hotels and other tools under one roof. It’s much more comprehensive than your average booking site. For travelers who regularly use multiple Google products – Google Search, Gmail, Google Calendar, Google Maps and so on – this platform will keep all of your trip research and past itineraries in one place.”Forbes
How can a brand differentiate itself on such a platform, other than through price?
Google Flights tanked Expedia’s stock like a battleship. It dropped down to the worst day in six years with -27%. Tripadvisor dropped to -22%. Expedia’s management disclosed on an earnings call that the company dealt with “incremental weakness in SEO volumes and a related shift to high-cost marketing channels.”
Piper Jaffray’s business analyst Michael Olson writes about the Expedia-Google Flights case: “In our view, the most concerning trend is the reduced efficiency of SEO (search engine optimization) marketing as Google pushes ‘free’ links further down the page,” he wrote. “In particular, Google is favoring its own ‘Hotel Finder’ platform, along with other paid links, all of which are capturing more real estate on page one of the search results. Expedia is, therefore, having to resort to the use of higher-cost marketing channels, which is negatively impacting marketing ROI and Ebitda.”
The cut was so deep that well-known business analysts Olson and Kopelman cut their ratings of Expedia’s stock. Cowen & Co.’s Kevin Kopelman calculates that SEO accounts for 30% of Tripadvisor’s, 10% of Expedia’s, and 7% of Booking’s revenue.
The next runner up in Google’s commoditization strategy is Google Hotels, which directly competes with vacation booking engines and commoditizes brands just as much. At least brands can distinguish from each other with a thumbnail.
Amazon is running the same strategy: what started out as a selling platform for 3rd-party brands has turned into a faceless list of names that now owns almost half of online retail sales. There are many examples of Amazon’s ruthless commoditization of brands, for example, the increasing replacement of successful products with its own label. Recently, a scandal around Allbirds gave the copied company food for a smart marketing play in which the CEO urged Amazon to copy more environmentally friendly.
Another case is the new “Onsite Affiliates Program” that squeezes content from sellers into Amazon’s design and layout to make Amazon the one and only marketplace.
Lastly, there is no way for brands to customize their appearance on Amazon’s marketplace. All products appear in the same layout and design. There is no way for sellers to differentiate themselves or their products.
Those changes make Google and Amazon stronger until brands redundant. By displaying brands in ways that prevent them from differentiation themselves, Googlezon can ask for more money for visibility. A double-edged profitability sword.
The modern tragedy of the commons
The classic Tragedy of the Commons, written down by William Forster Lloyd in 1833 and brought into the light by Garrett Hardin in 1968, describes the human nature of exploiting resources for individual good without respecting the greater good. An individual tends to take more from a resource than it needs to thrive and grow, which comes at the cost of everybody who has access to the resource.
The “Modern Tragedy of the Commons” describes that all companies invest in content, optimization, and links to rank highly in search, but only one can get into a Featured Snippet or a top position. The result of ranking high is more traffic, which means more revenue. A neat network effect. However, this means that most companies competing for top positions won't get much if anything at all. So, if Google provides all the answers and leaves hardly any organic traffic for others, a whole slew of companies won’t be able to pay for it and go under. The flywheel of hell that drives companies to compete for the vanishing organic traffic benefits Google, but companies can’t simply shut the channel off that brought them so much gold in the past.
It’s a drug with nasty side-effects.
The teeth-crunching point is that we as users like the features that commoditize brands and create winner-takes-it-all effects in search. We use Google Flights, Google Hotels, and featured snippets all the time. They're convenient and quick.
Google is still one of the largest and most cost-efficient channels. But we're starting to see the side-effects of a company that wanted to be not evil when it started and then slowly turned under the weight of its own success. The perfect analogy to me is Anakin Skywalker, who wants to save his love Padme from death and in the process kills her and becomes evil.
Three reasons that all play in unison like a well-tuned orchestra have brought Google into this position: Quality, lock-in effects, and power over demand.
Road to rehab
Is it a lost cause? Should we give up? No! Companies can “unhook” and rehab from the drug.
While Google Flights caused Tripadvisor and Expedia’s stock to plunge by over -20%, one OTA actually beat expectations: Booking Group! As mentioned above, SEO is estimated to impact only 7% of revenue compared to much more for other travel sites. Booking understands what’s necessary to counter the commoditization of brands and competition from Google: becoming a destination.
The only way to get around the thinning traffic problem is to catch users before they even search or have them search for your offer on Google. The goal is to build a brand that’s strong and trusted enough to attract buyers without visiting big platforms.
What’s the best way to get there? 3 things.
First, use the ultimate drug Google is addicted to: ad Dollars. The company’s revenue streams are not very diversified as over 80% of total revenue is still coming from ads. That can be an advantage for companies.
Spend money to build your brand through organic and paid search - and other channels of course. Successful mega-companies like Amazon, Booking, eBay, or UBER build their brand on Google and then worked on getting their users into the habit of coming to their destination directly.
Second, invest in brand campaigns on Facebook, Instagram, Youtube, and news sites. When advertising, teach your audience to use your app, visit your site directly, or search for brand keywords, e.g. “NYC flights Expedia” to see only results from your site.
Booking.com has more direct traffic than competitors like Tripadvisor or Trivago. They were able to build a brand.
Third, funnel users into platforms you control like native apps, email, and web logins. It’s hard to get a permanent place on people’s smartphones, as most consumers still install the stunning number of zero new apps per month. But if your app offers great value and a good experience, you’re not only solving the Google problem but also have your users in an environment that allows you to measure exactly what they do when and where.
Email has been called dead many times but celebrates a great comeback right now. What was called dead a million times has not only prevailed Slack & Co but now offers an attractive vacuum to fill. It has a lot less room to measure user behavior but also a lower hurdle for users to sign up.
In the end, it’s difficult to know exactly how much business depends on Google. But we can measure how many companies go under because of Google’s tectonic shift from results to answers. Companies need to act now, if they haven’t, or double down on becoming a destination.