A brave new Google-ized world
I have developed a practical approach to competitive success that defines strength not in terms of market share, but in terms of what I call “profit power.”
Profit power is your ability to hold on to your own profits and defend them against competition. Our information-loaded world is creating new sources of profit power.
You could argue that this is an age of “perfect information” – but crucially not one which has delivered perfect markets – because perfect markets would compete away profits and could not explain the popularity of one search engine over another.
Rather, this age of perfect information has given rise to new market dynamics that I call “hub-dynamics.” Being a “Hub” is one of the key modern-day sources of profit power.
So what is the source of Google’s profit power?
Google’s secret is that it’s the beneficiary of such hub dynamics – because it is such a “Hub”. Hubs can be people or products, assignments, clients, buyers or users that have self-reinforcing popularity. When hub dynamics are at work, products or ideas that are ahead stay ahead for a long time.
Look at the first Harry Potter novel, for instance. Harry Potter quickly gained popularity because friends recommended it to friends, and this incited others to buy it just to understand what was driving people to read it, which in turn ensured the success of the entire Harry Potter series.
And Google is a hub because the very communication technologies and information infrastructures that it has helped create actually sustain its popularity. Similarly, its rankings, to a large extent, reflect popularity as expressed by millions of searchers.
Companies that can heighten the allure of their products this way will have, what I call, a tremendously valuable “power node”. Power nodes are sources of profit power that make a company indispensible to its suppliers, competitors or buyers.
They can be anything from a skill, a special ingredient, a brand, the ability to distribute products to places that other people need them to go, or, as in the case of Google, the ability to benefit from hub-dynamics.
So how should regulators regulate these new market dynamics?
Well, it’s very difficult. The question is whether regulators do actually have the tools to regulate the new market dynamics that govern Google’s own popularity and that of its search results. Are these popularities unfair?
Are they the result of the blatant anti-competitive behavior of a big, bad company? No, not necessarily. These dynamics and rankings result from the behavior of millions of consumers (or market participants).
Is it unfair of Harry Potter books to be popular? Is there even a way to regulate this? And what about the competition?
For companies to thrive in the current environment of transparent “perfect information,” they must be able to shape and tap the new-age sources of “profit power” around them.
This gives them the upper hand in partnerships or alliances, allowing them to retain the largest share of profits while making sure that other companies benefit as well.
So, perhaps, instead of engaging in debates in terms of old-fashioned concepts of competition, could competitors like Microsoft and Yahoo do well by determining how they too might harness these new dynamics of profit power?