The winner takes it all: why Google is and will likely remain the biggest

[jrineakter]

These are very turbulent times on the stock markets. Oil prices are in free fall and the Chinese economic transition is not going smoothly. So you may not have noticed, but when Google shares (recently Alphabet) opened three percent higher earlier this month, on Tuesday 2 February, the company dethroned Apple as the largest company in the world.


The market capitalization – the number of shares multiplied by their price – stood at $547 billion that day. That’s the size of Poland’s entire economy. Although the title of the world’s largest company was short-lived when the stock price dropped again a few days later, we shouldn’t expect Google’s growth to stop any time soon. In this article, I’ll explain why.

Taxi industry
The taxi industry is estimated at roughly $100 billion worldwide . In the extreme assumption that ride-sharing will eventually take over the entire taxi sector, you would expect azerbaijan telegram number list there to be enough room for various players. Yet at the end of last year, the last one closed the door behind it at the ride-sharing platform Sidecar . Bad management? Bad product? No. A much-cited reason is that the traditional economic laws of the market no longer apply. Exit supply and demand, enter winner-take-all markets .

Sidecar lost the battle mainly because, despite the investment of Virgin boss Richard Branson, it had too little money to compete with Uber and Lyft. Moreover, the importance of network effects should not be underestimated: Uber and Lyft are popular because they have many drivers. Many drivers means fast service and that attracts many users. Many users, that attracts many drivers, etc. Finally, a good product also ensures that consumers do not consider trying a new ride-sharing platform. These are typical, often small, differences that cause one or two players to grab a disproportionate share of the market.

Unicorn companies
This is also the raison d’être of many unicorn companies – companies that quickly became worth 1 billion dollars or more. They are not worth billions because of what they currently generate in turnover and profit, but because they operate in a winner-take-all market, where they can generate billions in turnover in the long term if they effectively become the winner in that market.


Winner-take-all markets
'Rewarding for performance is the most important characteristic of a winner-take-all market', economists Robert H. Frank and Philip J. Cook wrote in their 1995 book The winner-take-all society: why a few at the top get so much more than the rest of us . The wages of someone who bakes bread or lays tiles are determined by the number of loaves of bread he or she can bake or the number of tiles laid within a certain period of time. But that is not the case in winner-take-all markets. There, income is determined by how good you are compared to the competition. The smallest difference in a product or in talent can make a world of difference. The book – now 20 years old – is more relevant than ever.

Google
The story of Google is a textbook example. In the 1990s, during the rise of broadband internet, the search engine challenged search giant Yahoo with the promise of lightning-fast search results and a great algorithm to determine the relevance of each page. A good product attracted investors and a lot of money made the product even better. Google became the homepage of the internet and now captures about 70 percent of the world's search traffic.

Google is just one of many players in the search engine market, but its market share is on a different scale than Bing, Yahoo and Baidu. And when was the last time you used Lycos or AOL? Google became the undisputed leader in a winner-take-all market: despite the presence of other players, it managed to grab a disproportionate market share.

old world map

From search engine to 'cartographer of the self'
The search engine and related online services markets are typically winner-take-all markets for several reasons. First, Google’s services, like most online services, are perfectly scalable. Once a product is rolled out, each new user and each search query costs next to nothing. Second, there are significant network effects. Services like YouTube, Waze, Photos, and Drive get better as more friends or colleagues use them.

Initially, skeptics thought that Google's success was temporary. There is no price or effort in switching to another search engine. If you change your email address or social network, that is not the case. You lose all your emails, messages, photos, notes, etc. Because there is no effort in switching to another search engine, people initially thought that the search engine market was a long-tail market . There was enough room for different search engines that cater to different niches for different target groups. Apparently that prediction did not come true. The absence of a 'switching price' ensured that everyone in the market chose the same product.

Lock-in effect
In October 2015, Google replaced its slogan or code of conduct Don't be evil with Do the right thing . But many opinion makers suggested that the slogan was already dead and buried on January 24, 2012 : the day that Google announced that it would combine its users' data across all platforms. That allowed the company to create a switching price. Or to put it in a fancy word: a lock-in effect . All Google services are at some level connected to the user's search and surfing behavior. Anyone who uses an Android device, saves all files on Drive and Photos and has used Gmail (now Inbox), Calendar, Contacts and Keep for years, has to work a few days to switch to a competing service and loses data and a personalized service.

Cherry -picking services also makes for a suboptimal experience. Why choose Dropbox , Spotify , Evernote , Outlook, Cal , and an iPhone when you can have them all in one ecosystem with Drive, Play Music, Keep, Inbox, Calendar, and an Android phone? In exchange for your privacy, you get a tailored service and a digital companion.

Analogue market
And it doesn’t end there for Google. The internet giant recently also entered the analogue market and now also produces goods that are not 100% scalable. I’m talking about the Chromecast, the Chromebook and soon the Google Driverless Car. Google is thus able to map not only the search behaviour but also the viewing behaviour, computer use and mobility of each user. Moreover, these are all devices that contribute to a greater lock-in effect. If the glasshole stigma disappears and Google Glass finds its way into everyday life, Google’s penetration into the private sphere will be complete.

To borrow a phrase from technocritical author Hans Schnitzler : Google is becoming the “cartographer of the self” for each of us. By quantifying our behavior, Google wants to make our lives easier. In the cooled data centers under the rural soil of Iowa, Georgia, and South Carolina, there will be servers that know you better than you know yourself. Traffic jams? They can be avoided. Feeling faint? Have a bite to eat. Here’s an article that might interest you. Watch out, you’re showing early flu symptoms. And hey, have you heard this song?