My attempt to try to figure out where the puck is going and how we can get there two steps at a time. Speculations about the future mixed with a splash of musings and poorly informed critiques of the present.

Tuesday, December 20, 2005

First Base

Bill Burnham, a VC formerly with Mobius, mentioned a few weeks ago that he planned to blog on the impact that Google Base (and Freemont, etc) would have on "Internet Walled Gardens" (read eBay). After a long cruise (yep, its hard being a VC) he just got around to it. Here is a snipet - check out his blog for the full analysis:

"The primary value-add that most paid listings sites offer is that they aggregate, structure, and index similar content into one coherent “site”. Early on in the Internet’s evolution these sites were literally the only place on the web that one could go for this kind of information. The sites that successfully built scale, brand, and network effects usually ended up the “winners” in their respective categories. Once they became winners, they were able to charge a healthy premium and thereby, in most cases, become highly profitable businesses.

What A Difference 10 Years Makes
The problem for these Walled Gardens, is that much like the online services before them, they have been built on a quickly shifting and deeply flawed foundation. The Internet of 2005 is a far different environment than the Internet of 1995. In 1995, the average user couldn’t spell “Internet”, let alone figure out set up and run their own Internet site. Even if they did set up their own site, the lack of any mechanisms for other users to easily find a site made operating one’s own site a pointless exercise as it was like building a billboard on deserted island in the middle of the Pacific.

In 2005, things are a bit different. Not only has the average Internet user become much more sophisticated, but several trends are rapidly coalescing to deliver what could be a “knock out” blow to the Walled Gardens. These trends include:

  1. Self-publishing: Thanks to dramatically lower hosting costs and greatly improved software, today most businesses and a rapidly increasing number of individuals have their own Internet sites. Businesses in particular have quickly taken to publishing all kinds of information on their sites. For example, most companies have a section of their site where they list job openings and in the real estate industry almost every agent has their own web site with detailed descriptions of their current listings. Of critical importance is that none of this content is behind a “wall”. It is typically out there for anyone who happens to stop by to see. The net effect of all this self-publishing is that there is now a ton of openly accessible “primary content” just sitting out there waiting to be indexed and manipulated by anyone who chooses to.
  2. Pervasive Search: Sophisticated index search has become the glue that ties the entire Internet together. With search, no site is an island (or a Walled Garden) unless it chooses to be. Search has in essence leveled the field when it comes to distribution and brand. You can spend $1M on an ad in the Super Bowl, but it won’t change your search results.
  3. RSS: RSS is a content syndication standard which makes it incredibly easy for people to subscribe to content from a particular site. Want to be notified every time someone updates their personal profile on their blog, or every time a company adds a new job opening, or every time a realtor gets a new listing? Subscribe to their RSS feed. What RSS does is that it provides an automated way for the web to “feed” new information directly to interested people and computers."

I think that Bill does a nice job of clearly presenting the threat to the "Walled Gardens," eBay included. I largely concur with his fundamental thesis: "With Google Base fully in place (and ultimately similar services from Yahoo, Microsoft, and Amazon), why in world would anyone pay to have their listings displayed or pay to have to access to a database of listings?"

However, I think Bill underestimates the importance of the statement he makes at the end of that same paragraph, "Perhaps you may even be able to pay a fee to have your particular listing “advertised” in a preferential position." Particularly in a world where creating listings is free and easy, I expect that sellers of products and services will find it very important to pay for exposure. Google's dynamic pricing auction system that they used for keyword advertising today may be better positioned to accomidate this need than the structures established by the "walled gardens," but one way or another sellers will continue to pay to expose their listings to potential buyers. Further, sellers will quickly modify their listing practices such that they are spending their money in the best way to generate the desired exposure for their items.

Which brings us to the point that Bill does not make about Google Base - while an easy, low cost listing solution is nice, Sellers will use the offering that delivers buyers. As slick as Base may be for listing entry and as well designed as their XML schema / database may be, if it doesn't deliver buyers, sellers won't keep listing. Google does not yet have a good track record at delivering anything on the buy side other than clicks on ads included in their search results. Think Froogle. Google is not alone here, everyone on the Internet (with the possible exception of Yahoo) has a very hard time getting users (on the buy side) to try out new offerings.

I recognize that this is a little bit of the chicken and the egg problem - you can't create a nice buy side experience until you have enough listings on the sell side within a particular vertical and it is hard to get enough listings without a buy side experience that works.

So, what is the answer you ask? Believe it or not, I have an opinion. Start with a focus. Don't try to enable recipe listings and auto listings on the same platform from day one. Start with a smaller community with passion and let it grow from there. History points to this answer: eBay - collectibles; Craig's List - Craig's friends in San Francisco; Monster - jobs, etc... What stops SimplyHired from expanding to another vertical? Sound crazy? Think about what LinkedIn is doing...

Existing "Walled Gardens" still have an excellent chance to respond to this threat. Expertise in delivering buyers and facilitating transactions should not be dismissed. However, resting too comfortably on this expertise will enable others to gain traction and expand their offerings.

Saturday, December 17, 2005

The Natural?

Tell me if you find this ironic: do a search on Google for natural search and you find nothing but listings for SEO firms and tips and tricks for improving your natural search rank (sidebar - would you really want to hire a firm that doesn't make the first page of this search?). Ok, ok, I recognize that these results likely match the searcher's interests quite well, but the fact that natural search is increasingly becoming anything but natural has been a topic frequently on my mind as of late.

Over the last couple of years we have experienced a wide-spread awakening to the reality that, with a little work, one can significantly influence how search engines rank our sites. I don't think the impact of this knowledge on our experience as search consumers is yet clear.

On the good side, one could argue that efforts to manipulate natural search gave birth to what we now call web 2.o - we discovered that search engines love content, but content development is time consuming and therefore expensive, so we all seem to have decided to see if we could get our community of users to develop content for us - turns out the answer is a strong yes (at least for now). Hard to argue that the recent explosion of content on the web is anything but a great thing (well, those of you reading this may of course be presently reconsidering that opinion).

However, is content developed purely for the purpose of influencing search results truly valuable? Consider the results of this search. While eBay does of course have a great marketplace for Cellular Test Equipment, I wrote the text that causes this link to show up first on Google entirely for the purpose of improving our natural search rank. As brilliant as my prose obviously is, it is hard to argue that this content will be valuable to search consumers.

One argument says that those with the greatest economic incentives will invest the most resources in developing the best content for a particular search query and that therefore the free market will prevail in pushing the most useful results to the top. I consider myself as much of a free market believer as anyone, but I am not completely convinced that this is true. One of the primary elements of Google search algorithm, PageRank, can throw this off in a big way. If Joe's Electronics Gear was the best place on the web to buy Cellular Test Equipment, they could write content all day long and with a little work on my end, I could leverage eBay's PageRank to make sure that I was always listed ahead of him. That strikes me as a problem.

As members of the web's "high PageRank" establishment continue to invest in mastering natural search manipulation, it is hard to imagine that search consumers will be able to enjoy a search experience that yields the most desirable results. While I typically assume that when people say that Google results seem to be getting worse that they are just picking on the big guy - it seems likely that as natural search becomes less and less natural, the experience of search consumers is bound to suffer.

Interestingly, while the obvious answer may be to refine the ranking algorithm without revealing information about how to adjust to the refinements, I presume that this would be a particularly difficult decision for the search incumbents to make. Why? Well, largely speaking, the folks with the highest PageRank also happen to be the biggest search advertisers. Yes, pushing big advertisers down the page in natural search results might increase the need for them to spend on advertising, but a decision of this nature may also be met with quite a negative reaction from big customers that see the search engines as "partners". Funny how this starts to sound like exactly what Clayton Christensen would predict. Incumbents can't help but listen closely to their big customers. (From what Ro says, it sounds like this is already happening with the Google/AOL deal). This opens the door for disruptors to sneak in with a better product - perhaps a product that is not initially the most attractive to the incumbent's big customers, but is attractive to a segment of users.

Wouldn't surprise me at all.

Yet another reason why I really think it is much too early in all of this to take the current search leaders as a given for the future.

Tuesday, December 13, 2005

Pushing The Local Boundaries

"Local" has emerged as a primary Internet battleground - with every significant player in Search recently expanding their local offering, clearly attracted by the staggering size of the "Yellow Pages" local advertising market and the enduring success of Craig's List (if you haven't looked recently at the size of the list of Craig's List cities - on the right of their homepage - do it now, WOW!). Duking it out with the Internet establishment are a handful of Web 2.0 start-ups looking to build community and carve out the local niche for themselves (nice when your niche is a multi-billion dollar addressable market).

With all of this recent effort against local, is it too much to ask for a little bit of innovation??

Apparently, somehow it was decide that:
Maps + Yellow Pages + Search + Reviews + Free Classifieds = Local

Now, I will give you that Driving Directions are the best thing on the Internet (simple man, simple pleasures), but I think Maps found their way online when traffic was still really bad on 101. Beyond that, I am yet to understand what I can do now that I couldn't do before. Yes, it is easier to use the Yellow Pages online than using the book and you don't get ink on your fingers - and, yes, I do like that I dont have to wait a year for Zagat to publish a review of a new restaurant, but more or less in 1999 I could do everything I can do with today's local products.

I'm greedy. I want more. I want someone to take community to the next level - tagging and reviews are great and all, but... Somehow using technology to make things 10% rather than 10x better doesn't do a whole lot for me.

So, what do I mean?

For example:

In James Surowiecki's book The Wisdom of Crowds (you should read it), he talks about a bar that is only cool if it is not too crowded (a coordination problem). A local solution should tell me if the bar is crowded. It should also help me figure out who is there.

Open Table is great, but why doesn't a local solution combine restaurnat reservations with airline seating style table maps so that I can choose where I sit?

A local solution should take advantage of the fact that I am likely to know people locally and value their opinions differently.

A local solution which helps me find a restaurant could offer Amazon style suggestions - "You recently ate at Globe and you gave it 5 stars, other people in your local area who gave Globe 5 stars also like Chaya"

I could go on, but I will stop here. If you know of people out there pushing the local boundaries, I want to hear about them - post a comment. If you have other local wishes, post those as well...

Sunday, December 11, 2005

Will Microsoft Create Network Effects in Search?

In a panel discussion on an Indian television channel, Bill Gates said that Microsoft will share a part of its advertising revenues from its search engine with users. Gates went on to explain that search engines like Google get their revenues from advertising because people use these search engines, but they don't share these advertising revenues with the end users who help them get the revenue. (Thanks to Ro Choy for drawing my attention to this)

Plenty has been written over the past several weeks about how Microsoft seems to suddenly "get it." SSE released into Creative Commons being the most striking example. I will leave further comments on that to others.

However, this latest announcement from Gates strikes me not as another example of Microsoft suddenly "getting it", but rather as a reminder that Microsoft, better than most, deeply understands the power of building a network effect. The sustained success of the Office suite should serve as a constant reminder.

Despite all of the well substantiated claims of Google's technical brilliance, the fact that they have not translated their success into a self-reinforcing network leaves them open to competitive attack. While more searchers drives more advertisers, Google has never closed the back half of that loop. I am not increasingly likely to search on Google the more advertisers Google adds. However, what if Microsoft (or someone else) started to pay me to use their search engine, and would pay me more as advertisers paid them more, and advertisers would pay Microsoft more the more I (and others) used their search engine, which would result in me getting paid more - making me more likely to use their search engine... and the cycle continues.

Interesting, eh?

Too often, I think we all forget that Google is not a given. As much as I am impressed with Google's products, I am not convinced that they have proven an ability to build a sustaining business - not only should they be concerned about the lack of network effects, but also by the related fact that the switching costs both as a searcher and as an advertiser are so low.

While I am convinced that search will remain a central aspect of our Internet experience, I am unwilling to accept as a given that the search models we see today will endure.

Perhaps the broadcast/cable anaolgy will hold and "Vertical Search" players will emerge as leaders or perhaps someone will figure out how to introduce network effects into search?? or...

Where is the puck going?