Google Revolutionizing the Economy

As Google pairs its market-leading search capability with information on consumer prices, companies are having to scramble to revise their business models.

Just Googling It Is Striking Fear Into Companies (NYT)

Wal-Mart, the nation’s largest retailer, often intimidates its competitors and suppliers. Makers of goods from diapers to DVD’s must cater to its whims. But there is one company that even Wal-Mart eyes warily these days: Google, a seven-year-old business in a seemingly distant industry. “We watch Google very closely at Wal-Mart,” said Jim Breyer, a member of Wal-Mart’s board. In Google, Wal-Mart sees both a technology pioneer and the seed of a threat, said Mr. Breyer, who is also a partner in a venture capital firm. The worry is that by making information available everywhere, Google might soon be able to tell Wal-Mart shoppers if better bargains are available nearby.

Wal-Mart is scarcely alone in its concern. As Google increasingly becomes the starting point for finding information and buying products and services, companies that even a year ago did not see themselves as competing with Google are beginning to view the company with some angst – mixed with admiration. Google’s recent moves have stirred concern in industries from book publishing to telecommunications. Businesses already feeling the Google effect include advertising, software and the news media. Apart from retailing, Google’s disruptive presence may soon be felt in real estate and auto sales.

Google, the reigning giant of Web search, could extend its economic reach in the next few years as more people get high-speed Internet service and cellphones become full-fledged search tools, according to analysts. And ever-smarter software, they say, will cull and organize larger and larger digital storehouses of news, images, real estate listings and traffic reports, delivering results that are more like the advice of a trusted human expert. Such advances, predicts Esther Dyson, a technology consultant, will bring “a huge reduction in inefficiency everywhere.” That, in turn, would be an unsettling force for all sorts of industries and workers. But it would also reward consumers with lower prices and open up opportunities for new companies.

[…]

The company’s current lineup of offerings includes: software for searching personal computer files; an e-mail service; maps; satellite images; instant messaging; blogging tools; a service for posting and sharing digital photos; and specialized searches for news, video, shopping and local information. Google’s most controversial venture, Google Print, is a project to copy and catalog millions of books; it faces lawsuits by some publishers and authors who say it violates copyright law.

[…]

Among the many projects being developed and debated inside Google is a real estate service, according to a person who has attended meetings on the proposal. The concept, the person said, would be to improve the capabilities of its satellite imaging, maps and local search and combine them with property listings. The service, this person said, could make house hunting far more efficient, requiring potential buyers to visit fewer real estate agents and houses. If successful, it would be another magnet for the text ads that appear next to search results, the source of most of Google’s revenue.

In telecommunications, the company has made a number of moves that have grabbed the attention of industry executives. It has been buying fiber-optic cable capacity in the United States and has invested in a company delivering high-speed Internet access over power lines. And it is participating in an experiment to provide free wireless Internet access in San Francisco. That has led to speculation that the company wants to build a national free GoogleNet, paid for mostly by advertising. And Google executives seem to delight in dropping tantalizing, if vague, hints. “We focus on access to the information as much as the search itself because you need both,” Mr. Schmidt said in an analysts’ conference call last month.

It is hard to see the downside here. Making price comparison easier and making purchasing decisions more transparent is a good thing, after all.

Back in 1998, before I’d ever heard of Google, I shopped for a new car using the free information at Edmunds.com. The site provided reviews of the car I was interested in, suggested comparable models I should consider, and give detailed item-by-item report of what the dealer was paying for the car. This made it easier for me to buy a car, because I had confidence that I knew my options, and allowed me to negotiate up from the invoice price rather than down from the sticker price.

Now, theoretically, this is bad for the dealer and salesman because it cuts into their profits. But not really. Because I was a comparatively educated consumer, I didn’t have to waste people’s time asking questions about or test driving cars I had already eliminated from consideration nor did we have to play the silly game of making unreasonable offers and counter-offers. I test drove three cars, decided that the car I wanted on paper was in fact the car I wanted, and ordered it, paying a modest markup over invoice. Rather than making three trips to the dealership as I agonized over my choice, fearing I was getting ripped off, I took up maybe 90 minutes of the salesman’s time and we both got what we wanted.

Furthermore, transparency builds trust. Because I knew what a reasonable price for the car was, I knew that the dealer’s offer was fair and took it. While it’s conceivable that he might have been able to make a somewhat higher profit had that information not been available to me, it’s also possible that we might have spent hours going back and forth over the price of the car only to have me take his offer to a competing dealer a few miles down the road to see if he’d sweeten it. That fear is largely eliminated when both sides know what a fair price is to begin with and knows that the other knows, too.

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James Joyner
About James Joyner
James Joyner is Professor and Department Head of Security Studies at Marine Corps University's Command and Staff College and a nonresident senior fellow at the Scowcroft Center for Strategy and Security at the Atlantic Council. He's a former Army officer and Desert Storm vet. Views expressed here are his own. Follow James on Twitter @DrJJoyner.

Comments

  1. Barry says:

    And the sweet thing is that people still seem to be just as vulnerable to bullsh*t, even with the internet. Maybe moreso. So those whose jobs are based on lies, fraud and BS will reap the benefits of a more efficient economy, while still keeping their jobs.

  2. Elmo says:

    Don’t know that owning the destination, and the pipeline, the best thing? [eBay/Paypal. Google/ISP/network].

    Not that I’m a whiner …. eBay’s service has been atrocious the last few years. Almost criminal. And I don’t much care for spec’d/peeled hits sitting atop Goggle search listings (though in practice not a big thing).

    Free wifi …. would that make me Google’s ho? (not that I live up northern Cali way)

  3. James Joyner says:

    Elmo: It’s just the Google AdSense strips on the side that are affected. The search rankings themselves shouldn’t be.

  4. Elmo says:

    So ….. you’re saying adsense will morph into something actually useful (for the surfer).

    Myself, I’m a little surprised that Tofflerian change is still about (though I shouldn’t be). Sites like Clusty, and very lately BlogPulse.

  5. spencer says:

    The internet keeps moving the real economy closer and closer to the economists’ perfect competition model.