Porter on Google: Google needs a Strategy

This latest post in searchblog on Google’s stock price has me wondering the same old question “Does Google have a strategy?” and more importantly “If so, is it sustainable?” (And the much more important corollary of “Do I Buy or Sell?”)

It seems like any respectable blogger have already chimmed in on Google and its (lack of a) strategy. As a result, in order to secure my eternal place in the blogosphere, I will need to attempt to provide my 2 cents. Before I jump in here are some of the web chatter on Google and its strategy:

On Google, Bubbles, and Market Madness


The Starbucks of the Internet

Even Google itself is exceedingly self-aware of the chatter to post this blog when “mygoogle” was launched.

A Method to Our Madness

Why is it so hard to answer this question?

1. Tech industry in general and search and advertising in particular is very dynamic thus hard to gain context from which to formulate and/or discern a strategy

2. Google has gotten so big so fast (# of employees) it has its hands in almost anything web related

3. Google has a culture that encourages individualism (20% your time is YOUR time) which atleast gives the semblance of chaos and lack of consistent thought (and maybe strategy)

4. The last reason I think is the most important. No one knows what exactly is “strategy.” The word is so overused that the mere mention in this blog will drop my blog’s page rank by 4 magnitudes.

I’m starting first with a definition of “strategy” as defined by the man who re-invented the concept: Michael Porter. Unlike other gurus that went “Hollywood” or were simply pop-novel writers, Porter still has street cred from both academic and business circles. For those familiar with Porter, feel free to skip it, otherwise the post is here: Strategy 101.

Porter’s concept of the tradeoff efficiency frontier is key. Implied in the curve is that by choosing an X,Y point on the curve, a company is explicitly choosing a segment of the total customers base (based on its willingness to pay) then creating a system of operational activities that is consistent (in creating value while minimizing cost) with that chosen segment.

Thus strategy connotes segmentation and focus. To create sustainable businesses, companies must create barriers to entry by doing a lot of important little things right. Think of Walmart or Dell, there isn’t any specific thing that we can point to that prevents competitors from copying their business model. It is a multitude of re-enforcing little things which leads to customer value creation and brand.

Under such detailed analysis, Google does not stand up to the smell test. While impressive in everything that it is doing, Google has yet to find a strategy.

Its positioning is scattered throughout the curve, serving different customers and their needs with different products. Having a coherent linkage between products, as Marissa Mayer claims with myGoogle is NOT strategy. It is hard to argue Google and its competitors are serving different sets of customers. The industry is so big and growing so fast that they are trying to be all things to all people.

Furthermore, it is even more disconcerting that Google is further sacrificing its operational efficiency (via its hyper growth and creative HR policies) for innovation. Essentially, Google is trying to outrun its competitors by continuously pushing the efficiency frontier outward while lagging behind the curve itself. Community Powered Search is a good example.

Using innovation as the primary source of competitive advantage is an age old addiction of the technology industry as a whole.

Google has essentially turned it into an art form via its culture, size, HR & hiring practice. By creating an activity system to serve a tactical activity such as INNOVATION rather than creating an activity system to serve a strategic direction such as a serving certain type of web users and advertisers, Google is chasing up the wrong tree. Someone, maybe another 2 kids in a lab at Stanford WILL one day out innovate Google.

It is not to say that Google will not continue to dominate its competition. Innovation does enable a company to win. It is a good thing. But is it not a sustainable practice. It took the German and the US automobile industry over 10 years to “catch up” to the Japanese auto industries in process & quality innovation. If Google is as good as Honda or Toyota were in innovating processes as it is in innovating products, it might also take its competitors or some other yet unknown startup 10 years to catch up.

As such, Google will have 10 years to find itself a strategy, but I would not bet against a bunch of little startups coming up with better mouse traps and serving the needs of different segments of Google’s customer base better than Google. . . one little chink of Google’s armor at a time.