In Search of Competition 2.0

Tim O’Reilly, in “Microhoo: corporate penis envy?,” (O’Reilly Radar, May 24 2008) advised Microsoft to outsource its search to Google and “Compete where you have ideas that can really change the game, but don’t play me-too.”

Michael Arrington disagreed with O’Reilly assertions in his article “The Importance of A Competitive Search Market” (TechCrunch, May 25 2008). He believed that competition is crucial to the evolution and improvement of the search technology and business models. According to Arrington, if Google is allowed to assume the dominant role in search, “little effort is put into innovation, and the not enough revenue flows to companies that add value to the system…. the entire ecosystem is put at risk.”

O’Reilly countered with “Why search competition isn’t the point” (O’Reilly Radar, May 25 2008). He asserted that the focus shouldn’t be on Web 2.0 applications or search, what he termed as subsystems of a much bigger Internet Operating System. He went on to argued that Google’s monopoly will be short-lived because “it’s rare for a company that led with one generation of technology to also win at the next.”

O’Reilly also pointed out that Web 2.0 applications tend to slide into monopolistic behaviors, fuel by network effects. The network effects already in play for Google and its search business. So, unless Microsoft is taking the search concept to the next level and make its “search services that are more open, re-usable and re-deployable than Google’s search services”, it should walk-away from the search business. He argued that “there’s so much yet to invent.” He believed Google dominance in search will be toppled by disruptive forces coming from outside the current system, not from playing catch-ups at the same game (as adopted by Microsoft).

I agreed with Arrington’s position. Competition is important to create a sustainable and healthy Web Ecosystem. O’Reilly equates web applications like search to subsystems of a more grandeur system, named Internet OS. Competition at even the subsystem-level is crucial for evolution. Any lock-in by a particular species in a particular subsystem is risky for the entire Ecosystem, as the Whole System is only as good as its sub-systems.

I agreed with O’Reilly that network effects, in the favor of Google search, is almost an Everest for Microsoft to climb. BUT we have see many instances where companies overcoming the undercurrent of network effects. Search engines like Altavista and Hotbot have lock-in in the search marketplace and Google, a relatively late-comer, dislodged the incumbents. Google is evolutionary (rather than revolutionary) improvement over Hotbot or Altavista. Google managed to develop new sort of algorithms and methodologies to deliver better search results compared to its predecessors. What if then we asked Google not to pour their resources to compete in the search subsystem, as this area already been taken care by Hotbot?

The same applies for the social networking marketspace. Friendster and MySpace practically captured this marketspace before Facebook comes marching in. Should we advice Facebook to do something else other than social networking business when they started operation?

There should be competition in every subsystems. We see competitions in practically every niche of the today’s Web 2.0 market – bookmarking segment (e.g., StumbleUpon, Diigo), books (Goodread, Shelfari, Library Thing), photos (e.g. Flickr, Picasa), etc. Through competition, innovative ideas like Google PageRank and Facebook Platform can emerge. The Web 2.0 is a thriving and dynamic ecosystem, mainly because array of species are emerging every day to bring something ‘special’ to the evolution of the entire Web Ecosystem.

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