April 17, 2008

Google and The Value of Web Supremacy

I am reading a book, A History of Venice, by John Julius Norwich, that I can recommend without reservation. As I read, I am struck by the parallel between Venice, the powerful republic that dominated Mediterranean trade for over 500 years, and Google. Both Venice and Google have a subtle yet critical advantage over their competitors. In both cases, this advantage matters far more in any analysis of future prospects than the latest news of ships arriving laden with goods from the Levant, or paid clicks per month.

In the case of Venice the great advantage was the defensibility of the Venetian lagoon. It seems strange to me that a lagoon could be a better protective shield than a strong wall or mountain redoubt, yet this was the case. The shifting sands of the lagoon bottom made navigation through this body of water very difficult. When the Venetians knew an invading army was approaching, they would remove the navigational markers they used to guide themselves, and make their lagoon unnavigable to others. They could still sail in and out from memory. As a result they were able to survive unscathed as invading armies sacked all the other northern Italian cities. It cannot be coincidental that pluralistic political systems evolve in easily defended places like the British Isles and North America, and so it is unsurprising that the Venetians developed an intricate system of republican government that served them well for over 1,000 years, providing a man created advantage to match the natural advantage provided by the Venetian lagoon.

In the case of Google the great advantage is that Google has ensconced itself at the top of the web. Having done so, they are now impregnable, yet able to threaten all other web enterprises. A search engine is the top point from which the entire web can be seen. From this high vantage point the user descends to a particular website that is spotted in his search, and may descend further to a particular page in order to purchase, for example, a pot or pan. Having taken the high ground, Google has the resources to continually invest in their search engine, to provide the type of search experience that users want. Why would I ever try another search engine? I know Google. I know it works. I know it works quickly. I know how to use it. To try another search engine would be to take a risk I do not want to take. A Google toolbar is on, at least, tens of millions of computers. That is a huge intangible asset and a huge advantage that no competitor can hope to trump.

The Google position at the top of the web provides an advantage of visibility for any service Google may wish to introduce. To find an example of this I just went to Google and typed in “The Grapes of Wrath.” Not to disappoint, the first hit in the Google list was for Google Books, a service with which I was not previously familiar. Not surprisingly, when I went to Google Books I was given the opportunity to purchase this book from several different web sources. Book sellers tremble. Google is in a position to take its cut. Google did not have to run a hundred million dollar advertising campaign to make me aware of Google Books. They only had to make it pop up first when I did a search for a particular book title. THAT IS AN ADVANTAGE.

The web is still growing. More people are getting web access or upgrading to high speed access. More people are taking the plunge to order items on line. More people from around the world are starting to use the web. This translates to built in growth for Google even without the constant rollout of new initiatives. But new initiatives will be rolled out, because just as the sanctuary of the Venetian lagoon fostered an innovative and effective system of government, so the web supremacy of Google is fostering an innovative and effective corporate culture. The best and the brightest want to work with the best and the brightest-at Google.

The famous contemporary poet, Billy Collins, said that a reader should not tie a poem to a chair and try to force a confession out of it. In like manner, the financial analyst who wants to bring Google into his world of measurable quantities, like paid clicks per month, completely misses the point. Get your damn calipers off of Google. That bears repeating: Get your damn calipers off of Google. That was so much fun I think I’ll do it again: Get your damn calipers off of Google. Don’t try to grab Google and pull and tug into your room of financial figures. Go to its peak of delicious possibility. You will understand Google far better if you do.

Now if you are a day trader, feel free to disregard every single word I have written. None of this will make a difference day to day or week to week or even month to month. But true investing is the art of seeing reality as it really is, and profiting from it. To do that, one must be a little patient, because fools will tug the stock price up and down for silly, insubstantial reasons. But if you buy some Google stock and wait for a year or two, I make bold to predict, you will not be disappointed.


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