A while back I got an email from a local reporter/writer asking me about the effects of Google on micro (and macro) economics. I put a hasty reply together and sent it off, and after weeks got a reply back saying "Oh good analogy to starbucks"!!! Couple of friends seemed to like what I had written so I decided to post it here. I leave the name of the person asking me the question out -- given reputation issues and the mix up with what macro economics actually means. But here are the original questions which I believe are well formed (whoever the original source may be!!!).
How do you think Google has changed the economy? Consider both macro and micro economies. Which companies have won, which have lost? Example 1. AdSense - has enabled new businesses to be financed through ads. Example 2. Home buying - Google Maps has revolutionized how buyers find homes, Zillow.com is a direct result of Google making tools available. Example 3. Long tail marketing Example 4. Acquisitions - YouTube investors are clearly much richer, trickle down, etc. I appreciate your help in this research which I'm putting together for my own white paper and talk.
This is an old response but here it is:
Hi -----:
Hope all is well.
Interesting questions. I think there are analogies to be made between Google and several other industries both in their early stages -- like early automobile companies -- and in their later stages -- like Starbucks and their transformational effects on their industry (from technology and value chain modifications, to general effects on side industries).
Like early industrial leaders (eg automobile) Google has:
-- created brand new industries and services to complement its products, such as Search Engine Optimization companies,
-- created new services and based on its technology -- take mesh ups for instance you mentioned Zillow
-- as well as creating new revenue models and streams for companies to exist on -- Ad Sense.
It has also transformed the old advertising industry. I think I saw a Harvard Business Review arguing that transformational companies -- like Starbucks -- drastically change their industry (in Starbucks case that would be from product quality to fair trade etc). Similarly, Google has helped reshape the traditional advertising.
As for the Macro Economic effects... weeeell... one has to be careful here. Google did not control the FED discount rate, change any tax policies, etc. They have been trying to (IMHO)positively effect policies; for instance in the case of web and/or wireless policies.
But it has had similar effects. When the SOX went into effect (and after the collapse of the internet bubble) the internet/technology IPO practically collapse -- leaving no exits for the VC's and private investors. It was the potential of being acquired by Google, Yahoo, and Microsft among others, that kept the promise of returns on early stage financing alive. This is not unlike government giving financial incentives to early stage investors who backed up successful companies. I think these companies are owed a great deal for keeping the valley going...
Another macro-economic effect is Google's foreign revenues and investments. If I am not mistaken, nearly 40% of Google's recent revenue came from its Global operations. With this trend, its future effect on issues from trade deficit to technology transfer, outsourcing and techology imports can be quite significant. If nothing else, this is at least as significant as major industrial exporters, such as Caterpillar, Boeing or P&G, selling their products overseas but without drawing on the US Government loans and grants to foreign countries.
Here is a significant point -----: Google has not been alone on this. Some may even say that Google did not invent internet advertising, licencing and alliances, M&A, foreign investment and tech importing/outsourcing etc. etc. On the other hand, I don't think anyone can argue, that they have been extremely effective at it :-)
Looking forward to seeing your article -----.
All the best, Esfandiar
---
Esfandiar Bandari, PhD, MBA
e.bandari@cantab.net, e.bandari@gmail.com
skype ebbandiar & gtalk: e.bandari
http://www.linkedin.com/in/ebandari
Tuesday, November 27, 2007
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