Guardian column: The Google economy

My Guardian column this week argues that we’re witnessing not just the collapse of the financial (and auto and newspaper…) industries but the birth of a new economy best seen through – you guessed it – the lens of Google:

The financial crisis might be damaging countless companies around the world, but last month Google announced another quarter of growth, with profit up 26%. When it reported similar results two quarters before, The New York Times’ headline proclaimed, “Google defies economy.” It should have read, “Google defines economy.”

In this crisis, we are witnessing more than the failure of mortgages, derivatives, banks, and regulation. We are also seeing the dawn of a new economy; one best viewed and understood through the lens of Google, the one company that – by design or by luck – is built for the emerging world order.

Google’s first advantage is being digital. Who wants to be in the business of stuff any more – building cars, printing newspapers, selling CDs, growing food? Owning and controlling stuff was the basis of most business. And the reflexive response to a collapse in finance and equities used to be to return to the real: buy property. No more. Now the best retreat is to the value of knowledge.

In a sense, Google itself is built on a derivative: its data on data. Like the derivatives that got us into this mess, Google’s are based on creating abundance. But unlike those corrupted financial products, Google’s metaknowledge creates new and real value.

In Google’s economy, small is the new big. Of course, big is still big — Google itself is gargantuan. But it doesn’t grow by borrowing capital to buy companies (likely no one will for some time to come). Instead, Google created a network for an abundance of new advertisers and a platform for countless new businesses, all independent of Google. Indeed, Google does not want to own the assets — content to commerce — upon which its empire is built.

To succeed like Google, companies will build networks and platforms as it does. eBay’s platform enables thousands of merchants to sell more than America’s largest department-store chain, Federated. In Google’s era, the mass market is replaced by a mass of niches. So by continuing to track and measure only the biggest businesses — as the FTSE, the Dow Jones Average, and Nielsen ratings do — we miss sight of the small economy.

Another hallmark of Google’s economy is transparency. Even as Google remains opaque about details of how it does business — its ad commission, for example — it demands transparency of the rest of us. For without openness, we get no search-engine optimization, no precious Googlejuice. Regulators, customers, and citizens, too, surely will demand more transparency in business now that we have been so badly burned by secrets hidden in what are now glibly called toxic assets. Online, the truth is often just a link away.

This link economy that is the real basis of Google’s success, can also bring business benefits for other industries. Struggling and rapidly shrinking newspapers can now specialize—a local paper becomes more local and links to national coverage. Do what you do best and link to the rest, I tell editors.

Marketers are also beginning to learn that with direct links and relationships with customers, they may reduce ad spending. But relationships between companies and customers must be built on trust, and trust comes from handing over control. David Weinberger, author of Everything’s Miscellaneous, puts it this way: “There is an inverse relationship between control and trust.” Post-meltdown, the public will demand control — the internet and Google provide tools they will use to seize it.

Trust itself is becoming the basis for new business. eBay’s systems enable customers to anoint merchants with trust; Amazon demonstrates that we trust the opinions of fellow customers over critics; PayPal and Prosper help us make trusted transactions; Google knows which sites we trust with our links and clicks. We don’t trust banks anymore; hell, they don’t trust each other. In Google we trust.

Google manifests the business of trust in its famous decree, “don’t be evil.” Etch that over doors on Wall Street. If enough people had asked whether getting and issuing toxic mortgages, and making and selling toxic assets was evil — instead of someone else’s problem — I wonder whether we’d be in this mess. Our meltdown was not inevitable. But the transition to a Google economy is.

  • Dean

    “Who wants to be in the business of stuff any more – building cars, printing newspapers, selling CDs, growing food?”

    Someone will still need to do this … and it will be crucial. Perhaps Google can be a tool to help with production because we still need stuff and always will. We won’t be able to exist by searching the net alone.

    • goit

      Yes you are right we need the business of doing stuff besides searching the net. We are also heading to an era where distance becomes doesn’t matter any more as a result there are a lot of transitions going on.
      Quite a lot of jobs are being done in office with a computer these days; working from home in pajamas becomes increasingly more and more a reality. Implication: office environment is less relevant, less commuting (less interest to have a vehicle), more and more robots or such a kind of automated machines to actually perform the labor work (robots help soldiers in a war battle field; intelligent agriculture specific machines can grow foods by monitoring the weather and soil condition)….
      A virtual office (a network of co-workers to run a business efficiently by using nothing other than online communication technologies: taken from wikipedia) that we never heard of such a term some time back is a very common term now days. Implications: no need to have a physical office building that can accommodate the employees, no need to build business buildings, infrastructures…

  • Jeff, with all respect, you need to go easy on the kool-aid! Google is the antithesis of transparency. So, to the extent that we can generalize from Google’s–and perhaps Apple’s–success, the moral is that transparency is unnecessary and perhaps even undesirable to achieve success. As for not wanting to be in the business of stuff, that’s a double-edged sword, as you hint at in your acknowledgment that Google’s value proposition is a derivative–or even a second derivative. As we know from financial markets, derivatives offer the potential high rewards, but also high risks.

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  • “Who wants to be in the business of stuff any more – building cars, printing newspapers, selling CDs, growing food?”

    The answer: SMEs, and many Fortune 500 companies, along with many rapidly expanding economies (putting the recession aside for a moment).

    In your own words, I think you ‘miss sight of the small economy’. And does anyone other than Eric Schmidt actually believe Google’s ‘do no evil’ mantra anymore?

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  • As the song linked below suggest, it’s going to be a…

    Long Road to Christmas
    Dr BLT
    words and music by Dr BLT copyright 2008

    By the way, this song about the impact of the economy on the prospect of Christmas is from the forthcoming CD, Ice and Snow:

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  • My take is that you have it half right.
    Google in information space. WalMart and Ikea in physical space.
    It’s a google mart economy.

    As for information space and physical space.

  • dave

    Interesting points. Smells a little of digital fundamentalism. Forget google – the bigger the empire, the bigger the company the harder they fall- big is the new dead. Sure like the US, Google has contributed to the best and worst of capitalism but they are both throwaway corporate evolutionary stepping stones. The exciting thing is whats next.

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  • G.May

    Fundamentally flawed premise, as already pointed out in the first post.

    Google is a piece of a very large pie. Large corporate entities will continue to do the same thing they always have to survive – adapt or fail.

    Considering the average consumer’s need for one stop shopping both in reality and the virtual world, once these large entities adapt to that, you’ll see more of the same ol’ same ol’ when you get right down to it. Business models will have the same fundamental chassis and engine with a sleek new body.

  • Great post. For the sake of those nay-sayers,

    “Who wants to be in the business of stuff any more – building cars, printing newspapers, selling CDs, growing food?”

    There is a lot of stuff used to distribute other stuff, and most of it waste.

    I believe that the retail space will change and evolve, but old economies–despite being introduced to new societies as new, have already been leveraged by many of the tools used on and through systems like Google. The internet is one big operating system with thousands of programs on it. And fortunately, none of this OS is device or OS dependent.

    When you allow someone the opportunity to learn something at their own leisure and pace, you will find that most take the initiative. This is exactly why we’re seeing old process and systems change. Its interesting reading the comments of those who truly believe that commodities are tangibles.

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  • Fixing the Economy:
    Government bailouts, tax refunds, mortgage buyouts, company bailouts have we gone nuts? Two things need to be done to put the economy on track, it’s obvious and it’s simple. 1) Provide mortgages to qualified individuals at 3%, and 2) Provide jobs for those people willing to work. That’s the two things needed to stimulate the economy, not a tax cut, not a buyout, nor a giveaway. This approach will not drive inflation and has fiscal responsibility. Employees will pay taxes on the money they earn and mortgages will provide a return for the tax payer.

    Mortgages: The federal government should provide a mortgage at 3% to anyone who can qualify. Whether a person has kept up with their payments or not, whether it’s a new home or a refinance; if a person can qualify then they should be able to get a mortgage. That’s fair for everyone. If you can not qualify for a loan then you do not get a mortgage. (If you lost your job, we will talk about that next.) Those mortgages should be made available through Ginnie Mae and Freddie Mac. We do not need to bailout a single bank, nor give them money and say “please” loan this money to people and “please” do not pay yourself a bonus. With 3% mortgages available from Ginnie Mae and Freddie Mac, banks will have to reduce their rates to stay in business. If you bought a house that you can not afford then too bad. If the bank loaned you money to buy the house when it should not have, then too bad for the bank. Deposits are insured, if the bank fails who really looses except its shareholders.
    Jobs: Knowing you may be unemployed means you do not spend money unless you have to. If a person knows he will have a job then he is willing to spend money; buy a car, go out for dinner, whatever… Anyone who wants a job should be able to get one. That doesn’t mean that you can’t get fired. If you are a druggy, or you don’t show up for work, or you goof off, you can be fired. Where do the jobs come from? We need to improve our infrastructure. Roads need repair, bridges replaced, power lines updated. This work needs to be done and the federal government needs to use the stimulus package for this task. It worked during the depression, it will work today.

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