Posts about googleeconomy

The WWGD? world

In the financial crash, we are seeing two forces at work: first, a corrupt system of unregulated leverage gone mad — virtual value (which is to say, bullshit) created in derivatives — but second, a world whose fundamental structure is changing in ways we can’t yet fully fathom.

I can’t yet get my head around the new structure; no one can. So I want your help in cataloguing differences from a high altitude (and calm heart) as we figure out not only their dangers but also their opportunities and as we try to understand the new architecture of things.

I can’t help seeing this through the lens of Google, having just finished my book, What Would Google Do? Google is built for this new order – and not necessarily by design. That’s why I try to reverse-engineer Google to figure out what makes it succeed. I used those rules to re-envision various industries and institutions. Where do we land if we use them to reinterpret the ways of our world? Here are some of the laws I intuited:

* The link changes everything. We live in a hyperconnected world. Look at the financial crisis as a metaphor for what can happen in systems of information, news, commerce, regulation, education, culture, design. It’s not that one piece of information can spread fast; it’s that information is connected to information in interdependent and complex ways impossible to unravel.

But don’t see just the danger in that; see the opportunity. If we could build this tower of bullshit in derivatives through connections, what of worth can be built? Knowledge, wisdom (about, say, medicine), new understanding of the world (through data about our behavior)? And what efficiencies can be found because we can do what we do best and link to the rest?

* Atoms are a drag. Stuff sucks. GM could collapse into GMDaimlerChrysler (or eventually ToyotaTata). Nobody wants to be in the business of stuff anymore: building cars, printing newspapers, selling CDs, making gas, growing food.

The digital economy, Google’s economy, is far more appealing. In a sense it, too, is derivative as it creates value on such intangibles as knowledge and behavior. Except unlike financial bets, Google’s metaknowledge creates real value. There’s the other side of the coin of the virtual value that is tearing us down now – a way to build assets quickly and without dependence on and the limitations of stuff.

The reflexive response to this collapse of finance would be to return to the real: Buy real estate. No, not anymore. Buy into manufacturing. Nope, not now. Atoms aren’t safe. Dollars aren’t safe. Now the retreat has to be to knowledge of value.

* Small is the new big. On the one hand, big has never been bigger: Wal-Mart, $100 trillion derivatives markets, Google itself. But big is, more and more, made up of networks of smalls. Countless small retailers on eBay now make up a market bigger than our largest department-store chain, Federated. The long tail of culture (and the big butt to which it is attached, as Google’s Matt Cutts calls it) adds up to huge attention. Or, as I say in a law in the book, the mass market is dead; long live the mass of niches. We know this already and have discussed it here on the blog.

The added implication of the networked, small-is-the-new-big world today is a loss of control. A single CEO and board do not manage those commerce and entertainment markets. They are open marketplaces. And though marketplaces may have bad karma right now, that’s because they were manipulated by the few. Large, flat markets that can control themselves will be safer.

In business, we still need to reach critical mass. But we won’t do that anymore by buying up companies and going into debt to do so. Not gonna happen. No, we will reach critical mass by building networks: Google AdSense, eBay, Glam…. The key is no longer to control scarcity but to manage abundance.

* Be a platform. In an economy built on networks, you want to be a platform. Google is. It enables countless businesses to run thanks to its revenue (AdSense), its content (Google Maps), its functionality, (Google Docs), its services (Google App Engine), not to mention its distribution. Amazon has become a platform for businesses, first stores and now anything. Add eBay, Glam, Skype, craigslist, PayPal. They’re platforms.

In the book, I make a fanciful argument that a car company – any of the once-big three – could become a platform for more car companies to build atop it – if it came out with an open-source car. If it did, its capital needs and risk and labor and benefits coasts would decline; it could grow again without going into debt to do so. I have other ideas for what a car platform is. Universities should become platforms for aggregated educations. Doctors’ offices should be platforms for health. In this new world, you don’t want to own everything – indeed, if you’re like Google, you want to own as little as possible. Instead, you want to enable everything.

* Be transparent. We got into this mess thanks to opaqueness. At every stop along the financial trail, somebody was hiding something: homeowners their bad histories, loan sellers their bad loans, financial instruments their toxins, financial institutions their stockpiles of poison. The solution we hear more often than any other is transparency. If only we’d had – or rather required – disclosures, so much of this wouldn’t and couldn’t have happened. The tower of bullshit that is collapsing around us now was built on willful, wishful obfuscation and ignorance. Ignorance is both their indictment and their alibi.

Transparency will come through regulation: decrees that require financial institutions to reveal their holdings. But it will also come through the transactions themselves. That is what appeals to me about Prosper: I know who I’m lending to and for what. Prosper’s not going to replace Citibank (well, I didn’t think it could…). But Citibank has much to learn from Prosper.

I often say that transparency is a key ethic I learned online in blogs. This is just my symbol of it. Transparency is a system of trust and what we lack right now is trust. Transparency is the solution.

The ethic and attitude of transparency reaches into society and our lives. I say in the book that life is public now and so is business. Value is built now on being found – everybody needs a little Googlejuice – and on listening to the data our constituents create by their actions. Friendships will be maintained and built differently because of our new publicness.

* Give the people control and we will use it; don’t and you will lose us. I call this Jarvis’ First Law. It will become the law of the lands as we no longer have cause to trust our leaders in finance and business or government. We will not just demand control; the internet gives us the means to exercise it. Trust will not be restored from the top but from the bottom.

David Weinberger saw that when he decreed his own law:

* ‘There is an inverse relationship between control and trust.’ I come out of that saying that before the people can learn to trust the powerful, the powerful must learn to trust the people. They won’t get away with treating us like idiots who just wouldn’t understand derivatives and credit default swaps.

Return to my list of successful enterprises and you’ll see that many of them build platforms for trust: Google knows which sites we trust with our links and clicks and which are trying to spam it; eBay sets up the means for customers to anoint merchants with trust; Amazon learned that we will trust the opinions of fellow readers over reviewers; PayPal and Prosper help us to make trusted transactions. We don’t trust banks anymore; hell, they don’t trust each other.

* Don’t be evil. Why should it be surprising and rare – even amusing – that a company would make that vow as Google has? Shouldn’t it be assumed? No, it isn’t. And that’s a key to the mess we’re in: the bullshit was always someone else’s responsibility and that responsibility could always be passed on to the next and bigger fool.

Google executives say that they use their vow just to enable the question to be raised in discussions. Wouldn’t it have been wonderful if somewhere, anywhere, just one loan buyer or seller or financial institution had just asked whether knowingly buying and selling assets they now so freely describe as toxic would be evil?

There are more lessons from Google and its age that I explore in the book, such as our new speed. Life is live and mobs and problems can form in a flash. Middlemen are doomed by the direct connections the internet and Google make possible. Simplicity is an ethic; complexity is what masked our problems from us. To innovate and grow, though, we still need to make mistakes well. It would be a mistake to clamp down and outlaw every risk. It’s not the mistakes that matter so much as what you do about them. Life is a beta.

It’s dangerously short-sighted, I think, to focus on home mortgages and bank stocks to explain and solve this crisis and rebuild. I fear that we are seeing the implosion not of a bubble but of a void that is the fake value built into a $100 trillion market in derivatives that are nothing but gambles on margin. It’s a fiction and I don’t know how we find reality, how we erase perceived – only perceived – value that is far greater than every stock market in the world. But that’s the crisis. I don’t know how we will come out the other end.

I do know that when we come out the other end, we will see – or finally recognize – a different world. We have to see differently. When we do, we can build new value on platforms of openness, transparency, collaboration, networks, connections, knowledge, niches, abundance, trust, speed, and innovation. Success tomorrow will not be defined by controlling us – whether you are a bank or a cable company or an entertainment conglomerate or a politician – but by enabling us.

Our myth was that credit did all that, enabling innovation and growth. It didn’t. Credit was merely a tool.

The good news is that in web 2.0 – where you can build a useful application, product, and company on Google or Amazon or eBay or Etsy or open-source tools as platforms – you won’t need money and so won’t need credit and so you’ll keep control. You only need what you’ve always needed to succeed in a rational world: intelligence, insight, innovation, courage. That much won’t change.

Welcome to the Google economy.

The Google economy

I think there’s something more fundamental happening in Google’s rousing quarterly report yesterday than we’re seeing in the news reports about it (which are mostly eating crow over predictions to the contrary).

I think we’re seeing a new definition of “the economy.”

The old definition meant and measured the performance of big companies and their impact on each other. This was especially the case in media and advertising, which served only companies of a certain size because only large companies could afford to advertise in large outlets. But Google’s marketplace for advertisers of all sizes represents the small-is-the-new-big economy: no limit of small enterprises that can now add up to a critical mass. The fact that it is an auction marketplace also means that this economy is more fluid; it fills in voids.

So for example, when there’s an economic downturn that affects, say, travel, that will affect a magazine like Condé Nast Traveler; airlines and hotels of a certain size will advertise less and there aren’t new advertisers to fill in that void at Traveler’s price. But on Google, if American Airlines and the Ritz aren’t buying the keyword “Paris” this month, there are no end of advertisers who will step in to buy the word. The price of that keyword may decline. But in Google’s very broad economy, the prices of other keywords (e.g., “credit”) may rise.

And because this is a pay-per-performance marketplace and Google is motivated to continually improve relevance and performance, it is not a market driven by scarcity of space or audience. That makes it hard for old measures of the economy and media to figure it out. It doesn’t march to static metrics like fuel costs affecting prices and dollar conversions affecting passenger miles, all of which affect paid ad pages.

This is apparently what threw Comscore’s measurements into a tizzy as it tracked what it thought was a drop in clicks on Google ads while Google said it was tuning its ad placement to improve relevance and performance. There was another variable in there that old economic measures could not predict. Were we clicking less because we were poor and depressed or because Google tuned an algorithm? No way to know. After causing a storm with this measurements, Comscore tried to back up and say that it wasn’t necessarily saying that Google would earn less; the market didn’t listen and punished GOOG by 100 points but last night it punished Comscore’s stock in retaliation.

This is also one of the many factors making old-style media — and, in some cases, economic — measurement inaccurate and irrelevant. I’ve been saying that measurement by sample is useless because you can’t possibly get a big enough sample to measure all the niches; Nielsen, Comscore, and the entire industry will fail in a small-is-the-new-big economy because they can never measure and add up all the smalls. They will also fail because measuring how big a media outlet is has become almost irrelevant: An advertiser buying in Condé Nast Traveler cares how many people read the magazine because the assumption is that everyone who sees the magazine sees that ad. But online, a sponsor buying ads at the magazine’s site,, cares only about the specific people who saw the ad when it was served on specific pages, and so the size of the overall site is largely irrelevant except as a filter to decide where to consider buying ads or as a bragging right for the site. (This is why, when I served on committees for the Audit Bureau of Circulations in the mid ’90s, we discovered that audits of total site audience were meaningless — nobody wanted to pay for them — and all sponsors wanted audited was the serving of their own ads.)

But the pity is that ad agencies and stock analysts, reporters, and stock buyers still pay attention to these outmoded measurements and the companies that push them. That’s why GOOG went down 100 points while the company’s revenue soared 30 percent. They were selling on the wrong measurements that led to the wrong assumptions. But mere methodology won’t help. Why?

The Google economy is just different.

(Disclosure and caveat: I bought GOOG at 512 and now don’t feel quite so stupid for it, but I did feel stupid in econ class.)

: LATER: The NY Times headline this morning said that “Google defies economy.” Perhaps that’s a typo. Should it be “Google defines economy”?