Digital Monopolies?

A "digital monopoly" can be a strange thing. An application, whether Facebook or PayPal or Google or iTunes can have external characteristics that resemble what might have been seen as monopolies in other earlier contexts.

But they are odd sorts of monopolies. They can be used "for free," so price gouging is hard to discern. There are other alternatives for all applications and devices, over time, so lack of choices is likewise hard to discern.

But in some quarters there is concern over such application "monopolies," even when traditional tests of consumer harm are virtually impossible to prove.

The rise of the digital monopolies

Eric Schmidt on Google's "Monopoly"

Google Executive Chairman Eric Schmidt raises an interesting point about traditional antitrust regulation and Google's business, by extension raising issues about any number of other leading firms in the software industry that actually do not charge users anything to use the apps.

Traditionally, the test has been harm to consumer welfare, through the mediation of markets where welfare is assumed to be a matter of choice, and choice is a matter of robust competition between firms.

But how does traditional antitrust thinking apply to a firm such as Google? It hasn't harmed any user by its existence, its products or its dominance of the search advertising business. Virtually all of Google's products in the consumer space, and many to most in the business space, are offered free of charge.

"So we get hauled in front of the Congress for developing a product that’s free, that serves a billion people," he says. "I don’t know how to say it any clearer: it’s not like we raised prices."

"We could lower prices from free to…lower than free? You see what I’m saying?"

Monopolies, or perceived monopolies, have in the past been regulated because regulators want to prevent consumer harm in the form of higher prices. Typically that requires a fact finding that such harm actually has occurred, not that it could potentially happen in the future. That's a tough case to argue in Google's case.

Microsoft Complains to FTC About Google Ad Rates

U.S. antitrust enforcers are investigating whether Google Inc. illegally increased advertising rates 50-fold for rival Microsoft Corp., according to a person familiar with the matter.

The Federal Trade Commission is probing the increase, along with other allegations against Google related to advertising, as a result of complaints from Microsoft, according to the person, who wasn’t authorized to publicly comment. The complaints are being examined as part of a larger antitrust probe into Google that began earlier this year, the person said.

Google Ad Rate for Microsoft Said to Be Investigated

Google Gravity...Just for Fun

Just for fun, go to google.com. Type "Google gravity" into the search bar. Watch. Then enter a search term in the search bar. Watch. Do it again. Throw stuff around. Then go back to work.

Google Faces Antitrust Scrutiny, Will Apple Be Next?

AT&T isn't the only major player facing a direct limitation on its ability to grow much bigger in its core markets. Google might be next. Google CEO Eric Schmidt will face a U.S. Senate hearing on Sept. 21, 2011 looking at whether the company is now so large and dominant that it now constitutes a monopoly.

The primary issue in this hearing is whether Google gives preference to its own websites or products in search results. History suggests Google might be a turning point of sorts.

In March 1998, Microsoft CEO Bill Gates faced a similar hearing. Two months later Microsoft was served with an antitrust suit, the effects of which only fully ended in 2010, some would argue. That's more than a decade of handcuffs.

A rational observer with a sense of history might wonder when it will be Apple's turn to meet the regulatory buzzsaw. Sooner or later, big and powerful technology and application companies run into the reality of government regulation. Telcos just are more used to it.

Google facing antitrust limits

What Apple Knows, and Why "Choice" is an Issue

"Too much choice" can be as bad as "not enough choice." Ironically, having some choices generally is viewed as a positive by most consumers. But overwhelming choice is paralyzing. Those of you familiar with the Class 5 switch, and the modern business phone system, know something of the matter. Both types of switches offer hundreds to thousands of discrete features. But most end users, business or consumer, use only a handful of features.

You might wonder why suppliers both to add all those generally unused features. The reason is that a few key customers say they "need them." See Choice can be a problem or choice can paralyze

Apple always has taken one approach to features, while Microsoft and the "open source" communities generally have taken a different approach. For decades, developers have argued for and against unlimited choice or "openness." At the moment, it appears Apple's choices might be winning the argument.

When Google Android developers complain of "fragmentation," that's a downside, or problem, with "open" approaches. Apple always has taken the other view. It limits openness, limits choices, in order to enhance user experience. Where an open source or Microsoft approach is "you can do that," Apple essentially asks "why do you need to do that?" 

With so many projects, if the customer is willing to go without a small subset of the functionality they think they need, it can save a massive amount of effort, cost, and complexity and result in a much more elegant, hassle-free solution that makes them much happier in the long run, some would now argue.

Apple’s customers are often the sort of people willing to make these tradeoffs, because that’s how most of Apple’s products are designed: if you can compromise on some of the features and capabilities you think you need, you can get a product that works better and makes you happier with far less aggravation. And for most people, the benefits will outweigh the missing features.

Granted, there are trade-offs, as there always are in all engineering projects. “We know what’s best for you," Apple essentially says.

People who aren’t willing or able to compromise on their needs regularly are much more likely to be Windows customers. The Windows message is much more palatable to corporate buyers, committees, middlemen, and people who don’t like to be told what’s best for them.

But the world seems to be moving a bit more in Apple's direction. 

Apple might have it right

Metaswitch "Perimeta" is a Classic Business Case Study

The entry by Metaswitch Networks into the session border control business has been described by some as a move “into a crowded market.” "Crowded" market

Metaswitch would describe it as a move into a rapidly-growing market where customers are asking for choices. According to Infonetics Research, service providers are spending $350 million a year buying SBCs. By 2015 (just four years) they will be buying $1 billion a year worth of SBCs.



Acme Packet furthermore reports gross margins of about 82 percent. Huge gross margins

“Candidly, service providers are asking for alternatives,” says Patrick Fitzgerald, Metaswitch Networks VP.



Acme Packet has for years pointed to its dominant market share. Infonetics estimated that Acme Packet had 52 percent of the SBC market in 2009,  almost four times that of any competitor. Dominant market share Dell’Oro Group in 2010 estimated hat Acme Packet had 55 percent of the SBC market.



Metaswitch says Acme Packet has 65 percent to 70 percent share of the service provider and enterprise markets for SBCs.



Some 38 Metaswitch customers already have placed orders for “Perimeta” devices, says Fitzgerald. Perimeta



In many ways, the move into the SBC market illustrates some enduring issues in business strategy. In recent days, as intellectual property lawsuits have escalated in the mobile handset business, we have gotten a reminder of the potential importance of patents and intellectual property ownership. Patent lawsuits proliferate


In fact, some believe the older pattern, where many device manufacturers simply licensed operating systems, might be changing. Some believe it is possible that the dominant pattern will be “essentially proprietary” strategies where each major platform consists of bundled OS and device, on the Apple model.



Keep in mind that Metaswitch Networks has, for many years, been a supplier of the underlying original equipment manufacturer software at the heart of an SBC. In other words, as Microsoft powers many PCs, and Android powers many smart phones, Metaswitch already powers many SBCs.



That isn’t to say the smart phone or PC OS model will develop in the SBC market, but only to suggest that intellectual property ownership confers strategic advantages that are not always immediately obvious in the earlier stages of some markets, but can emerge as strategic advantages later.



Some might note that the move into SBCs illustrates another enduring business issue, namely “channel conflict.” There are many instances in the telecommunications business where a supplier has to make difficult choices. Where a supplier operates in both the wholesale and retail parts of a business, there always is some potential for conflict between a firm’s wholesale partners and the supplier’s own retail efforts. Channel conflict


The analogy is the growing suggestion that device manufacturers ranging from HTC to Samsung might have to develop or acquire their own operating systems as other significant portions of the market evolve.



Android now has a “special” relationship with Motorola Mobility. Microsoft has a favored relationship with Nokia. Apple is Apple. Research in Motion always has used its own proprietary OS.



Some would note that Metaswitch now faces channel conflict in a way it has not, in the past. But that’s part of the enduring business strategy discussion. What should any firm do when it is an OEM supplier, and end users start asking it to develop its own retail products based on the underlying intellectual property?



It is easy to say a firm should avoid channel conflict. But there often are cases where end users (the market) asks or demands that an OEM supplier also supply retail products. There might be other cases where an OEM simply sees strategic value of such scope that some amount of channel conflict is the price to be paid for some important strategic step.



In fact, Microsoft and Google both face some degree of risk in developing favored relationships with a particular contestant in the smart phone market, even as the advantages also are clear. The point is that Metaswitch faces classic business issues of the case study sort.



The analogy is that Metaswitch supplies an operating system the way that Google or Microsoft do. Both those firms have important business models built on supplying “open” software to many partners. But both those firms also have significant relationships with a single retail brand in the end user market. Metaswitch now will have that same sort of relationship in its OEM business and as a supplier of the “Perimeta” line of SBCs.



No firm would casually risk such channel conflict were the potential rewards not large enough to offset the risk. In this case, Metaswitch is making strategic moves on a number of fronts to reposition its business. Virtually all of those moves carry some degree of risk.



But it is hard to ignore 82 percent profit margins in a retail business where the firm already supplies the intellectual property, nor a business where Metaswitch routinely has sold and installed SBCs on behalf of its retail customers for quite some time, giving it a view of the real world deployment issues and perspectives of its retail customers, in the SBC space.



It is hard to ignore a product whose value is such that sales volumes could triple in four years. And it is hard to ignore getting into a business when a firm’s customers say they want the firm to do so. Channel conflict is one sort of issue. Ignoring the clear requests of a firm’s customers is another sort of danger.



It’s a classic business case study.

Gmail is Now a Viable Enterprise Email Provider, Gartner Says

After being in the market for five years, Google's enterprise Gmail is building momentum with commercial organizations with more than 5,000 seats, and it now presents a viable alternative to Microsoft Exchange Online and other cloud email services, according to Gartner analysts.

"The road to its enterprise enlightenment has been long and bumpy, but Gmail should now be considered a mainstream cloud email supplier," said Matthew Cain, research vice president at Gartner. "While Gmail's enterprise email market share currently hovers around one percent, it has close to half of the market for enterprise cloud email.

"While cloud email is still in its infancy, at three percent to four percent of the overall enterprise email market, we expect it to be a growth industry, reaching 20 percent of the market by year-end 2016, and 55 percent by year-end 2020," Cain says.

Other than Microsoft Exchange, Google Gmail is the only email system that has prospered in the enterprise space over the past several years, Cain says. Other enterprise email providers — Novell GroupWise and IBM Lotus Notes/Domino — have lost market momentum, Cisco closed its cloud email effort and VMware's Zimbra is only now refocusing on the enterprise space, he says.

Gmail is Now a Viable Option in Enterprise Email Market

Google Introduces Own Airfare and Flight Search App

Google has begun rolling out its own airfare and flight search application, called "Flight Search." An “early look” at the service on Tuesday with flights to and from a handful of cities, including New York, Chicago, Los Angeles, Dallas and Minneapolis. Participating airlines include Delta, JetBlue, Continental and American.


Google enters fare search business with new app

HTC Sues Apple Using Mobile Patents Obtained From Google

Google has granted HTC the rights to nine mobile patents. HTC now has sued Apple for infringing those HTC patents. HTC Sues Apple Using Mobile Patents Obtained From Google

The nine patents originated with Palm Inc., Motorola Inc. and Openwave Systems Inc., with Google taking ownership within the past year, according to U.S. Patent and Trademark Office records.

Google recorded transfer of the patents to HTC on Sept. 1, according to the agency’s website.

It isn't clear whether any of the Motorola patents were obtained as part of the recent Google purchase of Motorola Mobility.

HTC sued Apple today in federal court in Delaware, claiming infringement of four of those patents that originally were issued to Motorola. Taoyuan, Taiwan-based HTC also amended a complaint with the U.S. International Trade Commission in Washington, alleging infringement of three patents first issued to Openwave and two others originally owned by Palm. Google transfers patents

HTC earlier had filed suit against Apple using an earlier collection of patents. HTC sues Apple

Google: 44 Percent Of Searches For Last-Minute Holiday Gifts Will Be Mobile

Google now predicts, based on the past two years worth of data, that in the upcoming 2011 Christmas and holiday shopping season, “44 percent of total searches for last minute gifts and store locator terms will be from mobile devices."

That's a fairly staggering prediction. Google believes that 44 percent of all searches for the gift shopping purpose will be generated by smart phones. There are some potential implications for mobile advertisers, who will have to compete for limited screen real estate.

But the findings also are illustrative for the broader trend of mobile use for real-world shopping activities. That has implications for use of mobile coupons, location-based check-ins and offers and mobile wallet applications, even in advance of a widespread shift to use of mobile payment services.

One of the clear "big trends" now is that mobile and online applications and features increasingly are being applied to offline commerce. 

44 Percent Of Searches For Last-Minute Holiday Gifts Will Be Mobile

Google to Raise More Cash?

Google has filed a required shelf registration (Form S-3) with the Securities and Exchange Commission that authorizes the potential sale of stock or borrowing.

Google doesn't have to do so, but the filing gives it the ability to do so if it chooses. There is some speculation Google might want to borrow as much as $3 billion, rather than issue new shares. Firms sometimes take on new lines of credit simply because they can do so at favorable rates, not necessarily because the cash has some immediate and obvious purpose beyond increasing liquidity.

Google has about $25 billion cash on hand, already.

Form S-3ASR

Will ChromeBook Fly?

There is a substantial belief in some quarters that Google's Chromebook is going to be squeezed between the tablet and the PC, much as the entire "netbook" category is seen to be squeezed between the tablet and the standard notebook.

If there is a new category here, it might be the market for "PC as a service." We seem to be moving towards applications, infrastructure and platforms as a service. It might not be so appealing to rent devices as a service, but we'll have to see.

Google I/O Opening Keynote

If you have about 54 minutes, here is the complete opening keynote at Google I/O, Google's developer conference.

Apple The World's Most-Valuable Brand

Apple is the world's most-valuable brand, Millward Brown's 2011 BrandZ study of the most-valuable global brands now shows. Apple ended a four-year run by Google at the top of the brand ranking.

Click image twice for a larger view.

Google now is the second most-valuable global brand, followed by IBM, McDonalds, Microsoft, Coca Cola and AT&T, the top-ranked telecom brand. Vodafone ranks 12th and Verizon 13th. All those telecom firms rank ahead of Amazon.

Apple Ends Google's Four-Year Run as Most Valuable Brand

Google's Local Strategy: Social and Location are Key

Google, MasterCard, Citibank Team for Mobile Payments

Google is working with MasterCard and Citibank on mobile payments.

Search Results Follow Market Share Rules

Many years ago, I learned that there are fairly reliable relationships between market share and profitability. Basically, the rule is that the number-one provider in any market has twice the market share of provider number two, which in turn has twice the share of provider number three. It's a remarkably useful rule of thumb.

A new examination by Chitika, looking at the value of Google search results, ranked by share, is remarkably consistent with those rules of thumb about market share.

As it turns out, the number-one search result tends to get double the traffic of the number-two result. The Chitika data also shows that search result three has 11.4 percent share, while the number-four result has eight percent share. That's pretty close to what the rule of thumb would suggest.

If the number one result has 34 percent share, the rule would predict the second result to be 17 percent, which is precisely what Chitika found. The rule also would suggest result three would have 8.5 percent share. In the Chitika data, the third search result has 11 percent share. The fourth result has eight percent share, as the rule suggests would be the pattern.

In search results, as in other markets, share makes a huge difference. The other thing you might recognize is a standard Pareto distribution, sometimes known as a "long tail" or 80/20 rule.

Rules of thumb can be excellent guides to strategy, if a company really wants to lead a market. It's also nice to know that at least some things one learns in school turn out to be correct in real life. 

The Value of Google Result Positioning | Chitika Insights

Google Releases Smartphone Data

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