How to beat Google (and why Microsoft + Yahoo probably won't do it)

Could Yahoo be fixed and thrive as an independent company? I think it could, but now we'll probably never know, because Microsoft wants to buy it. There are reports that private equity firms, and possibly News Corp, also want to bid (link). Even Google has supposedly offered to help (link). But by declaring its desire for Yahoo, Microsoft has basically acknowledged that its own Internet business is failing. Now that Microsoft has said that in public, it has no choice but to outbid everyone else.

Which is a shame, because I think the combined companies are likely to fail. To explain why, I have to talk about the right and wrong ways to compete with an industry leader...

How to fight a leader

In my opinion, the best way to fight a dominant company at the top of their game is not to go head to head with them. You don't launch a competing line of mainframes against IBM in the 1960s, and you don't launch a consumer operating system against Microsoft in the mid-1990s. What you want to do is challenge them in a business they don't understand, or better yet an area where their own strengths make them weak. That's what Google did -- while Microsoft was focused on beating Netscape, AOL and the other first-generation Internet companies, Google quietly established a franchise in search advertising. It's now using this secure base to subsidize free online applications (and a mobile operating system) that compete with Microsoft.

Although Google's direct impact on Microsoft's applications business to date has been miniscule, Google's tactics will eventually present Microsoft with a Catch-22 situation: If it tries to hold the line on prices, its customers will gradually migrate away. If it matches Google on price, it destroys its own revenues.

Microsoft's response has been to try to get a piece of Google's advertising revenue. First it tried to build its own search and advertising business. Now that's failing, so it wants to buy Yahoo's to get critical mass.

The problem is that even with Yahoo, Microsoft will still be far behind Google in search advertising. Google has a huge lead, and is willing and able to spend lavishly to defend it if it has to. I think what Microsoft is doing is equivalent to leading an infantry charge uphill against an infinite number of machine guns.

If Microsoft really wants to spend $45 billion, I think it would be far better served by investing it to attack someplace where Google is weak.

Google's weaknesses

A dominant company's strengths are also usually its weaknesses. (For example, IBM was so deeply embedded in corporate big iron that it couldn't understand the PC business. Microsoft was so caught up in monetizing a computer platform that it couldn't picture someone giving away the whole thing.) Google's weakness is its beautifully managed and consistent corporate culture. Google hires only the best and brightest software engineers. It hires them young, so they can be molded, and it brags about screening them all for "Googliness." That consistent culture means it acts far more predictably than many technology companies, and it has very consistent blind spots.

One of Google's blind spots it that it can't tell the difference between usability and utility. Usability is the process of making software easy to learn without a manual or extensive training. Google is extremely good at designing for usability. Its interfaces are clear, uncluttered, and generally self-explanatory. Utility is the ability of a product to solve a major problem for a user. That requires the designer to get inside the head of the target customer, understanding not only his or her rational needs but also the emotional landscape. Google is terrible at designing for utility. It tends to attack problems that engineers care about, rather than normal people; and it often produces elegant technologies that don't engage people emotionally and fail to deliver the full solution they need. (If you want a great example of the difference between usability and utility, compare the old Google Video to YouTube. Google Video was cleaner and easier to use, but it was launched without sufficient content, and was about as emotionally engaging as a slab of concrete.)

One of the best ways to compete with Google, then, is to focus on utility -- to create online products and services that solve real problems for customers, and address both emotional and rational needs. That's what Amazon is doing with Amazon Web Services (although in this case the customers are developers rather than consumers.)

There are many, many more opportunities to create high-utility Internet applications. What you need is a critical mass of bright engineers, a product management culture that understands how to design for utility, and senior management that focuses the company on its best opportunities. Designing for utility takes more resources than just tossing a product out there, so management must restrict the number of projects the company undertakes.

Yahoo has plenty of bright engineers, and I think it understands utility better than Google. Ironically, Yahoo's attempt to make itself into a media company probably helped here, because it forced the company to learn about engaging people emotionally.

What Yahoo has lacked, in my opinion, is the awareness that it's actually a products company, not a media company; and the management discipline to focus on a small number of initiatives.

Will a buyout by Microsoft fix those problems? I don't think so. Microsoft itself isn't great at designing for utility. Mostly, it focuses on copying and adapting things that have been developed by others. One of the most depressing documents I've seen on the Web recently was the alleged plan for Windows Mobile 7 (link). Assuming that the plan is genuine, it shows that rather than trying to do something new in mobiles, Microsoft is slavishly trying to copy and "improve" on the interface of the iPhone (so, for example, rather than just using finger touches you can also shake the phone to make it do things). This comes after Microsoft spent the last couple of years trying to copy RIM, and before that Palm.

Even the bid for Yahoo is driven by Microsoft's desperate desire to copy and co-opt another company's business model. That's exactly what Yahoo doesn't need. Rather than focused management that can pick out the most disruptive embers in Yahoo's portfolio and fan them into bonfires, Yahoo is likely to get layers of well-meaning ROI analysis, a distracting flood of resources, political integration hassles, cultural conflicts, and a mandate to "concentrate on the core."

The process will probably strangle Yahoo and distract Microsoft. I really hope I'm wrong, but I think there's a very good chance that the merger will be the beginning of the end for both companies.


Anonymous said...

Lovely post. :-) Agree on most of the points and loved the last paragraph ...

Chris Dunphy said...

I couldn't agree with your analysis more. In some ways, this deal is the best thing that ever happened to Google. Microsoft will be crashing into Yahoo at ramming speed, and the collision will sink both of them - leaving Google the only battleship afloat.

Did you see this article in the New York Times:

What was most striking to me Friday was Microsoft’s own expectations for the deal. To put it bluntly, they are awfully low. When I spoke to Yusuf Mehdi, Microsoft’s senior vice president for strategic partnership — and the man who had been driving much of its online efforts in recent years — he never once talked about crushing the competition, or even catching up.

A Yahoo deal, he told me, “will be good for consumers who want another search engine, Web publishers who want another ad placement service, and syndicated advertisers” — who also want a choice other than Google. He continued: “Because of Google’s heavy volume and its algorithms, they are a very efficient buy. But people are rooting for a credible No. 2. We got lots of calls today from Web sites and others saying, ‘We’re with you.’ ”

Was he really saying that Microsoft would be content as a “credible No. 2?” I had a hard time believing it. But when I pushed him on this point, he reiterated it. “Online advertising revenues are going to be $80 billion within a couple of years,” he said. (They’re about $50 billion now.) “That is going to mean a tremendous opportunity to all players. There has to be a place for another credible player.”

Egads. I've NEVER seen Microsoft shoot so low. What sort of leader pays $44 billion dollars to be a "credible number two" ??

Microsoft and Yahoo will both be paralyzed waiting for this deal to go or not go through. If it does, it will be at least a year before the merged company is working efficiently. And a year in Internet time might as well be an eternity. They've just handed Google another hundred miles of runway to get even further ahead.

- Chris //

Albert said...

Excellent analysis, Michael. I have translated your post into Spanish here.

Anonymous said...

As a designer it surprises me that you say that Google does good interfaces - in fact among usability experts Gmail's UI is regarded as one of the worst in its kind. Its design is unordered, misfunctional and ugly - trust me, i have the trained eye of a designer.

Sleek and sexy

Michael Mace said...

Thanks for the comments, folks.

Designer wrote:

>>As a designer it surprises me that you say that Google does good interfaces - in fact among usability experts Gmail's UI is regarded as one of the worst in its kind

Oh, man, I forgot all about Gmail. I'm a user, but I have my e-mail client scrape messages from it, so I rarely use the web interface.

But you are totally right, the interface of Gmail is remarkable because it's both ugly and confusing (finding the Reply button in particular is an amazing chore).

I think many other Google products are very good on usability, but I should have pointed out that there are exceptions.


Chris wrote:

>>Egads. I've NEVER seen Microsoft shoot so low. What sort of leader pays $44 billion dollars to be a "credible number two" ??

No leader pays $44 billion to be #2. I believe the comments from Microsoft are what the corporate lawyer told him to say. If Microsoft says it wants to dominate (or even lead) a market, Google will immediately play that back to the Justice Department as an argument against the merger. What you saw in the NYTimes article was spin control aimed at federal regulators, nothing more.

By the way, I should have credited Chris for pointing me to that Windows Mobile 7 document. Thanks, Chris!

Anonymous said...

Your feelings about the Windows Mobile 7 document were similar to mine. As a software development company, we earn our money by writing code for the .NET Compact Framework on Windows Mobile devices. As engineers, we never regretted to focus on this platform, rather than the horribly fragmented Java J2ME. But it is frustrating to see how slowly the useability of Windows Mobile improves over the releases. And even more so how Microsoft failed to take advantage of its own research groups, who worked on touch UIs for quite a while (e.g., There were even long discussions initiated by the Windows Mobile team about one-handed usage. Which never even came near the idea of thumb-controllable UIs. And maybe Microsoft is genetically unable to keep things simple, which is the key to useability on mobile devices. It would require the courage and restraint to leave things out, but Microsoft was always successful where they could out-feature other products.

It was good to see the Apple iPhone blow in some fresh air - and disappointing that Apple completely bungled the development platform aspect. A good mobile development platform would require openness combined with safety, which implies a "managed code runtime" such as the .NET Compact Framework.

Maybe Android will solve it, but I haven't seen any indication that its GUI will have good useability. At the moment, it just adds to the fragmentation of Java.

Yihong Ding said...

Hi Michael,

I cannot agree with you more. If Microhoo wants to beat Google in the Google way. There is no way Microhoo could succeed. Microsoft can spend its $44.6 billion much better than buying Yahoo to fight Google.


Unknown said...

Ya know i love my iGoogle and no matter what ill never leave Linux or my PS3. all microsoft cares about is money and power. they really in my opinion contribute nothing but lies and false images of stepping ahead. and yahoo trys waay to hard on all of there features. yes they ruled the 90's but google is rockin the new Century quite well.