Who Will Break the Google Monopoly?

google

I first discovered the internet nearly two decades back. It was an era when the internet speed was slow and the charges were extremely high. One could end up paying as much as Rs 120 per hour at an internet café. In fact, the first few times I logged on to the web, I wondered what was the fuss all about.

It is worth remembering here that I am talking about an era when even the humble sms was yet to make an appearance and the mobile phone rates were extremely expensive, with one having to pay for both incoming as well as outgoing calls. It was also an era when people largely surfed the internet from internet cafes. Of course, all that has now moved to the smart phone and home WiFi connections.

After a few sessions at internet cafés, I was told that there are websites known as search engines which allow you to search for stuff on the internet. One such website was called Ask Jeeves and there were others like Lycos and Alta Vista. While, all this sounded interesting, rarely did these websites throw up what one was searching for.

As Tim Harford writes in Fifty Things That Made the Modern Economy: “In 1998… if you typed ‘cars’ into Lycos—then a leading search engine—you’d get a results page filled with porn websites. Why? Owners of porn websites inserted many mentions of popular search terms like ‘cars’, perhaps in tiny text, or in white on white background. The Lycos algorithm saw many mentions of ‘cars’, and concluded that the page would be interesting to someone searching for ‘cars’.” It was easy to game the system. This is something that I personally experienced when I first started to use the internet regularly in 1999.

And then came Larry Page and Sergey Brin with Google. Their original idea was not come up with a search engine at all. In fact, they were trying to do something different. They were trying to build a system in order to measure how much credibility a research paper had. In academia, a research paper published in an academic journal is said to have credibility, if it is cited by other research papers. It has even more credibility if it is cited by research papers which are themselves cited many times by other research papers.

This led to the basic idea behind the Google search engine. As Harford writes: “Page and Brin realised that when you looked at a page on the nascent World Wide Web, you had no way of knowing which other pages linked to it. Web links are analogous to academic citations. If they could find a way to analyse all the links on the web, they could rank the credibility of each page in any given subject.”

And this idea essentially led to Google throwing up relevant search results unlike other search engines. The irony is that Page and Brin were not really sure of the potential of what they had built. As Duncan J Watts writes in Everything is Obvious – Once You Know the Answer, “In the late 1990s the founders of Google, Sergey Brin and Larry Page, tried to sell their company for $1.6 million.” The story goes that the buyer thought that Brin and Page were asking for too high a price and decided not to go ahead with the deal.

Thankfully, they didn’t. And now they are in a position where they have a natural monopoly. Why? As Harford writes: “Among the best ways to improve the usefulness of search results is to analyse which links were ultimately clicked by people who previously performed the same search, as well as what the user has searched for before. Google has far more of that than anyone else. That suggests it may continue to shape our access to knowledge for generations to come.”

The column originally appeared on August 16, 2017 in the Bangalore Mirror.

Will Facebook also make our decisions in future?

facebook-logoMany of us spend more time on Facebook these days than with our parents, spouses and friends. As Cathy O’ Neil writes in Weapons of Math Destruction—How Big Data Increases Inequality and Threatens Democracy: “About two-thirds of American adults have a profile on Facebook. They spend thirty-nine minutes a day on the site, only four minutes less than they dedicate to face-to-face socialising.” While, I couldn’t find a similar number for India, it is safe to say that many middle class Indians are spending a significant amount of their daily time on Facebook.

On Facebook, we comment, respond to other comments or simply Like other comments. In the process, we are generating as well as giving away data about ourselves.

In fact, this data when mined properly, in some cases is a better judge of our ourselves than even we are. Interestingly, a study published in 2015 found that the Facebook algorithm is a better judge of individual personalities than even the individual’s friends, spouses or parents for that matter.

As Yuval Noah Harari writes in Homo Deus—A Brief History of Tomorrow: “The study was conducted on 86,220 volunteers who have a Facebook account and who completed a hundred-item personality questionnaire. The Facebook algorithm predicted the volunteers’ answers based on monitoring their Facebook Likes – which webpages, images and clips they tagged with the Like button. The more Likes, the more accurate the predictions.”

Further, the predictions of the algorithm were compared with those of friends, spouses, family members and work colleagues. Indeed, the results were very surprising. As Harari writes: “The algorithm needed only ten Likes to outperform the predictions of work colleagues. It needed seventy Likes to outperform friends, 150 Likes to outperform family members and 300 Likes to outperform spouses.”

This basically means that if you are married and have happened to click 300 or more Likes on Facebook, the Facebook algorithm can predict your opinions, desires and tastes, better than your husband or wife.

Interestingly, in some areas the Facebook algorithm did a much better job of predicting about the individual than even the individual himself. As Harari writes: “Participants were asked to evaluate things such as their level of substance use or the size of their social networks. Their judgements were less accurate than those of the algorithm.”

Hence, the algorithm was doing a much better job than the individual himself. Interestingly, Wu Youyoua, Michal Kosinskib, and David Stillwella, researchers who carried out this research, conclude in their research paper Computer-based personality judgments are more accurate than those made by humans: “Furthermore, in the future, people might abandon their own psychological judgments and rely on computers when making important life decisions, such as choosing activities, career paths, or even romantic partners. It is possible that such data-driven decisions will improve people’s lives.”

All this is possible because Facebook has access to our innermost thoughts through our comments and Likes. The interesting bit is that the Facebook researchers have also studied how different type of updates influence people’s voting behaviour. As O’Neil writes: “No researcher had ever worked in a human laboratory of this scale. Within hours, Facebook could harvest information from tens of millions of people or more, measuring the impact that their words and shared links had on each other. And it could use that knowledge to influence people’s actions, which in this case happens to be voting. That’s a significant amount of power.”

Of course, Facebook is not the only company which has this huge amount of power. As O’Neil writes: “Other publicly held corporations, including Google, Apple, Microsoft, Amazon, and cell phone providers… have vast information on much of humanity—and the means to steer us in any way they choose.”

And in large parts of the world which are democratic, this is something worth thinking about.

The column was originally published in the Bangalore Mirror on January 11, 2017

What if Google goes paid?

googleA few weeks back a friend during the course of a conversation asked, “What if Google goes paid?”.  “I will pay for it,” pat came my response, even before he could finish asking his question.

As a freelance writer, who has ambitions of writing more books in the years to come, Google is a huge source of information for me. Research papers, data (Indian as well as international), news (both old and new, Indian as well as international) and so on, keep me going.

At least that is how I use Google on most days. But there are other uses as well. People use it to find out restaurants, electricians, plumbers, and so on. The uses of Google for an individual who has access to internet (either through a smart phone or through a computer) are simply way too many to put down in a 600-700 word column.

So, the question is will people pay to subscribe to Google, if it ever decides to go paid i.e. only those who pay a certain amount of money every month or every year, will be allowed to access it. While this sounds like an interesting question to ask, it is not the right question to ask.

Or so I figured out, after the conversation I was having with my friend came to an end. The right question to ask is will Google ever become a paid website, instead of asking will you pay for it, if it becomes one.

Before I go any further, it is important to explain the concept of network externality in economics, which applies in this case. This is a situation where one person’s purchase of a good or a service, makes it more valuable for other prospective consumers.

Take the case of a telephone (or a mobile phone). If only one person is on the network, it is essentially useless. For it to be of any use, at least two people need to be on it. Of course, if only two people are on it, then it is not financially viable. So the network needs to attain a certain size.

Or take the case of a social networking site like Facebook. I am on Facebook because most of my friends and people I may want to be friends with in the future, are on Facebook.

This, also explains why Orkut, lost out to Facebook, and ultimately had to shutdown. There just weren’t enough people on it, for it to continue attracting more people. Everyone had moved on to Facebook. This also explains why Google Plus never really took off. Most people were happy being on Facebook and did not move to Google Plus.

As Ray Fisman and Tim Sullivan write in The Inner Lives of Markets in the context of network externality: “The bigger a company gets, the more valuable it is to each successive customer, there’s a huge premium on expanding your customer base.” Now look at this in the context of Google. It fits the bill totally.

As Fisman and Sullivan write: “Why, for example, does Google let you search the web for free, even though maintaining its primacy in the search engine market costs the company a fortune in R&D [and] computing infrastructure.”

The answer lies in the fact that more users that Google has, the more viable its business model gets. As Fisman and Sullivan point out: “A bigger user base allows Google to extract ever-higher revenues from the other side of the market—the advertisers, who pay for search listings.”

Hence, Google is free because that is the only way to ensure that it will continue to have the kind of following that it does. And if it is in that situation, it can continue to charge advertisers a good amount of money. The fact that Google is free, ensures that its business model continues running. Given this, it is highly unlikely that in the near future, Google will ever turn paid.

Not, at least, till its current business model keeps running.

The column originally appeared in the Bangalore Mirror on August 3, 2016

Google Plus versus Facebook: How a big brand can win even without the best product

facebook-logoVivek Kaul  
Google+ was launched sometime in 2011. It got rave reviews and many technology enthusiasts claimed that it was much better than Facebook and advised users to switch. More than two years later Facebook continues to be the leader and Google+ is at best an also ran.
The moral of the story is that a better product doesn’t always win in the market place. And there are various reasons for the same. In case of Google Plus versus Facebook it was a clear case of the network effect.
As Niraj Dawar writes in 
Tilt – Shifting Your Strategy from Products to Customers “For those who want to be a part of a social network, it makes sense to congregate where everybody else is hanging out. There is only one village square on the Internet, and it is run by Facebook. Being on a different square from everyone else doesn’t get you anywhere—you just miss the party.”
This was the main reason why people did not move from Facebook to Google+, even though it may have been the better product. “Google + may offer features such as greater privacy or group video chat,” writes Dawar, but it fails to “create the positive feedback loop, because it makes sense for everybody to be where everybody else already is.”
Hence, people stayed on Facebook because everyone else was on it as well. So, even though most people may have the mandatory Google+ account, but ask them where they spend a good amount of their social networking time, and the answer you will get is Facebook.
An excellent example of the network effect being the main reason for the success of a product is the WhatsApp messenger. Despite the fact that there are other players in the market which are advertising very heavily, WhatsApp continues to hold its ground.
Another area where the network effect plays out these days are the movies. “With social networks’ rapid dissemination of information, these types of brand network effects have been turbocharged—they occur more rapidly and forcefully than ever before. A movie now flops or hits as a result of the first forty-eight hours of tweeting and box office sales,” writes Dawar. The holiday season and long weekends are littered with examples of several bad movies, which people watched because everyone else had.
At times what also happens is that the criteria for success that the company had backed on, turns out to be different from what consumers think it should be. Take the case of the VHS versus Betamax battle for the video standard, between Sony and Matsushita, both Japanese companies. Sony decided to concentrate on video quality whereas Matsushita decided to concentrate on longer recording time, which ultimately became the key differentiator between the two standards.
By concentrating on the quality of the video Sony was just doing what it had done in the past. But consumers, it turned out, were looking for a longer recording time and were willing to compromise on the quality of the video.
At times, the consumers don’t have a role to play and have to go with what is offered. Take the case of the battle between Blu-ray and HD-DVD, two competing DVD formats. As Karl Stark and Bill Stewart write in an article titled 
Why Better Products Don’t Always Winon Inc.com “Unfortunately differentiating factors aren’t always clear, and consumers don’t always get the right to choose. Consider the battle between Blu-ray and HD-DVD; while consumers could buy either product, ultimately the war was fought over which content providers would exclusively back each format. Since more content was available on Blu-ray, it ended up creating more customer value, despite the possibility that HD-DVD was a technically superior product.”
Once the consumer is on the Blu-ray format, there is a huge cost of switching to HD-DVD, even though HD-DVD may catch up in terms of content that is available on it to be viewed.
On occasions what also happens is that the brand association of a particular product being the best product in that category is very strong and competitors can’t break it. Take the case of Gillette. As Dawar writes “After more than a century of blade technology, Gillette still controls when the market moves onto the next generation of razor and blade. And even though for the past three decades, competitors have known that the next-generation blade from Gillette will carry one additional cutting edge and some added swivel or vibration, they’ve never pre-empted the third, fourth, or fifth blade.”
Why is that the case? “Because there is little to gain from preemption. Gillette owns the customers’ criterion, and the additional blade becomes credible and viable only when Gillette decides to introduce it, backed by a billion-dollar launch campaigns.”
The chip maker Intel is in a similar sort of situation. Consumers believe that the chip is the fastest chip in the market, only if it comes from Intel. “Both AMD’s K-6 chip and the PowerPC chip were faster than the fastest Intel chip on the market at the time of their launch. But the two challengers were unable to move the market,” writes Dawar.
To conclude, let me quote Stark and Stewart: “Better products win when the total value – that is, the benefits minus the cost – is clear and measurable to the customer and creates more value than comparable offerings.” The trouble is it is difficult to figure out in advance what creates more value for the customer. Even the customer may not know the answer to that question.
The article originally appeared on www.FirstBiz.com on February 25, 2014 

 (Vivek Kaul is a writer. He tweets @kaul_vivek) 

What is common to Facebook, the telephone and the QWERTY keyboard

facebook-logoVivek Kaul 

Are you a Facebook addict, dear reader? I clearly am, given that I spend all my waking hours logged on to the website. On days, I am not near my computer, I keep regularly checking for updates on my mobile phone.
So what is it that makes Facebook work? My ‘back of the envelope’ theory is that the website feeds on our internal voyeurism, meaning, you can see the honeymoon pictures of a couple, who did not invite you to their wedding.
But that’s making things a way too simplistic. Or as Albert Einstein once said “It can scarcely be denied that the supreme goal of all theory is to make the irreducible basic elements as simple and as few as possible without having to surrender the adequate representation of a single datum of experience.” This Einstein quote has been suitably paraphrased as “everything should be made as simple as possible, but no simpler.”
Given this, my “back of the envelope theory” needs to be worked on a little more. So what is it that makes Facebook work? Economists have an answer and they call it “network externality”, which are basically markets “where demand for a product creates more demand for the product”. As Paul Oyer writes in his fantastic new book 
Everything I Needed to Know About Economics I Learned from Online Dating “A product has a network externality if one added user makes the product valuable to other users…The rise of the internet has made network externalities more apparent and more important in many ways…Perhaps the best example of the idea is Facebook. Essentially, the only reason anyone uses Facebook is because other people use Facebook. Each person who signs up for Facebook makes Facebook a little more valuable for everybody else. That is the entire secret of Facebook’s success—it has a lot of subscribers.”
This to a large extent explains why Facebook has retained its dominance despite being challenged by Google. In fact, when Google launched Google+ many experts said it was a much better product than Facebook, and hence, they felt that people would gradually move away from Facebook to Google+. But that really hasn’t happened.
As Oyer puts it “Over the last few years, Google has made one attempt after another to develop a viable alternative to Facebook. Google+, its most recent attempt, is widely touted as functionally superior to Facebook. Google+ has signed up many users, but it has not put any real dent in Facebook’s dominance. Nobody is going to switch to Google+ from Facebook unless most of her friends do, too, and it seems very unlikely that whole groups of friends will act in a coordinated fashion to move from one social network to another.”
In fact, the idea that a product’s demand is based on the product’s demand is not a new one. It has been around for a while. Take the case of the telephone. It was first patented by Alexander Graham Bell in 1876. But it took a long time to get popular.
“The demand for Facebook is essentially exactly the same as the demand for telephones. Why do you have a telephone? Because everybody else has one. It was a bit difficult to get people to use telephones at first. But each new user made the demand for phones a bit higher, because a phone became more valuable to everyone else. The same logic applied to fax machines when they were first introduced,” writes Oyer.
Another excellent example of a product that worked along these lines is the Q-W-E-R-T-Y keyboard. This keyboard was developed by two newspaper editors in the United States and sold to E. Remington & Sons company. The Remington company made adjustments to the design and popularised the layout through its typewriters. It needs to be pointed out that the QWERTY keyboard was designed to take into account the practical problems of the day.
“One noteworthy feature of the Remington design is that it avoided putting letters that commonly followed one another (such as 
and h) next to each other to prevent the arms from jamming when keys were pressed in succession. Furthermore, the letters in each row are slightly offset from the row above because the arms attached to them had to go up to the paper without hitting one another,” writes Oyer.
But these features were relevant when people used typewriters (having learnt to type on a typewriter, I can vouch for this). They are not relevant anymore, when the world has moved on to computers. In fact, it is widely suggested that DVORAK keyboard layout is much better than the QWERTY layout. This keyboard tries to minimize the distance travelled by fingers and at the same time tries to “make the typist alternate hands on consecutive letters as often as possible.”
But QWERTY keyboards continue to be as popular as they were. As Oyer puts it “Once it became a standard, everyone wanted to use the QWERTY keyboard because that’s just what everyone else was already doing. The QWERTY keyboard story must make Facebook executives very happy.”
Given this, it will not be easy for a product which is similar to Facebook to break its monopoly, even though it may have features that make it a better product overall.
The article originally appeared on FirstBiz.com on February 10, 2014

 (Vivek Kaul is a writer. He tweets @kaul_vivek)