Google Innovates At the Bottom With Ad Sales

We will develop and expand this later, but one of the impacts of the GME is the potential that it provides to "innovate at the bottom of the pyramid" (as Clay Christensen terms it).

On of the most innovative things that Google did was to remove the transaction costs from buying advertising. By allow AdWords purchasing online with credit cards, and enabling people to see what kind of ad inventory was for sale and how much it costs in real time (IAI and RTR!), Google opened up the ad market to two new classes of customers:

1. People with small budgets who could not be profitably served through a traditional, salesman-based ad-sales process
2. (more importantly) people without the time or inclination to deal with an ad salesman.

Google allowed ad-buying in real time. No proposals, no call backs, no negotiation.

Does what you sell need the sales overhead you have? How much could you expand your market if you streamlined your sales process?

Values, Market Valuation and The Logic of Business

In today's FT it is reported that Google shares drop more than 16%.

It seems that Google made the grievous error of meeting their predicted profit goals, increasing their revenue 97% in the quarter to $1.29bn. But they did not exceed their projections, and fell from a 109% growth rate in the previous quarter.

They were rewarded by the stock market by a loss of $20 billion in their market cap.

On the face of it it sure seems there is something out of whack with stock market valuations.

Perhaps it's why George Reyes, CFO is quoted in the same article, as saying:

Google has broken with Wall Street tradition since it went public by refusing to issue predicitions of what its quarterly earnings are likely to be, arguing that this sort guidance encourages companies to take a short-term approach to managing their businesses.

In another part of the paper, the Lex Column, does make an important point,

Google’s earnings miss, coupled with last week’s decision to bow to Chinese censorship, have broken its sheen of immortality. Expect more volatility as investors get used to the idea that Google can, in fact, do wrong.

While I take issue with describing a predicted result as an "earnings miss", Lex does highlight that even the most massive enterprises are not immune from the discipline of the GME.

The only sustainable advantage is the relationship with the customer, and with IAI, that is an advantage that is put to the test every day. The "brand", which supplies the context of meaning in which the service/product is delivered, is critical to the value created for the customer. If the customer doesn't like you, the perceived value you give is threatened. And there are lots of competitors eager for a chance to do better.

The other important issue is that Google is not always good, and that Wal-Mart is not only bad. They are both merely business organizations driven by business incentives and trying to make sustainable profits. You can ask for no more or less.

Social Values and Google

John Gapper, in a column in yesterdays FT Google is putting its own freedoms at risk in China points out that

Making money by making the world a better place is nice work if you can get it. Google's founders are so convinced they combine the two that they made "Don't be evil" a founding principle. But what happens when business interests clash with ethics? That is occurring in China not only to Google, but to Microsoft and Yahoo and it ought to make Silicon Valley's finest worried.

Mr. Gapper goes on to talk about the conflicts between the power of Yahoo, Google, and Microsoft and the privacy and political issues that are inevitably emerging. Google seems to be the only search engine that resisted the US government's request for data, but all of them made arrangements with the Chinese government to gain access to the Chinese market.

He concludes,

...In these circumstances, the internet giants ought to tread very carefully. The benefits of an open internet, free from clumsy regulation and inquisitive authorities, have been huge. But they need not last and will be curtailed if the public loses faith in Google and others. China is a vast market but what does it profit an internet company if it gains the whole world and loses its soul?

The implication is that if Google "does lose it's soul" in China, they are at risk of losing their public and threatening some of the value they have created.

In the GME, if even Google is vulnerable to whether customers have faith in them , what might that mean for mere mortal companies?

IAI, RTR and Recruiting/Retention

A lot of thoughts that we've had around IAI and RTR is in the area of competition or customer acquisition/service. But an equally important impact, we believe, will be in recruiting and retention.

As the post-Google generation enters the workforce, they will have less patience for inaccessible information and slow bureaucratic processes than previous generations. Companies that can't meet their expectations internally may find that their highest value employees (and employees focused on RTR are nearly by definition highest value) are frustrated and difficult to retain.

Social Values and Wal-Mart

Wal-Mart has not been known for best practices in sustainable business practices. Born within the context of 20th century business models, they have ruthlessly maximzed their values within the incentives of those models.

It's at least plausible that the DNA of the company coupled with the fact that Wal-Mart focuses on serving customers at the bottom of the pyramid, bodes well - both for the company's continued success in the GME and the growth of widespread recognition of the benefits derived from using appropriate values to inform strategic business decisions.

In this Sunday's Financial Times it is reported that

Wal-Mart has committed itself to taking most of the fish it sells in North America from environmentally sound sources, in its latest initiative to improve its much criticised record on environmental and social issues.

This is a testament to the power of the GME and the incentives for expensive innovation that are implicit when business is focused on the needs of customers at the bottom of the pyramid.

The arguably most powerful company in the world is crtically dependent for its success on their customers' opinion of them. Since the North American market is quickly becoming merely an important niche market in terms of further growth, the issue of sustainable supply chains moves from strictly a "feel good" necessity to a "must have" business necessity.

Of course, the public pressure generated over the last three or four years has been the stick to get their attention. But if Lee Scott, et al, did not see addressing this issue as a critical business problem, they would not undertake the massive, and very troublesome, task of setting standards for a supply chain that includes 60,000 suppliers dispersed all over the globe.

The values required for success in the GME are, in important respects, the same values that can lead to addressing the most serious global problems.

But success is not a sure thing.

The disruptions created by new technologies often lead to economic reorganization that can create dangerous turbulence as civil society and government readjusts to new realites. It's certainly one way to think about the strains associated with the advent of industrialism at the turn of the last century.

The faster that business, civil society and government adjust, the less painful the transition. As the incentives of business success become increasingly aligned with the values needed for global success, the transition might be smoother.

Context is King and the Value of Design

The importance of design is a corollary of the idea of "context is king" .

IAI implies accessible information and technology. In 20th century business models, it's the lack of access, reflected in the high cost of getting it, that was an essential component of the value created by information and technology. RTR was only possible in a well managed large enterprise.

But in the GME, that basis for value creation is being replaced by the ability to execute in real time. In the communications industry, successful execution means traversing the "last mile". As shown by the history of the cable industy, getting the message from the street to the living room was the hard problem. The harder the problem, the greater the value created.

But the hard problem is a constantly moving target.

After billions of invested dollars, the tech for the last mile is now pretty much solved in the developed communites of the world. While that's still a relatively small market in global terms, it's significant. At any rate, the hard problem is shifting again - getting the message from the living room into a person's life.

That's the context for the next actionable hard problem.

iPods showed what happens when you solve the last mile problem. Apple's profits and success come from monetizing the value created by a design solution for a hard and actionable problem.

Creating value in the context of the last mile has always been the job of the great designers. Recognizing and monetizing that value creation is the job of great enterprises.