Why some fear Google -- and others should, too

Excerpts from a 4,000 word letter by the CEO of a leading German publisher to the company that once promised “don’t be evil”:

An open letter to Eric Schmidt
Why we fear Google
17.04.2014, von MATHIAS DÖPFNER
Frankfurter Allgemeine
Dear Eric Schmidt,

In your text “Die Chancen des Wachstums” (English Version: “A Chance for Growth”) in the Frankfurter Allgemeine Zeitung, you reply to an article which this newspaper had published a few days earlier under the title “Angst for Google” (“Fear of Google”). You repeatedly mention the Axel Springer publishing house. In the spirit of transparency I would like to reply with an open letter to highlight a couple of things from our point of view.
…

Google doesn’t need us. But we need Google…
Google’s employees are always extremely friendly to us and to other publishing houses, but we are not communicating with each other on equal terms. How could we? Google doesn’t need us. But we need Google. And we are also worlds apart economically. At fourteen billion dollars, Google’s annual profit is about twenty times that of Axel Springer. The one generates more profit per quarter than the revenues of the other in a whole year. Our business relationship is that of the Goliath of Google to the David of Axel Springer. When Google changed an algorithm, one of our subsidiaries lost 70 percent of its traffic within a few days. The fact that this subsidiary is a competitor of Google’s is certainly a coincidence.

Not only economic, but also political

We are afraid of Google. I must state this very clearly and frankly, because few of my colleagues dare do so publicly. And as the biggest among the small, perhaps it is also up to us to be the first to speak out in this debate. You wrote it yourself in your book: “We believe that modern technology platforms, such as Google, Facebook, Amazon and Apple, are even more powerful than most people realize (...), and what gives them power is their ability to grow – specifically, their speed to scale. Almost nothing, short of a biological virus, can scale as quickly, efficiently or aggressively as these technology platforms and this makes the people who build, control, and use them powerful too.”

The discussion about Google’s power is therefore not a conspiracy theory propagated by old-school diehards. You yourself speak of the new power of the creators, owners, and users. In the long term I’m not so sure about the users. Power is soon followed by powerlessness. And this is precisely the reason why we now need to have this discussion in the interests of the long-term integrity of the digital economy’s ecosystem. This applies to competition, not only economic, but also political. It concerns our values, our understanding of the nature of humanity, our worldwide social order and, from our own perspective, the future of Europe.

The greatest opportunity in the last few decades

As the situation stands, your company will play a leading role in the various areas of our professional and private lives – in the house, in the car, in healthcare, in robotronics. This is a huge opportunity and a no less serious threat. I am afraid that it is simply not enough to state, as you do, that you want to make the world a “better place.”
…
You say in your article that those who criticize Google are “ultimately criticizing the Internet as such and the opportunity for everyone to be able to access information from wherever they happen to be.” The opposite is true. Those who criticize Google are not criticizing the Internet. Those who are interested in having an intact Internet – these are the ones who need to criticize Google.
…
Google is to the Internet what the Deutsche Post was to mail delivery or Deutsche Telekom to telephone calls. In those days there were national state monopolies. Today there is a global network monopoly. This is why it is of paramount importance that there be transparent and fair criteria for Google’s search results.

However, these fair criteria are not in place. Google lists its own products, from e-commerce to pages from its own Google+ network, higher than those of its competitors, even if these are sometimes of less value for consumers and should not be displayed in accordance with the Google algorithm. It is not even clearly pointed out to the user that these search results are the result of self-advertising. Even when a Google service has fewer visitors than that of a competitor, it appears higher up the page until it eventually also receives more visitors. This is called the abuse of a market-dominating position. And everyone expected the European antitrust authorities to prohibit this practice. It does not look like it will.
…
Is it really smart to wait?
Historically, monopolies have never survived in the long term. Either they have failed as a result of their complacency, which breeds its own success, or they have been weakened by competition – both unlikely scenarios in Google’s case. Or they have been restricted by political initiatives. IBM and Microsoft are the most recent examples.

Another way would be voluntary self-restraint on the part of the winner. Is it really smart to wait until the first serious politician demands the breakup of Google? Or even worse – until the people refuse to follow? While they still can? We most definitely no longer can.

Sincerely Yours
Mathias Döpfner

Via John Paczkowski at re/code

Yet another Google book (video)

In the best traditions of pack business journalism, there is a flurry of books about the Monster of Mountain View and its inexorable march to Total World Domination. There are four books out already, and at least 2 (perhaps 4) more books are coming out in the next 18 months, peddled to a business book audience today more interested in financial instability than tech growth companies.

The first wave of books came in 2005, with The Search and The Google Story. Leading the next wave was my coworker Randy Stross, with last fall’s Planet Google. Published last week is the latest book, What Would Google Do? in hardback, large print, Kindle and audiobook editions.

The latest book is by Jeff Jarvis, a blogger, Guardian columnist, and full-time journalism professor — also the founder of Entertainment Weekly and former TV critic for TV Guide and People. So if Stross is coming at Google as a veteran analyst of the tech industry (with books on NeXT, Microsoft and venture capital), Jarvis comes from the perspective of a veteran media critic.

This morning, the WSJ, PaidContent and Jarvis himself talked about a new version of the Jarvis book: a 23-minute video lecture. The video, available from Amazon (but not iTunes), is being sold for $10 (although Jarvis has a free sample). As the articles note, it’s an interesting experiment for publishers trying to gain marginal reviews.

However, I don’t get the pricing. Hour-long TV episode are being sold for $5 on iTunes ($6 on Amazon), while Amazon downloads of a two-hour theatrical release (with a $20 million production budget) runs $15.

I also don’t get the market: we tell all our business model students that they need to definite not only how they create value but also for whom they are supposed to create value. About the only audience I can see is professors who want a guest lecturer on Google, and I’m not clear if the $10 includes performance rights to show to a classroom. (Ignoring whether showing in a classroom fits under fair use of scholarship).

Also, instead of paying $10 to watch Prof. Jarvis give a 23 minutetalk from his book, you can watch Prof. Stross do a one-hour talk and Q&A from his book for free. In the case of Prof. Stross, it was not part of some master strategy to maximize publishing revenues, but a last minute decision by a couple of us here at SJSU (with his consent) to tape what we thought would be a talk that would enjoy a wide following.

Kindling competition

On Saturday, the WSJ published an interesting compilation of celebrity New Year’s resolutions, with major names (Mitt Romney, Martha Stewart, Wolfgang Puck) as well as prominent people who are mostly or entirely unknown to the general public. As they described their goals

For the New Year, The Wall Street Journal asked some influential people three questions: What professional project do you plan to complete in 2009? What personal resolution do you finally hope to keep next year? And what problem should your industry or professional community tackle more effectively?

One that’s directly relevant to readers of this blog (particularly after yesterday’s posting) is this of an Indian expatriate author:

Vikram Chandra, 47
Author, Mumbai and Berkeley, Calif.

PROFESSIONAL: I just started a new novel a couple of months ago, and in a magical, perfect world I'd finish it in 2009. But my last novel came in at 900 pages, so I'll settle for slow, steady progress.
PERSONAL: I'm the father of a 7-month-old baby, so I think it's time for me to get done with my driving lessons and face the terrors of the DMV.
INDUSTRY: I'd love the publishing industry the world over to accept fully and without further complaint that electronic publishing is here to stay, and to provide innovative, sophisticated and, above all, low-priced competition for the Kindle and Sony Reader.

His sense of realism about the future of dead trees is refreshing. His call for open standards (because that’s the only way the Amazon and Sony products will get competition) is the first I’ve seen from the content side, although such calls have been common from the consumer side.

Of course, there are two open e-book standards already, .epub and .opf, which are available to the maker of any reader. What’s missing is a content publisher building an infrastructure around distributing a large volume of content in an open file format.

Yes, it seems likely that the next entrant into online ebooks will emphasize open standards. As I noted in a chapter I wrote on open standards (in a 2006 book, openness is almost always a challenger strategy — not something firms do if they have a choice, but a weapon they use to gain leverage and increase the odds of success over established (proprietary) incumbents.

On ebooks, publishers probably don’t want Amazon exclusively controlling their channel to American readers, so perhaps (as record labels did for music downloads) they will support a challenger to Amazon.

So to compete with Apple’s iTunes and the lockin provided by its proprietary FairPlay DRM, the iTunes challenger promised in May 2007:

Every song and album in (our) digital music store will be available exclusively in the MP3 format without digital rights management (DRM) software. (Our) DRM-free MP3s will free customers to play their music on virtually any of their personal devices -- including PCs, Macs(TM), iPods(TM), Zunes(TM), Zens(TM) -- and to burn songs to CDs for personal use.

Sounds good? I think so. We could use the same choice for books as well, particularly since there’s only one Amazon reader to date (at least Apple has four different iPod form factors).

How would Amazon feel about this sort of competition? One might argue it should be all in favor of it — since the press release touting open MP3 downloads was to promote the Amazon music store. But, of course, now that they have a lead and lock-in built upon their market power and proprietary file format, for books (unlike music) Amazon probably considers open standards a bad thing.

The best things in life are free?

Apache has for a long time had a claim that is rare (if not unique) in the software world: the best software, that is most popular, and is cheapest (i.e. free).

This form of open source is collaborative innovation, or what Eric von Hippel would call “user innovation.” But what about people who need to make money off of their IP?

There are a few good examples of valuable books available free online:

• von Hippel’s 2005 book Democratizing Innovation
• The best book on open source licenses, Larry Rosen’s Open Source Licensing
• A better-than-most book on the business of open source, Producing Open Source Software (recommended by a client)

We don’t have page proofs online, but the book I helped edit Open Innovation: Researching a New Paradigm is also available free online. Compared to the $100 hardback, the double-spaced proofs are a hassle, but at $40 for the paperback (as with Rosen’s book) the paper copy may be more useful.

So while you can’t say the best things in life are free, there are a few good things in life that are.

Kindling a feeling of deja vu all over again

Despite his mangling of the English language, Yogi Berra's aphorism has captured an eternal truth that applies to business history. This week's example is yet another e-book reader: in one of the worst-kept secrets ever (too many discussions with gossipy publishing-types?), Amazon's Jeff Bezos finally unveiled the Kindle.

Attempts at establishing e-books date back a decade, with at least a dozen failed efforts. The big names have included Sony, Microsoft and Adobe. Yes, the technology is getting better — the E-ink reflective screen rather than a backlit LCD screen, and Amazon is using Sprint's 3G wireless network rather than sideloading for content access. It also includes limited e-mail and browser capabilities.

These information goods have high returns to scale, hence both the incentives for success and the inability to survive as a niche product. The question still remains: will someone pay $400 ($100 more than Sony's product) for a book viewer when he/she was born with the necessary equipment to view dead trees? Unlike newspapers, electronic delivery has displaced less than 0.1% of book sales.

Here Amazon is trying to use its distribution might (the upsurge of traffic during the Christmas shopping season) as well as its content relationships to succeed where others have failed. But the business model is fatally flawed.

I'm shocked that they didn't try to do more to solve the angry orphan problem. The device's only native format is its proprietary AZW, requires conversion to open .DOC and .html files, and doesn't do PDF at all. Books from AZW are only available from Amazon and only viewable on an Amazon device, so when Amazon throws in the towel there will be no way to view them. At least the iPod value proposition was primed through use of unprotected MP3 files, so that most of the iPod content (initially) could be played on any PC, MP3 player or other device.

There are clever attempts to make money off of newspapers, magazines and even blogs. I think they mortgaged their soul to provide ubiquitous connectivity (which today is still expensive in the US, unlike telecom commodities like e-mail and international long distance). They need free user-generated content to fuel ubiquity and adoption, but their connect fees won't allow it. Take a cell phone, add e-books, improve the MySpace/Facebook/YouTube web access, and stand-alone book viewers are toast.

Theoretically the COGS should be less for e-delivery, but the book pricing does not appear to be terribly aggressive (given the manufacturing and distribution savings), perhaps because the publishers fear cannibalism. Meanwhile, I get a book I can't lend to a friend, can't sell to a used book store and can't donate to my local library. Thanks to Amazon's inept strategy, many more trees will have to die needlessly.

The spin is that this is an iPod for books, but's only spin. John Paczkowski of the WSJ blog mercillessly lampoons it as "the Zune of reading."

Brad Stone of the NYT claims the problem is features, but I think it's all the business model. If they asked me what to do (they won't) to fix the business model, I'd make three changes:

• Support open document formats (HTML, RTF, even PDF) and then like the iPod, make those the native formats for public domain (no-DRM) content.
• Offer a monthly subscription that makes unlimited e-mail, web browsing, public domain works and free Internet content (like blogs) available at no additional cost.
• Get publishers to offer aggressive discounts for impulse purchases, such as 1-day specials for novels trying to build word-of-mouth to get onto the NYT bestseller list.
  

Stone also suggested advertising, which makes sense given the NYT.com's recent captitulation to the Google-ization of paid media.

I know one reader who today is certainly reciting Yogi Berra — the former COO of NuvoMedia, makers of the Rocket eBook, which exited through sale to TV Guide's parent. The Rocket eBook lasted less than three years, the Apple Newton not quite four, so I'll bet $50 (giving 2:1 odds) that Kindle is off the market by the end of 2010.

Seeking world domination of social media

In researching PCs, cell phones, and other consumer products, I was struck by how the brands that are dominant in one country are not in another. The story usually wasn’t very complex, reflecting a domestic firm that succeeded in its home market but not anywhere else: Fujitsu was the dominant PC seller in Japan, HP & Dell in the US, Siemens in Germany, Acer in Tawian, Lenovo (née Legend) in China, etc.

There were a few brands that were able to become truly global by cracking some (thought not all) overseas markets, of which Nokia, Motorola and Samsung cell phones would be good examples. But it didn’t really match the pattern of IBM in mainframes or Boeing vs. Airbus in commercial airliners, where the same firms sold the world over. Some of it must have to do with economies of scale: the up front R&D costs for an A380 or 787 are unparalleled in any industry, whereas any teenager in a garage can assemble a Wintel-compatible desktop PC.

ValleyWag has posted a global map of the dominant social networking (aka social media) sites by major country. So it’s myspace in the US, facebook in the UK and Canada, Orkut in India and Brazil, friendster in Southeast Asia and LiveJournal in Russia. Yes, deliberate efforts to create a national champion have succeeded in France, Germany and Korea, but otherwise the story seems much more subtle than that.


At first glance, the social media are less nation- or language-bound than the old media (TV, records, newspaper, books, magazines). For one-to-many distributed content, you need long roots in a country to understand their tastes and generate an attractive assortment that consumers will like.

However, if you are Six Apart of San Francisco — makers of Movable Type blogging software and operator of the TypePad and LiveJournal services — you need to translate your software into Russian and then let Russian users generate their own content. Network effects take off after that.

I’m sure the story is more complex than the previous paragraph might imply. Some of my academic colleagues who are opportunistic econometricians (known as “data miners” in our trade) will want to study the social networking quasi-experiment — using factors such as market entry timing, localization (translation) and existing competitors — to systematically explain the success of various social media competitors.

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