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Last week Google made two seemingly contradictory decisions. On one hand they promised to "vigorously" defend against the US government's request for data on searches . On the other hand they are willing to censor their own search results to comply with requests made by the Chinese government. I guess "do no evil" has different meaning in the two languages!
In the US context, just the request made by the government may have caused the share price to drop. In related news, it seems that MSFT and Yahoo had agreed to comply with a similar request made to them by the US government. The Chinese market is very important to any search enginge provider. Given that a key metric that determines success is the number of unique visitors, the Chines market of 100 million (and growing) internet users is very important to feed the network effects.
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One interesting strategy for product firms would be to outsource development of toolkits and addons to create network effects. Take the casea of IBM or Microsoft outsourcing product development toWipro, Infosys and TCS. When these system integrators create products for product companies, they develop expertise with the products and would start recommending them to their clients. As a result, outsourcing is more than a cost play, it could result in rapid diffusion of the product into new markets. We found something similar in our work on opensource software development. Our conclusion was that when governments adopt platforms like Linux they create a market for programmers with expertise on that platform. This results in the opening of training centers and programs that help create a talent pool with that skill set. This talent pool helps jump-start more projects using that software and this creates more demand for talent pool and so on..
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WSJ reported that Google has purchased dMarc broadcasting for $102 million. This combined with its forays into print advertising gives it a giant footprint. The core engine here is once again its matching engine. The same one that matches relevant ads to the text on a website or a key work to an ad. In the future, customers could potentially have Google manage all their advertising media needs (one stop shopping :-))
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 See how the network of mashups has changed between Oct 2005 and Jan 2006. We have moved form 33 nodes to 56. The number of links have increased from 206 to 509. This picture was created using the program Pajek. Data was obtained from programmableweb.com
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Last week, at HICSS-39, I attended an interesting session on innovation and innovation management. In that session, John Seely Brown made two interesting observations. The first one was on juming ecologies. He said that many academic frameworks focus attention on current capabilities and experiences of current customers. This, he believed, led to competencies traps and no cross pollination of capabilities. He said that in many instances companies benefited by jumping ecologies. This happens when we take a multi-disciplinary approach to research.
The second point he made was about the paradox of protecting intellectual property. Companies spend a great deal of time and effort to protect IP from leaking out. If they get good at this, an interesting side effect is that they prevent leak in of ideas too!
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Presentaton
This paper presents an empirical study that: 1) tests the hypothesis that there is value in equity participation between companies that produce different components of a complementary network; and 2) empirically validates the software "stack". The "stack" is a structure in which the complementarity between products is highest when the two products are on adjacent layers. In a sample of Mergers and Acquisitions, in which either the acquirer or the target is a software firm, I find an inverse curvilinear relationship between abnormal returns and the distance between acquirers and targets in various layers of the stack. Abnormal returns are higher when both sides in the acquisition are classified in adjacent layers of the stack and smaller when acquirer and target are further apart on the stack or are on the same layer.
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Happy New Year! Would this be the year that MSFT becomes relevant again or will Google keep spreading its tentacles? Will the consumer market continue to dominate the buzz index and Wall Street? Will this be the year of the enterprise market? In an earlier blog I mentioned that Google has understood multi-sided markets and was using the consumer side to enter into enterprise markets. MSFT, however, has a reasonably good enterprise market presence (what with Great Plains, Navisite, etc.) and could use that to further dominate enterprise markets with some (:-)) presence in the consumer markets. Ultimately, enterprise market is where the big spending happens and that territory should be staked out this year. I can't wait to see this roll out during the year.
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