Eric Schmidt knows how Google works…

…but he couldn’t tell you.

Recently an article on VentureBeat by Darius Lahoutifard has received a lot of attention because he criticizes the last book by Eric Schmidt, How Google Works. I found the article interesting and supported by a strong analysis yet, in my opinion, it fails to understand the point.

A quick disclaimer, I haven’t read yet Schmidt’s book, I have only seen the presentation slides so I don’t know what Schmidt exactly claims.

Let’s address upfront the main point of the article: Schmidt knows very well that Google could works in this way because it is a monopoly. Yet he couldn’t write it clearly in the book. Otherwise the FTC, the EU Commissioner for competition and probably other regulatory entities around the world will use his own admission to try to break Google in separated entities.

But there’s something more important at play — why Google is a monopoly? There’s no law or natural barrier that protects it from competition yet he is experiencing monopolistic power. The same applies for Facebook or, in a different business area, for Wal-Mart (at least in the past).

Monopoly theory

Let’s analyze quickly the case of Wal-Mart. It experiences monopolistic power in large areas of the US where he is virtually the only large retail store. Yet Wal-Mart faces strong competition in urban areas and it’s not doing well in the online market. How is it possible? You could easily find people that answers to this question using the Porter’s 5 Forces, other that underlines the frugal culture or the excellent supply chain management or IT technology. All these aspects are true but none is a real barrier for a determined competitor to entry the market and break the Wal-Mart monopoly.

Ok, so which is (or was) the strategic advantage of Wal-Mart? Elementary, my dear Watson: its own market penetration strategy. Wal-Mart was able, in its geographic expansion, to stay away from major urban areas concentrating in middle-sized town of rural US. Also it expanded in one area at a time, covering all the towns before moving to other areas and creating in each area an efficient logistic chain. In this way a competitor who wants to open a store just in one town has to compete with Wal-Mart established logistics and couldn’t undercut its prices. Obviously this strategy is less effective in major urban areas where Wal-Mart’s competitor are already present and also doesn’t perform well against online stores like Amazon who doesn’t requires the same logistic infrastructure.

Ok, so we have understood that Wal-Mart has monopolistic power in certain area of the US thanks to his expansion strategy. I don’t think I need to explain which is the source of monopolistic power of Facebook, everyone grasps it at a basic level: even if you don’t like it, all your friends are on Facebook. In fact the only other social networks with a decent success are or local version of Facebook (e.g. VKontakte in Russia, Sina Weibo in China etc.) or social network less focused on friends and more on influencers like Twitter.

…and Google?

How Google has a competitive advantage over Bing or Yahoo? Google monopolistic power is not so easy to identify. It’s easier to say which are not. They aren’t technological advantages, technology is easy to copy if you have enough resources as Bing in search and Apple in maps has demonstrated. They failed yet and we could be tempted to say that their failure was due to an imperfect technology while Google had time to refine its tech over time.

So it is first mover advantage? Nope. Google wasn’t the first in the search engine market (I can recall AltaVista and NorthernLight), and it wasn’t the first in webmail (I can recall HotMail and Yahoo Mail) or in Maps (the Nokia Maps on Symbian?).

Ok, so it’s marketing and culture ("Don’t be evil")? Better but we seriously think that Microsoft couldn’t compete with Google on Marketing? and Apple? Seriously?

There’s something interesting about Google. Now, when we search online we always say "Google it" even if we are using Bing or another search engine. This phenomenon has a name: it is called Brand Genericization. Usually it is something the Brand owner doesn’t like, a generic brand has no more the positive value of the brand associated with it, and it becomes useless. Yes a generic brand has a higher memory recall but it isn’t enough. The point is that Google is everywhere in our life, in a subtle but efficient way. It is the default search engine in our browser, it’s our mail provider, it’s were we watch video online with YouTube, if you have an Android phone it’s your personal assistant and soon will be in many more object you will use. An unobtrusive presence in many aspect of our lives but yet, every time we need to search, it’s there. Any doubt why he has monopolistic power?

So the power of Google is being everywhere. How did it happen? Thanks to investments in long-shoots, in enabling its engineers to create something useful and then bring it to the market even without a clear business plan. Yes, what I’m describing is a startup incubator, but with some interesting characteristic. A focus on technologies that solves people everyday needs, not niche markets, a consistent user experience and no real need to develop a sustainable business model in the end because Google already has one. Powerful, isn’t it? And Google has been very focused in implementing this strategy.

Eric Schmidt is not telling us these things in his book. Of course he doesn’t, you never say that you are a monopoly (remember the lesson from Peter Thiel used as a reference also by Lahoutifard?). And I agree, this is not a book on management for a startup company, at least not at early stages where you need to be very focused, but what for big company? Look at what Uber and Evernote are doing right now? Don’t you see a pattern here? By the way, who has invested in Uber? G…