My Guardian column this week argues that we’re witnessing not just the collapse of the financial (and auto and newspaper…) industries but the birth of a new economy best seen through - you guessed it - the lens of Google:
The financial crisis might be damaging countless companies around the world, but last month Google announced another quarter of growth, with profit up 26%. When it reported similar results two quarters before, The New York Times’ headline proclaimed, “Google defies economy.” It should have read, “Google defines economy.”
In this crisis, we are witnessing more than the failure of mortgages, derivatives, banks, and regulation. We are also seeing the dawn of a new economy; one best viewed and understood through the lens of Google, the one company that – by design or by luck – is built for the emerging world order.
Google’s first advantage is being digital. Who wants to be in the business of stuff any more – building cars, printing newspapers, selling CDs, growing food? Owning and controlling stuff was the basis of most business. And the reflexive response to a collapse in finance and equities used to be to return to the real: buy property. No more. Now the best retreat is to the value of knowledge.
In a sense, Google itself is built on a derivative: its data on data. Like the derivatives that got us into this mess, Google’s are based on creating abundance. But unlike those corrupted financial products, Google’s metaknowledge creates new and real value.
In Google’s economy, small is the new big. Of course, big is still big — Google itself is gargantuan. But it doesn’t grow by borrowing capital to buy companies (likely no one will for some time to come). Instead, Google created a network for an abundance of new advertisers and a platform for countless new businesses, all independent of Google. Indeed, Google does not want to own the assets — content to commerce — upon which its empire is built.
To succeed like Google, companies will build networks and platforms as it does. eBay’s platform enables thousands of merchants to sell more than America’s largest department-store chain, Federated. In Google’s era, the mass market is replaced by a mass of niches. So by continuing to track and measure only the biggest businesses — as the FTSE, the Dow Jones Average, and Nielsen ratings do — we miss sight of the small economy.
Another hallmark of Google’s economy is transparency. Even as Google remains opaque about details of how it does business — its ad commission, for example — it demands transparency of the rest of us. For without openness, we get no search-engine optimization, no precious Googlejuice. Regulators, customers, and citizens, too, surely will demand more transparency in business now that we have been so badly burned by secrets hidden in what are now glibly called toxic assets. Online, the truth is often just a link away.
This link economy that is the real basis of Google’s success, can also bring business benefits for other industries. Struggling and rapidly shrinking newspapers can now specialize—a local paper becomes more local and links to national coverage. Do what you do best and link to the rest, I tell editors.
Marketers are also beginning to learn that with direct links and relationships with customers, they may reduce ad spending. But relationships between companies and customers must be built on trust, and trust comes from handing over control. David Weinberger, author of Everything’s Miscellaneous, puts it this way: “There is an inverse relationship between control and trust.” Post-meltdown, the public will demand control — the internet and Google provide tools they will use to seize it.
Trust itself is becoming the basis for new business. eBay’s systems enable customers to anoint merchants with trust; Amazon demonstrates that we trust the opinions of fellow customers over critics; PayPal and Prosper help us make trusted transactions; Google knows which sites we trust with our links and clicks. We don’t trust banks anymore; hell, they don’t trust each other. In Google we trust.
Google manifests the business of trust in its famous decree, “don’t be evil.” Etch that over doors on Wall Street. If enough people had asked whether getting and issuing toxic mortgages, and making and selling toxic assets was evil — instead of someone else’s problem — I wonder whether we’d be in this mess. Our meltdown was not inevitable. But the transition to a Google economy is.
Tuesday night, I’m joining in an NPR Intelligence Squared debate - Oxford format - on the motion, Google violates its “don’t be evil” motto. I’m speaking against - surprise, surprise. Esther Dyson and and Jim Harper of CATO are on my side; on the other are Siva Vaidhyanathan of the University of Virginia (who’s also writing a book on Google), Randal C. Picker of the University of Chicago, and Harry Lewis of Harvard. Gulp. (The debate will be aired later. They’re charging $40 for tickets to the live event.)
Here are draft notes on my opening. I’m writing it out but will treat this more as an outline. As always, I would be grateful for your thoughts.
My opponents have a high bar to get over. Google should be presumed virtuous until proven evil. Just because it could be evil does not mean it is. Just being big and powerful does not make it evil. In this country, we tend to value success until one becomes too successful, and then we become suspicious. How much success is too much? That is our problem, not Google’s. No, my opponents must bring the evidence of Google’s misdeeds to prove their case. I don’t envy them.
I grant that Google could be better.
* In China and in other nations where free speech is attacked, Google should use its power and influence - which are greater than even it seems to know - to refuse to issue censored search results. I wonder whether the risk of life without Google could lead to revolution. But in its defense, Google argues that a hampered internet is better for the Chinese than no internet at all.
* I also wish that Google were more transparent about the business arrangement in its ad networks. Google demands transparency from the rest of us - if we want Googlejuice - but it is too often opaque itself. But opaqueness has long been standard procedure in business.
Evil? No.
Leavening the impression of - or fear of - evil is Google’s virtue. Google does good. Our world is a better place because of Google. Consider:
* Google has opened up the world’s digital knowledge to everyone. We can answer any question, satisfy any curiosity, fix any error of fact in the blink of an eye. I wanted to know just how fast that is, so I asked Google how fast an eye blinks and in .3 seconds it told me that a blink takes .3 seconds.
* Google respects the wisdom of the crowd - that is the essence of the PageRank that determines which search results are most relevant. Google also enables us to recapture our wisdom, as it does with its analysis of flu trends based on our searches for related words.
* Google connects people. Young people today will never lose touch and I hope that will lead to better friendships and better behavior.
* Google’s ads are helping to support the creation of the next generation of content. I made $4,500 in Google ads on my blog, Buzzmachine, last year. Granted, I shouldn’t have quit my day job but Google made my blog profitable.
* Edward Roussel, digital head of the Telegraph in London, has argued that declining newspapers should consider handing over the work of technology, distribution, and ad sales to Google so they could become efficient and profitable and do what they do best: journalism.
* Google created platforms on which others can create products, companies, jobs, value, and wealth. About.com, Platial.com, Outside.in, EveryBlock.com exist only because Google made them possible. With Google’s ads, maps, hosting, services, and promotion, new creations bloom.
* Google shows us the way to a new economy that will be built out of the wreckage of the financial crisis. No longer will companies grow to critical mass by borrowing huge amounts of capital to make huge acquisitions. In the Google age, they will grow by creating networks on platforms. We have much to learn from Google’s ways.
One might say that its vow not to do evil is the height of hubris. Google is undeniably arrogant. But its executives say the evil motto is valuable inside the company because it allows any employee to question any decision. It’s not a bad rule. Indeed, I wish Google’s covenant had been chiseled over many a door on Wall Street. If only, in the poisoned process that led to the financial crisis, enough people had asked whether seeking and issuing toxic mortgages and making and selling toxic assets were evil—instead of someone else’s problem—I wonder whether we’d have reached this nadir.
As we try to understand and navigate a new world built on links, connectedness, networks, openness, transparency, publicness, trust, generosity, efficiency, niches, platforms, speed, and abundance, we would do well to ask ourselves, what would Google do? Google is not evil. Google is an example to us all.
I can’t wait to get the Google iPhone app that answers questions asked by voice:
Tim O’Reilly called this one a year and a half ago, I think, when he said that GOOG-411’s core purpose or fringe benefit was that Google would harvest our voice samples and out of them create the best voice recognition online. Now Google can answer any question we ask (we’ll see how well it works sometime today).
This is about mobile, of course. Eric Schmidt told Jim Cramer a few weeks ago that in the future, Google will make more from mobile than from the web because it is a better targeting opportunity and targeting — relevance — is Google’s real business. This is also about the next real operating system of the internet. Microsoft has its voice-recognition software, of course, but Word isn’t where this battle will be fought. The sidewalk is the place.
My daughter asked me what I am going to do now that I’ve finished my book. Think up the next one, I said. What would that be? she asked. What Would Yahoo Do?
It’s wonderful to see my friends at the Guardian taking the ballsy move to produce full-text RSS feeds. I know this is somewhat nerve-making in media: Why shiould we put all our content out there on a feed without getting people to come to our pages and see all our ads? A few answers. First, many people won’t click through. Take ‘em when you got ‘em. Second, think distributed; that’s my first WWGD? rule for news organizations. You have to go to where the people are. RSS is home delivery 2.0. Third, the feeds will have ads and though there’ll be fewer of them, the potential for more audience reading more stories is great. It’s a bold experiment and I hope they do well with it. (Disclosure: I write and work for the Guardian.)
At a Newhouse School/New Yorker event yesterday, Gary Hart said that President Obama (presuming) could not rebuild a 20th century economy out of this wreckage but will need to build a 21st century economy.
That is what I tried to argue in this post about the Google economy — or rather, the new economy that already exists that we can see through the lens of Google. I’ve turned it into an op-ed my agent is flogging now.
Also at the event, former senator Bob Kerrey, now president of the New School, gave an eloquent and passionate defense of the new media economy and how new it is. He reminded the audience that Jerry Brown wowed the nation in the ‘92 debates when he held up a 1-800 number. Wow, how hip, we thought. Kerrey said he reads papers and magazines only out of habit and he revels in getting so many more sources for news today. Asked whether media are better today, he didn’t hesitate answering yes.
He also admitted to watching collections of Joe Biden gaffes on YouTube the day before. He likes Biden. But “it was hilarious.”
I asked whether and how government - rather than just politics and its coverage - would change because of the internet. He said that if Obama wins and appoints Jamie Dimon as Treasury Secretary and more like him, we’ll see “technology used to reduce the overall size of government,” especially at regulatory and administrative levels.
One more note: Kerrey has a sense of humor we should wish for in a president. Made me wish I’d paid more attention to his presidential campaign in the day.
The Frankfurt Book Fair is phenomenal: jammed, absolutely jammed, with German book fans, including an incredible number of kid. The book culture in Germany is nothing like that in America, where allegedly one third of Americans, or more, never read a book after high school.
The Frankfurt convention grounds are also jammed with books from all around the world. What struck me was the optimism of it: all that work to create books on the hope that someone would read them. And they make fun of bloggers for whistling in the wind.
I was there on Saturday to speak with Wolfgang Blau, editor in chief of Zeit Online for what turned out to be a sizeable audience.
At the last minute, I foolishly thought I might be able to answer a question or two in German. Ha! All I know how to say in German is how I can’t say anything.
I got to meet with a few of my publishers worldwide, wonderful folks from Taiwan, Holland, and Germany.
And I got a nice ego boost - not that I need one - when I came across this:
The Web search leader reported third-quarter earnings that far exceeded the expectations of analysts, especially those who thought the company might finally fall victim to the slumping economy. Thanks largely to having contained costs better than in previous quarters, Google reported on Oct. 16 that profit rose 26%, to $1.35 billion, significantly higher than analysts had predicted. Sales jumped 31%, to $5.54 billion.
The analysts are stumped because they are not judging Google as a new kind of company in a new kind of economy. It’s different.
I’m headed to Frankfurt to speak at the Frankfurt Book Fair about What Would Google Do? thanks to Zeit Online which I’m visiting in Hamburg first. As I fly off, I read the the Publishers Marketplace Publishers Lunch newsletter reporting on Paulo Coelho’s talk at the Fair (Coelho’s a star in my book as the Googliest author I know):
Boos was followed by author Paolo Coelho, who is being celebrated here for sales of over 100 million books around the world and for his energetic efforts in sharing his work–and his time and attention in interacting with readers–freely over the internet in multiple languages.
“For fifteen centuries, as a media form, the book has proven unsurpassable. Of course, e-books are slowly claiming ground and it’s likely that, in due time, the digital form may override paper. But this will still take a few more years, which gives us - publishers, booksellers and writers - a precious moment before the Web makes its move.
“Yet what I saw as a writer came as a surprise, and a lack of understanding of the Web on the part of the industry. Instead of seeing in this new media an opportunity to invent new ways of promotion, publishers concentrated on creating micro sites, which are totally outdated, and a few of them complained about the ‘misfortunes’ of the other cultural industries, perceiving the Web as the ‘enemy.’
“…Given that books as media are still widely used, why not share the whole digital content of books for free? Contrary to what common sense tells us - and common sense is not always a good guide, otherwise publishers, booksellers and writers would probably be doing something more profitable - the more you give, the more you gain.”
That has certainly been Coelho’s experience, where freely available electronic files have led to increased print sales in territory after territory–including the US, where The Alchemist has been on the NYT bestseller list for a full year even though it was among the first of his titles to be available online at Harper’s web site.
Speaking to the larger paradigm of internet culture, Coelho said, “There’s an important element to this which most people are not fully aware of: people are sharing what they deem pertinent in a free way and they expect the same thing to occur in all systems of mass communication. The usual mass communication channels have a hard time understanding this.”
At the same time he acknowledged that Yet, “there are still two problems to tackle: copyrights and the sustainability of the publishing industry. I don’t have a solution, but we are facing a new era, so either we adapt or we die. However, I did not come here to share solutions, but my own experience as an author.”
In contrast to Coelho’s remarks, director of the German Publishers & Booksellers Association Dr. Gottfried Honnefelder followed Coelho and insisted that the real problem is a need for stricter laws to monitor and punish internet pirary. “We can’t treat the Internet as a largely lawless space for the simple reason that this creates difficulties in solving the problem of how to treat intellectual property on the Web.” He did, as the same time, acknowledge that “we are talking about new book-minded financial models which reward the publishers’ work in new, perhaps indirect ways.” But the governmental solution apparently still holds romantic appeal here in Germany. A local colleague told us that there is legislation pending to try and require that e-books be priced the same as print books and not discounted.
We’ve just played the highest stake game of guess-the-number: The market was thinking of a number and the government was supposed to guess it. Lehman folding? Bzzzt. That’s not the number. Bailout of money market funds? Bzzzt. Think higher. $700 billion to buy toxic loans? Bzzzt. Wrong again. Buying equity in banks? Ding-ding-ding, you win!
Why wasn’t the government better at listening to the market? Did it ever ask what it should do?
That’s not the way government thinks. But it’s the way it should learn to think. There need to be systems to listen and expectations that we out here should speak. In a representative democracy, government doesn’t always need to act on what it hears. But now it can’t hear.
Government and regulation will need to be transparent and interactive in this, the Google economy.
In the financial crash, we are seeing two forces at work: first, a corrupt system of unregulated leverage gone mad — virtual value (which is to say, bullshit) created in derivatives — but second, a world whose fundamental structure is changing in ways we can’t yet fully fathom.
I can’t yet get my head around the new structure; no one can. So I want your help in cataloguing differences from a high altitude (and calm heart) as we figure out not only their dangers but also their opportunities and as we try to understand the new architecture of things.
I can’t help seeing this through the lens of Google, having just finished my book, What Would Google Do? Google is built for this new order - and not necessarily by design. That’s why I try to reverse-engineer Google to figure out what makes it succeed. I used those rules to re-envision various industries and institutions. Where do we land if we use them to reinterpret the ways of our world? Here are some of the laws I intuited:
* The link changes everything. We live in a hyperconnected world. Look at the financial crisis as a metaphor for what can happen in systems of information, news, commerce, regulation, education, culture, design. It’s not that one piece of information can spread fast; it’s that information is connected to information in interdependent and complex ways impossible to unravel.
But don’t see just the danger in that; see the opportunity. If we could build this tower of bullshit in derivatives through connections, what of worth can be built? Knowledge, wisdom (about, say, medicine), new understanding of the world (through data about our behavior)? And what efficiencies can be found because we can do what we do best and link to the rest?
* Atoms are a drag. Stuff sucks. GM could collapse into GMDaimlerChrysler (or eventually ToyotaTata). Nobody wants to be in the business of stuff anymore: building cars, printing newspapers, selling CDs, making gas, growing food.
The digital economy, Google’s economy, is far more appealing. In a sense it, too, is derivative as it creates value on such intangibles as knowledge and behavior. Except unlike financial bets, Google’s metaknowledge creates real value. There’s the other side of the coin of the virtual value that is tearing us down now - a way to build assets quickly and without dependence on and the limitations of stuff.
The reflexive response to this collapse of finance would be to return to the real: Buy real estate. No, not anymore. Buy into manufacturing. Nope, not now. Atoms aren’t safe. Dollars aren’t safe. Now the retreat has to be to knowledge of value.
* Small is the new big. On the one hand, big has never been bigger: Wal-Mart, $100 trillion derivatives markets, Google itself. But big is, more and more, made up of networks of smalls. Countless small retailers on eBay now make up a market bigger than our largest department-store chain, Federated. The long tail of culture (and the big butt to which it is attached, as Google’s Matt Cutts calls it) adds up to huge attention. Or, as I say in a law in the book, the mass market is dead; long live the mass of niches. We know this already and have discussed it here on the blog.
The added implication of the networked, small-is-the-new-big world today is a loss of control. A single CEO and board do not manage those commerce and entertainment markets. They are open marketplaces. And though marketplaces may have bad karma right now, that’s because they were manipulated by the few. Large, flat markets that can control themselves will be safer.
In business, we still need to reach critical mass. But we won’t do that anymore by buying up companies and going into debt to do so. Not gonna happen. No, we will reach critical mass by building networks: Google AdSense, eBay, Glam…. The key is no longer to control scarcity but to manage abundance.
* Be a platform. In an economy built on networks, you want to be a platform. Google is. It enables countless businesses to run thanks to its revenue (AdSense), its content (Google Maps), its functionality, (Google Docs), its services (Google App Engine), not to mention its distribution. Amazon has become a platform for businesses, first stores and now anything. Add eBay, Glam, Skype, craigslist, PayPal. They’re platforms.
In the book, I make a fanciful argument that a car company - any of the once-big three - could become a platform for more car companies to build atop it - if it came out with an open-source car. If it did, its capital needs and risk and labor and benefits coasts would decline; it could grow again without going into debt to do so. I have other ideas for what a car platform is. Universities should become platforms for aggregated educations. Doctors’ offices should be platforms for health. In this new world, you don’t want to own everything - indeed, if you’re like Google, you want to own as little as possible. Instead, you want to enable everything.
* Be transparent. We got into this mess thanks to opaqueness. At every stop along the financial trail, somebody was hiding something: homeowners their bad histories, loan sellers their bad loans, financial instruments their toxins, financial institutions their stockpiles of poison. The solution we hear more often than any other is transparency. If only we’d had - or rather required - disclosures, so much of this wouldn’t and couldn’t have happened. The tower of bullshit that is collapsing around us now was built on willful, wishful obfuscation and ignorance. Ignorance is both their indictment and their alibi.
Transparency will come through regulation: decrees that require financial institutions to reveal their holdings. But it will also come through the transactions themselves. That is what appeals to me about Prosper: I know who I’m lending to and for what. Prosper’s not going to replace Citibank (well, I didn’t think it could…). But Citibank has much to learn from Prosper.
I often say that transparency is a key ethic I learned online in blogs. This is just my symbol of it. Transparency is a system of trust and what we lack right now is trust. Transparency is the solution.
The ethic and attitude of transparency reaches into society and our lives. I say in the book that life is public now and so is business. Value is built now on being found - everybody needs a little Googlejuice - and on listening to the data our constituents create by their actions. Friendships will be maintained and built differently because of our new publicness.
* Give the people control and we will use it; don’t and you will lose us. I call this Jarvis’ First Law. It will become the law of the lands as we no longer have cause to trust our leaders in finance and business or government. We will not just demand control; the internet gives us the means to exercise it. Trust will not be restored from the top but from the bottom.
David Weinberger saw that when he decreed his own law:
* ‘There is an inverse relationship between control and trust.’ I come out of that saying that before the people can learn to trust the powerful, the powerful must learn to trust the people. They won’t get away with treating us like idiots who just wouldn’t understand derivatives and credit default swaps.
Return to my list of successful enterprises and you’ll see that many of them build platforms for trust: Google knows which sites we trust with our links and clicks and which are trying to spam it; eBay sets up the means for customers to anoint merchants with trust; Amazon learned that we will trust the opinions of fellow readers over reviewers; PayPal and Prosper help us to make trusted transactions. We don’t trust banks anymore; hell, they don’t trust each other.
* Don’t be evil. Why should it be surprising and rare - even amusing - that a company would make that vow as Google has? Shouldn’t it be assumed? No, it isn’t. And that’s a key to the mess we’re in: the bullshit was always someone else’s responsibility and that responsibility could always be passed on to the next and bigger fool.
Google executives say that they use their vow just to enable the question to be raised in discussions. Wouldn’t it have been wonderful if somewhere, anywhere, just one loan buyer or seller or financial institution had just asked whether knowingly buying and selling assets they now so freely describe as toxic would be evil?
There are more lessons from Google and its age that I explore in the book, such as our new speed. Life is live and mobs and problems can form in a flash. Middlemen are doomed by the direct connections the internet and Google make possible. Simplicity is an ethic; complexity is what masked our problems from us. To innovate and grow, though, we still need to make mistakes well. It would be a mistake to clamp down and outlaw every risk. It’s not the mistakes that matter so much as what you do about them. Life is a beta.
It’s dangerously short-sighted, I think, to focus on home mortgages and bank stocks to explain and solve this crisis and rebuild. I fear that we are seeing the implosion not of a bubble but of a void that is the fake value built into a $100 trillion market in derivatives that are nothing but gambles on margin. It’s a fiction and I don’t know how we find reality, how we erase perceived - only perceived - value that is far greater than every stock market in the world. But that’s the crisis. I don’t know how we will come out the other end.
I do know that when we come out the other end, we will see - or finally recognize - a different world. We have to see differently. When we do, we can build new value on platforms of openness, transparency, collaboration, networks, connections, knowledge, niches, abundance, trust, speed, and innovation. Success tomorrow will not be defined by controlling us - whether you are a bank or a cable company or an entertainment conglomerate or a politician - but by enabling us.
Our myth was that credit did all that, enabling innovation and growth. It didn’t. Credit was merely a tool.
The good news is that in web 2.0 - where you can build a useful application, product, and company on Google or Amazon or eBay or Etsy or open-source tools as platforms - you won’t need money and so won’t need credit and so you’ll keep control. You only need what you’ve always needed to succeed in a rational world: intelligence, insight, innovation, courage. That much won’t change.
Here’s a first draft - sure to change - of a presentation I plan to give to open and set the table for the New Business Models for News Summit at CUNY. I won’t go through it lline-by-line that morning; I added more detail since I’m posting it here for your comment, correction, questions, arguments.
