Thursday, May 28, 2020

Re-Intermediation -- Controlling the Internet as a Channel of Distribution

I saw an article on Slate about how Google wants to build the famous talking computer from Star Trek. Google doesn't want to return links that might contain the answer to your question, but rather to provide a direct answer. It's a romantic vision. I bet it motivates their engineering team. But it can never be.

There is a big, unbridgeable difference between Google and the Star Trek computer. Google wants to sell you something. If Google gets to the point where it can reasonably answer questions like, “What computer is best for me?”, or “Who has good prices on HDTV sets?”, or "What restaurants are nearby?", I won't be able to trust the answers, because they are shamelessly influenced by advertizer dollars.

What concerns me is whether I will have any choice in the matter.

The web was once touted as a powerful force for consumers, disintermediating old industries like TV networks, record studios, newspapers, and retail stores. But it is far more apt to think of the web as merely a new channel of distribution, disrupting older channels because of the internet's lower cost structure, and inserting new and voracious intermediaries between producers and consumers. Rather than share cost reduction with consumers, these new intermediaries want to capture all the savings as profit for themselves.

But an intermediary can only capture these savings if they dominate this new channel. Unfortunately, the internet makes that easy by reducing a company's brand name to a few keystrokes. Get that brand embedded in peoples' heads, and you own the internet as a channel. While Xerox fought for years to keep its name from becoming a verb, Google can laugh all the way to the bank. It may technically lose the ability to prevent a competitor naming itself Google, but it owns the domain name, so who cares?

If Google can successfully provide direct answers instead of links, they will become the search engine. This gives them a huge advantage over other search engines, and enormous power over vendors of any product you may want to search for. Google will own the only path to find products. Amazon is set up as a marketplace, and is in one sense a competitor to Google, but people use Google first, before they even form the thought of buying a product.

Google is already dismantling the fence between their ad-based search results and organic results. If Google can answer conversationally, they will no doubt completely eliminate any distinction.

If Google becomes "the" marketplace, then they will also wield enormous power over vendors. They don't have to provide a direct way to sort products by price. They can sell placement in their search results, and extract a taste of every sale