Competing with Google

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Umair Haque writes:

One way to qwn Google is through connected consumption. Google has proven time and time again that it doesn’t have a real competence in community. Most of it’s community-based initiatives are also-rans (Orkut, News, etc).

But communities are huge sources of value creation in a post-network economy – especially when they scale. That is, they realize increasing returns via viral and network economies of scale. So, for example, rather than Yahoo (etc) trying to roll it’s own communities, a much smarter play would be to begin acquiring vertical communities and build nonlinear returns to scale, because each acquisition price won’t reflect network benefits.

Vertical communities create value in two ways. First, they’re hyperefficient attention allocators. Second, that’s because they’ve built huge knowledge pools about their verticals. Check out Basenotes for a quick example. The trick is that few of them realize much value now, because their networks haven’t reached scale.

But the economics are clear: both of these sources of value creation are deeply disruptive to traditional consumer-facing industries. Where newspapers are today because of micromedia and ambient media, so tomorrow most consumer-facing industries will be because of communities – think magazines, department stores, and other mass players. And that means that a community roll-up player can exert huge market power over complementors – like Google – because it will own the edge of the value chain.

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