Thursday, November 12, 2009

Giving 'them the business'

Bill Gurley wrote a really insightful post that describes how/why Google is commoditizing the GPS market. It got me thinking about building shareholder value in a sustainable way, in an environment where the cost of obtaining, and servicing an incremental customer is close to zero. In other words, let's recognize that IP based companies value are incredibly vulnerable if the value they create is based on the foundation of licensing that IP, when the pressure to shift to lower, or no cost alternatives, is going up literally by the day.

Google is opening new market opportunities for themselves (and giving great end-user value) by following a consistent strategy of shrinking the gross revenue potential from markets that rely upon licensing of IP. It's really important to reflect that Google gets much more efficient, and valuable, as its network grows. It' value is what they do with the network and is totally divorced from the cost of the IP engine that provisions it. It's this divorce that makes it so hard for IP based competitors, like MSFT, to compete against them. It's like archers, who must husband their arrows, competing against machine gunners...the rules of engagement have changed, no need to conserve ammo as bullets are 'free', so shoot first (and often); take aim later.

To fuel its growth, it's incumbent upon Google to pick off markets populated by companies with suddenly exposed 'monopolies'; vulnerable to the dual shift to 'cloud' delivery and an incremental customer delivery cost that, at best, is nominal. The bigger the market, the higher the vendor margins, the more incentive for Google to commoditize.

We have seen this is play out in consumer facing applications and, in the B2B world, folk such as Salesforce.com, RedHat and MySQL have only scratched the surface for the B2B opportunity.

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