Searching for the Moon

Shannon Clark's rambles and conversations on food, geeks, San Francisco and occasionally economics

Google is NOT in the search business, neither is Technorati

Posted by shannonclark on April 13, 2007

Got your attention did I?

What do I mean?

What business a company is in is not the same as asking what do they provide, or how are their resources used by others. Rather the business of a company is what brings value and resources into that organization.

In Google (and Technorati’s) case this is not search. (well in Google’s case they do have a very small < 1% of revenues enterprise search business that does directly generate revenues through the sale of search technologies in the form of dedicated hardware to be installed inside of enterprises as a part of their Intranets, but as a stock analyst might say, at least today not a material part of their revenues).

Both Google and Technorati are, actually, in the business of providing a platform and set of services to other companies to reach customers and spread brand messages (i.e. advertising). Technorati has a further business of selling data – information that companies (or their service provider firms such as PR agencies) can use to track brand impressions, live web opinions etc.

Yes, both Google and Technorati have lots of “users” – but these users are not “customers” – that is, they are not directly (in most cases) paying Google of Technorati (though some may have separate advertising relationships with Google for example).

And certainly in both cases a significant part of their development and technology resources are dedicated to these users. But their revenues are a by-product of the user’s actions – not from the users directly. So the business relationships of the firms are with a smaller set of entities.

This distinction between what a company provides – and the business it is in can be a very hard one to grasp, both for startups and even for long established companies. Some rather large portion of car companies, for example, are perhaps best thought of as financing firms first – and manufacturers second. Further complicated because the actual customer interactions for most car companies are not direct – but are mediated by a layer of car dealers who though licensed by the companies are not directly part of those firms.

So if you modeled a car company, most of their actual business relationships would be with this layer of car dealerships, a number of large fleet buyers (i.e. rental car companies, some government agencies), and the financial services firms that provide the liquidity for the company’s financing activities, and to a smaller degree sales of parts to service dealers (though in many cases mostly only to licensed dealerships – everyone else might often use third party parts). That’s on the revenue in side of things.

On the costs side of things clearly many car companies have a great number of big relationships – to their employees (past and present) mediated via Union agreements, to a handful of large parts providers, to various governments, to many utilities, to transportation providers, and to financial firms for debt financing. Ford, for example, managed to spend $12 billion more than they earned. (that’s a $1 billion loss per month, nearly $33 million/day, or to put it another way 5-10 Web 2.0 startups PER DAY)

Apparently Ford’s business these days is spending.

So what business are you in?

3 Responses to “Google is NOT in the search business, neither is Technorati”

  1. David said

    Why is this post forward dated?

  2. David, I’m not sure. possibly something is misconfigured re timezones with wordpress.com – I’ll take a look (and shoot Matt an email)

    thanks!

    Shannon

  3. Sarah Dopp said

    I heard a story once about the founder of McDonalds being interviewed at an MBA program lecture. He asked the students, “Does anyone know what business I’m in?”

    A few laughed and responded like the man was playing dumb: “You’re in the hamburger business!”

    He said, “No, I’m in the real estate business.”

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