A Pyrrhic victory (/ˈpɪrɪk/) is a victory with such a devastating cost that it carries the implication that another such victory will ultimately lead to defeat. The phrase “Pyrrhic Victory” is named after King Pyrrhus of Epirus, whose army suffered irreplaceable casualties in defeating the Romans at Heraclea in 280 BC and Asculum in 279 BC during the Pyrrhic War. Someone who wins a Pyrrhic victory has been victorious in some way; however, the heavy toll negates any sense of achievement or profit. The term “Pyrrhic victory” is used as an analogy in fields such as business, politics, and sports to describe struggles that end up ruining the victor. ~ via Wikipedia
Series Schedule:
1) The Battle For The PC
A Glorious Victory
Google began in January 1996 as a research project by Larry Page and Sergey Brin. While conventional search engines ranked results by counting how many times the search terms appeared on the page, they theorized about a better system that analyzed the relationships between websites. They called this new technology PageRank, where a website’s relevance was determined by the number of pages, and the importance of those pages, that linked back to the original site. via Wikipedia
The Battle for search on the PC (notebooks and desktops) was a glorious victory for Google. Seldom has a company come so far, so fast, made so much money and so utterly anihilated their competition. By 2006, Google dominated search and was one of the largest, fastest growing companies on the planet. Their PC search strategy had proven to be brilliant and they were virtually printing money.
I can give Google no greater compliment than this: They make their money by distributing ADVERTISING, yet they are liked by most and even loved by many. The words “amazing” and “awe-inspiring” don’t even begin to cover that achievment.
All Glory Is Fleeting
Sic transit gloria mundi
But Google had two problems, which were really one and the same problem: “peak” and “mobile”.
Many of us are familiar with the concept of “peak oil”. It’s a term used to describe the fact that oil production had to, at some point in time, peak because there was only a finite amount of oil in the ground and once that peak was reached there must inevitably be a steady, albeit gradual, decline in oil production.
An equivelent peak is occuring in computing. In fact, two peaks: “peak PC” and “peak search”, both of which raise serious issues for Google.
For eight straight quarters, search was growing. Then for three straight quarters, that growth deaccelerated. Then last quarter, something happened that had never happened before. People searched less. We have reached peak search.
Ben Schachter of Macquarie Securities noted this in a research note:
Notably, total core organic searches declined 4 percent y/y, representing the first decline in total search volume since we began tracking the data in 2006. While this month marks the first y/y decline in total search volume, growth rates have been decelerating since February’s recent peak at 14 percent y/y growth (for the prior two years, growth rates were largely stable in the high single-digit to low double-digit range).
Not only is search declining, the proft from search is declining too. “Cost-per-click” – how much advertisers pay on average when someone clicks on an ad – is down. Way down. In its third quarter 2012 earnings, Google reported that its cost per click was down 15 percent.
Cost-per-click” – how much advertisers pay on average when someone clicks on an ad – has been dropping for the past four quarters, after rising for eight previous quarters. Surrounding circumstances make it clear that there is no reason to expect it to rise again.
Why is peak search happening and why now?
First, there are fewer and fewer PCs. Like peak oil, we’ve reached peak PC. The PC market is in permanent decline. In fact, the PC market is not only declining, it may be headed for a cliff. (See Tim Bajarin’s fine article on “How the iPad Mini Could Impact Future PC Sales.”)
Second, the search market is maturing. The places where people are going online just don’t pay as much as they used to.
Third, less and less people are doing their searches on their desktops and more and more peole are doing them on their mobile devices. When it comes to search, the portability of the mobile device trumps the power of the PC.
Smartphones have been outselling PCs (notebooks and desktops) since the end of 2010 and by the end of 2012, tablets will make up over 25% of all PC sales. Further, well respected mobile analyst, Mary Meeker believes the global smartphone plus tablet install base will surpass the install base of the PC by the end of Q2 2013.
Fourth, and finally, try this thought experiment. You’re standing by your PC. You want to know the weather, the score of the big game, where a movie is playing or a local place to eat and how to get there (GPS). Do you perform the search on your PC or on your phone? For more and more people, this is an activity that you do on your mobile device, even when your PC is readily available.
AUTHOR’S ASIDE: Ya gotta love Microsoft’s play in the desktop search industry. They are losing BILLIONS on Bing, buying into the desktop search market just as it has peaked and started its decline. What a company.
Now it’s not such a bad thing to be dominating a market that is just past its peak. It means that you’ll be getting great income – nearly as much as you’re getting today – for a long while yet to come. But it also means that your’ve got no longterm future. Unless you plan for one. Which Google did.
Next
Tomorrow: “The Battle for Mobile Phones Won.”
Google didn’t so much Win the Desktop PC, as win Desktop Web Advertising. Heck they didn’t even win the browser wars.
Which goes to show, that controlling the actual platform is more or less irrelevant for Google’s business model.
As a long time Windows user and Linux dabbler, I had long hoped for Google to put their considerable weight behind building a great Linux Distro.
But how would it benefit their business model? It wouldn’t, so they didn’t, and likely won’t ever roll their own PC Distro, since controlling the underlying platform benefits them little.
I look forward to future parts where we can discuss the very different choice they made in mobile.
I wouldn’t call it a great linux distro, but it is maturing, and I find it personally intriguing… and that is ChromeOS.
I’m not saying it is a competitor to windows, but it is still a linux distro.
It is not a Linux Distro. A Linux distro is more than the Kernel and enough services to run a web browser.
Android is also based on the Linux Kernel but that isn’t a Linux distro either.
The project defines itself as a linux distribution…
https://sites.google.com/site/chromeoslinux/
However there is no standardised definition of what a distribution is so any debate about semantics is not going to be fruitful.
Regardless on whether or not you and @NTInfidel:disqus agree on the definition of a linux distribution is, I would be genuinely interested in understanding the differences is and the pros and cons of both.
What would you say a linux distribution is and what is not and why does it matter. You have peaked my interest on that term and I’d would love an explanation.
Thanks
Ben
It really doesn’t matter all that much if something is a linux distribution or not. The main benefit of being a linux distribution is that you work on the same kernel as all other linux systems and therefore have the ability to commit code upstream.
The main reason why I believe Chrom(e/ium)OS is a linux distribution is because as far as I understand these system run off a linux kernel, whereas the Android system runs from a forked linux kernel.
I think one of the main reasons that people would not consider ChromeOS is because its doesn’t run GNU or other libraries, and therefore the code base that supports the OS/applicants can’t be forked to other linux systems… Though it does through the Chrom(e/ium) browser.
At least that is my opinion…
“Microsoft is losing BILLIONS on Bing, buying into the desktop search market just as it has peaked and started its decline.”
Microsoft really needs to extricate itself from the 1990s.
http://blogs.marketwatch.com/cody/2012/08/14/billions-of-android-users/
Read this. Google will win the war. In fact, they already have.
“Read this.” – Saint Jimmy
I just did. Thank you for the link.
“Google will win the war. In fact, they already have.” – Saint Jimmy
Hmm. I think you may need to re-read that article before coming to that conclusion. Or, at least, read the rest of this series before you jump to that conclusion.
I look forward to seeing your comments.
There is a slide at the end of the article indicating 4 Phases of Android Strategy. I hope that, for Google’s sake it is summarized and doesn’t include everything. As they move into Phase 3, which is New Monetizable Services, their list includes only very low margin digital content. They compete with Amazon, Apple and others here. Then, Phase 4 is increasing net revenue on Apps and Ads, which means raising prices to the those customers?, and scale volume of devices. They are already at a half a billion users, so volume doesn’t scale that much higher (12 times to get the whole world), and they talk about a move into feature phones, or phones that people pay less for, meaning, most likely less revenue per phone.
At the end of the article, he talks about how for Google to actually grow, it will need to really get into new markets, financial/banking, and physical content delivery. In the conclusion, he posts two numbers, 10 billion in ad revenue from Android (total?, there was not any context), or $100 billion over two decades. It is a big number, but only $5 billion a year, not a big number.
Most Android manufacturers are already paying licensing fees to Microsoft, and the rumour is now that HTC is paying a per handset licensing fee to Apple. This is not good for Android manufacturers. Which in turn does not bode well for Google.
When I first read “peak search” you scared me, as I dislike the metaphor. I agree with “peak PC”, but with search it’s more of a mature market, or market saturation, i.e. it is difficult for the industry to pick up new users.
And with the shift to mobile, isn’t that what google are aiming for? They have ported all their products onto the mobile platform, are developing deeper and more contextualised search algorithms, and trying to be that service you ask for the weather, game scores, or where to make your next purchase (google now).
I understand the points you are trying to make, but I don’t see how this isn’t a positive strategic shift for google?
@John Kirk wrote, “In fact, two peaks: ‘peak PC’ and ‘peak search’…”
For a second, I thought you’d borrowed a phrase I threw at @JLG maybe a year ago: “peak ad.” Which incorporates both volume and CPM notions.
As you say, the number of users may not have peaked, but necessarily will grow much more slowly. Secondly, we are moving from searching as a universal home portal for our usage, into more targeted tools like Yelp, Facebook and Siri. (Note that Google fully understands this and is attempting to broaden out to a universal knowledge interface.) And third, as individuals are exposed to more and more ads (‘cuz they’re online more), the amount they actually spend on any relevant ad necessarily increases — seeing more ads for sofas is NOT going to increase the amount of money I spend on one. And finally, mobile ads are not (yet, anyway) within a MILE of full-screen site ads’ effectiveness in engagement, attractiveness or non-distraction.
By the way, this isn’t just a problem for Google: all the blogs that depend on advertising will be squeezed by the same forces, and have to find economies or new revenue models. Methinks the blogosphere is dreading Peak Ad.
Very well presented. Every quote was awesome and thanks for sharing the content. Keep sharing and keep motivating others.
it’s awesome article. I look forward to the continuation.