Web 2.0 and the Future of Pervasive Computing

Thursday, December 22, 2005

Dot-com Bust Fueled Google Growth?

The other day I had an interesting conversation with a very astute partner at one of the nation's leading venture capital firms. One of the topics that we discussed was the rise of Google. People attribute the success of Google to many factors. They had the best technology, they had razor-sharp focus on the search market, or they have the brightest minds on Earth building their platform. All of that, of course, has clearly contributed to the phenomenal growth of this Stanford University spin-out. But one thing that has not been broadly addressed by the media is that maybe, just maybe, Google has achieved a great deal of their success because the bubble burst. What? This guy must be crazy. Hold your horses. Give me a chance to explain.

Google was founded during the height of the dot-com boom. At the time, there were a number of extremely large and well-capitalized players with tested and scalable search capabilities. Household names like Yahoo, Excite, and Yahoo dominated the web. There were probably 30+ major search engines. Competition was rampant. When the dot-com axe finally dropped, the web community recoiled and stopped innovating. More importantly, many established and would-be competitors sold out, or burned out, as venture dollars dried up. And, unfortunately for many companies, ad revenue was not sufficiently high to maintain a positive cash flow during the downturn.

After the crash, as the rest of the world withdrew to nurse their wounds, Google kept on trucking. They improved their search engine. The online population kept growing at accelerating rates. Click-through volume became high enough to justify advertising as a serious business model. And all the while Google kept silent, avoiding attention from incumbent players as they built one of the largest computing platforms on the planet. After the dust settled from the fallout, folks started to creep back to the web just in time to watch Google go public and say, "I thought they were just a search engine?"

Not as crazy as you thought, am I? I suppose timing is everything. Many thanks to that friendly VC for spurring thought-provoking discussion. Good stuff. My spidey-sense is tingling. Back to work for this web-slinger.

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  • At 8:33 AM, Anonymous Anonymous said…

    Your VC friend is obviously right and there are lots of examples of how the ratio of opportunity/capitalization dynamic creates and destroys darlings.

    Intel Itanium is a good counter example of his conjecture.It entered a huge market for SMP workloads during the CRM/ERP boom. Big market, big expectations, huge Intel investment--but IBM, Sun already knew how lucrative the market was and were 10B+ into R&D for it.

    Perhaps the biggest capitalization blunder of the last decade was the rush to IT Services committed by Unisys, and HP to name the two biggest failures. This year both of their CEO's have begun to personally inspect all large IT services deals for 'profitability' :)

    Any organization can look at large market sizing estimates from research houses; it takes a strategically great one to examine how much the market has already invested in product development, sales, networking, marketing etc. HP recently elevated two autonomous sr. VP's to doing strategy full time because of this lazy market sizing without capitalization ratio malaise.


  • At 7:36 AM, Anonymous viagra online said…

    If you told me that you can make a lot of money from internet 15 years ago. I wouldn't believe it. It was only to huge companies but now everybody can make money from the internet if you know how to do it.

  • At 11:46 PM, Anonymous glendale real estate said…

    Impressive. This just tells us that timing is really important not only in business but also in life in general. I hope a lot of small business will get inspired with this story.


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