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This reminds me of people saying that search engines were doomed as a business in the late 90's. They have no real moat. All you need is to gather all the text

by lacker 3y ago

This reminds me of people saying that search engines were doomed as a business in the late 90's. They have no real moat. All you need is to gather all the text on the internet, make an index, and build it on well-known information retrieval algorithms. PageRank was even in a published paper. Well, this was only mostly true. With search engines, there was a "winner-take-all" effect. Yes, many companies could build search engines, but Google was just a little bit better. Once one of the search engines is a little bit better, why would you use anything else? Eventually, Google figured out how to create a real moat, by using click data to improve search result ranking. Even though Microsoft is willing to spend billions of dollars on Bing, they don't have access to Google's user data, and aren't quite able to match Google's search quality. I believe that many AI startups will have a similar "data moat". If you are the first AI company to get a significant amount of users, you may be able to learn from their behavior to improve the product. If you can do this, you'll have an advantage that competitors won't be able to easily copy. So just make something people want, gather data on what your users are doing, and use that data to make your product better. If you do that right, you'll keep growing, and you'll be able to describe this simple strategy as a "proprietary data advantage" to give your slides more buzzwords if you need them.

hedgehog 3y ago
If Google really has a moat why do they pay Apple so much to be the default search engine and why do they need Android to avoid getting cut out of mobile advertising?
- adventured 3y ago
  Moats come in all sorts of flavors. Having a hyper profitable business that you dominate can provide a cash moat: the ability to crush your competition by outspending them. You can do that in lots of ways: lawyers (Microsoft was nearly sued into oblivion early on), advertising/marketing/brand building, creating a talent roach motel (they go in, they never leave) just to deprive your competition of the best people (by paying way above what your competition can match), paying for positioning in the market (for example: buying shelves at retail stores for distribution), you can even afford better networking globally to be faster by spending large sums; and so on. Being able to buy positioning to lock out the competition, by leveraging your enormous profit machine, is a type of moat. Google (Alphabet) can get away with that spending (re shareholders) because that's the business they're in, it's core, and it's already generating hugely, so shareholders view the spending as protecting an existing critical business (maintaining a moat in this case by continuing to pay Apple etc). Microsoft can't get away with the same spending (even though they can technically afford it), because it's a prospective business (a maybe outcome) that isn't spitting off huge profits and the return on massively ramping up spending is questionable to shareholders (who will ask questions about a missing $20b in profit next year). Does Google have a quality / performance moat with their search product? Even if they do, given the ~$100 billion in profit at risk (for that division, it subsidizes a lot of the rest of Alphabet), it's not a question they want to find out the answer to necessarily. Instead they can spend $20 billion and not have to find out if a competitor could take them down.
  - hedgehog 3y ago
    The parent post suggests that Google's moat is search quality, I suspect that is not true. Google earns about $70-80B a year, if they even suspected there was a way to reduce or eliminate a $20B yearly expense it would be top priority to investigate. We can assume they've looked at this problem from a lot of angles. That they keep paying implies they have a lot of confidence that it's necessary and if they didn't have the default slot a lot of users would use something else.
    - to11mtm 3y ago
      I think they are in a minor prisoner's dilemma at this point. Apple is now secure enough in their standing for mobile that they wouldn't be afraid to switch to Bing under the right circumstances[0][1]. Ironically I'm reminded of the days where Intel would pay Dell to not use AMD (even though they weren't always better) and even Intel was aware it was a devil's bargain and could let them get bullied. This does all lead to an interesting question; What are the value props of all of these deals? If their product is so good, why do they need to spend the money on the default slot? And what do they know is 'missing' that makes it worth them to pay third parties to convince them? [0] - Whether those circumstances are easily achievable is out of scope of this theorycraft. [1] - Apple probably could buy a search engine, but they are smart enough not to for lots of reasons. (mostly from the aspects of 'attracting regulatory attention' and 'can they keep improving it')
      - hedgehog 3y ago
        I tried switching to Duck Duck Go a while back and so far haven't returned to Google. Some things are better on Google but for my usage pattern it doesn't seem to be a clear win any more, and I'm somewhat picky. What I take from that is if Apple switched default search providers most people wouldn't care or wouldn't bother changing the setting. So my guess is Apple likes the money and doesn't have any motivation to rock the boat, while Google is worried that losing Apple would both cost them revenue directly and create room for competitors to grow. Stable situation for now.
amelius 3y ago
The article applies to medium and small businesses. For 99% of these businesses, search engines are a doomed endeavor.
willdr 3y ago
Don't worry, Google are hard at work undermining the product they worked so hard to build. Every year google search is worse at surfacing what you're looking for and better at an ads platform, and the advent of LLMs and SEO agencies flooding the internet with no-value regurgitated content is also not helping.
bdcravens 3y ago
Additionally, Google dismissed the trend of other search engines: everyone was building a portal, which for the most part didn't add much value for users. Even today, Google, which is really just an advertising company, has no ads or other content on its main page. (it does have a few internal links on the extreme edges, but has arguably the most white space of any online company)
j-wang 3y ago
Search engines have always been a bit weird. Do they have network effects? Why is it actually winner-take-all? I've had spirited conversations with a lot of different people and academics/microeconomists on the topic and I don't think anyone truly has a good conclusion. It doesn't naturally seem like it should be the case. Anyway, I think your point here is interesting and was kind of the idea behind a lot of the "gather lots of data" startups. A lot of those failed in part because the frontier of AI is moving pretty quickly. You need a lot less data to do interesting thing today than you did not that long ago. Because we've thrown more and more data at more and more compute, I think people don't appreciate how much we've truly progressed algorithmically. You need an order of magnitude less data to do the same thing for each "generation" of AI. That frontier cuts against the ability to build a moat on user-generated data, so long as it's readily available or somewhat replicable. Your competitor is naturally going to have a cheaper time getting into market than you if they wait longer to do so. However, this definitely does stand if your area truly is obscure (e.g. specific industry), annoying to gather data in (e.g. certain healthcare applications), or actually proprietary (e.g. your own device data with a different modality). Not putting words into your mouth that you aren't saying the latter here—just making a distinction since it's easy to imagine any data being a moat, which is a common mistake I see.
- JumpCrisscross 3y ago
  > Why is it actually winner-take-all? Is search winner takes all? Or is it advertising?
  - j-wang 3y ago
    That's an interesting question since advertising certainly follows search dominance, but it doesn't necessarily follow the other way around. Google figured out how to monetize its dominance with advertising before it had the behemoth ad platforms they have today. It's pretty much the same with the popular social networks. The answer (more logically) should kind of be neither. Advertising obviously has a lot of channels, and even though Google has both Adwords and its display advertising network, it doesn't follow those really need to be the same provider... at least outside of more data to do more targeted ads. But, again, advertising dollars will follow platforms that price for ROI. Better targeting mainly adds to the amount that Google and Facebook can charge for their ads and still have companies pay for them. It doesn't really add to their dominance directly (I say directly since, obviously, more money can buy more R&D/employees/regulatory capture/acquiring competitors/just-paying-for-dominance like with Google paying Apple. But that's all indirect).
podnami 3y ago
Google and Facebook didn’t have a moat (Remember MySpace? They had network effects too), but they were first in creating a culture where they approached data capture and utilisation as part of their DNA. AI startups might be very well suited to capture initial market share but can always be turned to features by Microsoft or Google as the incumbents are just smarter and faster this time around. I can potentially see AI startups disrupting product categories as they be can take more PR risk (uncensored models for instance). But if they get too big they’ll be turned into features at any given time. I think it’s just more brutal of a market in 2023 than it was back in 2003.
- zombiwoof 3y ago
  MySpace AI
ToucanLoucan 3y ago
> Eventually, Google figured out how to create a real moat, by using click data to improve search result ranking. Even though Microsoft is willing to spend billions of dollars on Bing, they don't have access to Google's user data, and aren't quite able to match Google's search quality. I was nodding along until I got to this. Google had, past tense, excellent search results. Now they are at best, a solid mid-tier search product that I often find myself abandoning in favor of either DDG or even Bing on occasion. IME, Bing shines in one particular area, which is location/near me type searches. It's peerless in this space in particular and IMO they should be leaning into it more in their marketing. Google can get me the best seller of gizmos on the Internet, but if I want to go to a store and get something that day, Bing is better at that. Meanwhile Google is steadily trending downwards in very nerdy niche searches, which is a shame because it used to be quite good at them. You specify terms in your quotes or block with minuses, but these are treated as "suggestions" now, that are overridden if Google's mystery algorithm decides that you don't actually know what you need despite directly expressing it to the bloody thing, especially if their "correction" means they can direct you to buy something even if you don't want to actually buy anything. And, even when you want to buy things... perfect example: I wanted a small set of drawers for a particularly tight alcove in my desk that's otherwise wasted space. I spent some time on Amazon for awhile but amazon's search is even worse than google's, so I googled "closet drawer cabinet -fabric" and the -fabric bit is quite important because I was getting frustrated getting page after page of hits on Amazon that were shitty little fabric drawer setups. I wanted shitty particle board, thank you very much. And Google, in it's infinite brilliance, returned, I shit you not, a full page of shopping advertisements that were all fabric drawers. Google is still my first go, out of habit more than anything at this point, but increasingly I find their search tool lacking and I know I'm far from alone in that.
wiremine 3y ago
A lot of tech industries, such as operating systems, search, and social media, benefit greatly from network effects. The rule of thumb is there is a major winner, an also-ran second place, and everybody else. Again, it's a rule of thumb, not a hard and fast rule. Sometimes this is driven by data (like search), and sometimes it's not (like operating systems). I think it remains to be seen if AI is one of those industries that benefits from network effects or not. A related question is: Are AI models platforms, or are they applications? If they're platforms, they'll benefit from more users and more data. If they're applications, there will be very different market economics in play. IMHO, they're applications.
- zirgs 3y ago
  Stable Diffusion is a platform. It now has a huge community that makes custom models for it.
- to11mtm 3y ago
  > IMHO, they're applications. IMHO, it's hazy. I finally built a new PC [0] with the intention of actually playing with AI stuff instead of just shitposting about the dumb things AI Chatbots do. As another commenter responded, Stable Diffusion strikes me as a platform. I feel like OpenAI is trying to position themselves as a 'platform', and ChatGPT is like versions of windows...almost [1] LLaMA is amazingly ambiguous; frankly at the moment it is, to me[2], at least the easiest to 'hack'; I will say that LLaMA models feel more like 'applications' but there is still an overall 'platform'. > I think it remains to be seen if AI is one of those industries that benefits from network effects or not. I think it can. Aside from the aforementioned Stable Diffusion (and also speaking from experience with it,) having a 'cookbook' is handy to get started. Network effects are huge in that regard. [0] - 10 years since my last fresh build, 5+ years since my last true upgrade. [1] - It is worth noting people complaining about things 'breaking' when new models get released
campbel 3y ago
One thing folks downplay in the original search wars was the UX decisions of Google. It was a plain page with just a search box and the results were clutter free and easier to parse. As a young computer user at this time, this is what brought me to Google. I had no sense of which platform was providing more relevant results.
- TillE 3y ago
  Google was also fast. Previous search engines would take multiple long seconds, and the results were worse.
andrewla 3y ago
> Eventually, Google figured out how to create a real moat, by using click data to improve search result ranking This is revisionism -- Google was far superior to any competing search engine long before Microsoft embarked on its search engine adventures. Google was hand-coding heuristics well into the Bing era. It wasn't until Amit Singhal left Google and search that they pivoted to more machine learning techniques that could use the click data effectively. This corresponded with the beginning of Google's long decline in search quality, buffeted mostly by the fact that their on-page quality systems were extremely sophisticated at cutting out spam and SEO. The detection was far from perfect, but so many miles ahead of the competitors that their competitors kept unearthing spam that Google had long since excluded from its index but whose fossilized remains still polluted the web. The moat that Google had was just that they were really good at search quality and PageRank was only a small part of that. In other words, no moat at all, just a better product.
- dartos 3y ago
  I’ve only started hearing people talk about moats recently, at least by that word. What happened to building good products?
  - tomcar288 3y ago
    a moat is any product or feature set so good that you absolutely need to use it or it's just that good. for example, Gmail and google maps was a moat for google in the early days.
    - saulpw 3y ago
      Not quite. A moat is a reason that you can't/won't leave the company/product. An unapproachable feature set might be a moat, but generally a moat is something other than product, that prevents your competitors from succeeding by creating a clone of your product.
      - g_p 3y ago
        I guess a good example of a moat in consumer email could be the fact that once you have the user, their email address is forever tied to your service. They can try to forward emails or fetch them, but they can't retain that email address on your domain without still using you (at least to some extent). Sender authentication then means they likely need to use you to send emails. That's a fairly effective barrier to switching for many people, as they won't want to lose their email address now, or need to go through every site they ever signed up with and change it.
bigbillheck 3y ago
> This reminds me of people saying that search engines were doomed as a business in the late 90's. I don't recall people saying anything of the sort.
deleted 3y ago
[deleted]

by lacker 3y ago

hedgehog 3y ago

If Google really has a moat why do they pay Apple so much to be the default search engine and why do they need Android to avoid getting cut out of mobile advertising?

adventured 3y ago
Moats come in all sorts of flavors. Having a hyper profitable business that you dominate can provide a cash moat: the ability to crush your competition by outspending them. You can do that in lots of ways: lawyers (Microsoft was nearly sued into oblivion early on), advertising/marketing/brand building, creating a talent roach motel (they go in, they never leave) just to deprive your competition of the best people (by paying way above what your competition can match), paying for positioning in the market (for example: buying shelves at retail stores for distribution), you can even afford better networking globally to be faster by spending large sums; and so on. Being able to buy positioning to lock out the competition, by leveraging your enormous profit machine, is a type of moat. Google (Alphabet) can get away with that spending (re shareholders) because that's the business they're in, it's core, and it's already generating hugely, so shareholders view the spending as protecting an existing critical business (maintaining a moat in this case by continuing to pay Apple etc). Microsoft can't get away with the same spending (even though they can technically afford it), because it's a prospective business (a maybe outcome) that isn't spitting off huge profits and the return on massively ramping up spending is questionable to shareholders (who will ask questions about a missing $20b in profit next year). Does Google have a quality / performance moat with their search product? Even if they do, given the ~$100 billion in profit at risk (for that division, it subsidizes a lot of the rest of Alphabet), it's not a question they want to find out the answer to necessarily. Instead they can spend $20 billion and not have to find out if a competitor could take them down.
- hedgehog 3y ago
  The parent post suggests that Google's moat is search quality, I suspect that is not true. Google earns about $70-80B a year, if they even suspected there was a way to reduce or eliminate a $20B yearly expense it would be top priority to investigate. We can assume they've looked at this problem from a lot of angles. That they keep paying implies they have a lot of confidence that it's necessary and if they didn't have the default slot a lot of users would use something else.
  - to11mtm 3y ago
    I think they are in a minor prisoner's dilemma at this point. Apple is now secure enough in their standing for mobile that they wouldn't be afraid to switch to Bing under the right circumstances[0][1]. Ironically I'm reminded of the days where Intel would pay Dell to not use AMD (even though they weren't always better) and even Intel was aware it was a devil's bargain and could let them get bullied. This does all lead to an interesting question; What are the value props of all of these deals? If their product is so good, why do they need to spend the money on the default slot? And what do they know is 'missing' that makes it worth them to pay third parties to convince them? [0] - Whether those circumstances are easily achievable is out of scope of this theorycraft. [1] - Apple probably could buy a search engine, but they are smart enough not to for lots of reasons. (mostly from the aspects of 'attracting regulatory attention' and 'can they keep improving it')
    - hedgehog 3y ago
      I tried switching to Duck Duck Go a while back and so far haven't returned to Google. Some things are better on Google but for my usage pattern it doesn't seem to be a clear win any more, and I'm somewhat picky. What I take from that is if Apple switched default search providers most people wouldn't care or wouldn't bother changing the setting. So my guess is Apple likes the money and doesn't have any motivation to rock the boat, while Google is worried that losing Apple would both cost them revenue directly and create room for competitors to grow. Stable situation for now.

amelius 3y ago

The article applies to medium and small businesses. For 99% of these businesses, search engines are a doomed endeavor.

willdr 3y ago

Don't worry, Google are hard at work undermining the product they worked so hard to build. Every year google search is worse at surfacing what you're looking for and better at an ads platform, and the advent of LLMs and SEO agencies flooding the internet with no-value regurgitated content is also not helping.

bdcravens 3y ago

Additionally, Google dismissed the trend of other search engines: everyone was building a portal, which for the most part didn't add much value for users. Even today, Google, which is really just an advertising company, has no ads or other content on its main page. (it does have a few internal links on the extreme edges, but has arguably the most white space of any online company)

j-wang 3y ago

Search engines have always been a bit weird. Do they have network effects? Why is it actually winner-take-all? I've had spirited conversations with a lot of different people and academics/microeconomists on the topic and I don't think anyone truly has a good conclusion. It doesn't naturally seem like it should be the case. Anyway, I think your point here is interesting and was kind of the idea behind a lot of the "gather lots of data" startups. A lot of those failed in part because the frontier of AI is moving pretty quickly. You need a lot less data to do interesting thing today than you did not that long ago. Because we've thrown more and more data at more and more compute, I think people don't appreciate how much we've truly progressed algorithmically. You need an order of magnitude less data to do the same thing for each "generation" of AI. That frontier cuts against the ability to build a moat on user-generated data, so long as it's readily available or somewhat replicable. Your competitor is naturally going to have a cheaper time getting into market than you if they wait longer to do so. However, this definitely does stand if your area truly is obscure (e.g. specific industry), annoying to gather data in (e.g. certain healthcare applications), or actually proprietary (e.g. your own device data with a different modality). Not putting words into your mouth that you aren't saying the latter here—just making a distinction since it's easy to imagine any data being a moat, which is a common mistake I see.

JumpCrisscross 3y ago
> Why is it actually winner-take-all? Is search winner takes all? Or is it advertising?
- j-wang 3y ago
  That's an interesting question since advertising certainly follows search dominance, but it doesn't necessarily follow the other way around. Google figured out how to monetize its dominance with advertising before it had the behemoth ad platforms they have today. It's pretty much the same with the popular social networks. The answer (more logically) should kind of be neither. Advertising obviously has a lot of channels, and even though Google has both Adwords and its display advertising network, it doesn't follow those really need to be the same provider... at least outside of more data to do more targeted ads. But, again, advertising dollars will follow platforms that price for ROI. Better targeting mainly adds to the amount that Google and Facebook can charge for their ads and still have companies pay for them. It doesn't really add to their dominance directly (I say directly since, obviously, more money can buy more R&D/employees/regulatory capture/acquiring competitors/just-paying-for-dominance like with Google paying Apple. But that's all indirect).

podnami 3y ago

Google and Facebook didn’t have a moat (Remember MySpace? They had network effects too), but they were first in creating a culture where they approached data capture and utilisation as part of their DNA. AI startups might be very well suited to capture initial market share but can always be turned to features by Microsoft or Google as the incumbents are just smarter and faster this time around. I can potentially see AI startups disrupting product categories as they be can take more PR risk (uncensored models for instance). But if they get too big they’ll be turned into features at any given time. I think it’s just more brutal of a market in 2023 than it was back in 2003.

zombiwoof 3y ago
MySpace AI

ToucanLoucan 3y ago

> Eventually, Google figured out how to create a real moat, by using click data to improve search result ranking. Even though Microsoft is willing to spend billions of dollars on Bing, they don't have access to Google's user data, and aren't quite able to match Google's search quality. I was nodding along until I got to this. Google had, past tense, excellent search results. Now they are at best, a solid mid-tier search product that I often find myself abandoning in favor of either DDG or even Bing on occasion. IME, Bing shines in one particular area, which is location/near me type searches. It's peerless in this space in particular and IMO they should be leaning into it more in their marketing. Google can get me the best seller of gizmos on the Internet, but if I want to go to a store and get something that day, Bing is better at that. Meanwhile Google is steadily trending downwards in very nerdy niche searches, which is a shame because it used to be quite good at them. You specify terms in your quotes or block with minuses, but these are treated as "suggestions" now, that are overridden if Google's mystery algorithm decides that you don't actually know what you need despite directly expressing it to the bloody thing, especially if their "correction" means they can direct you to buy something even if you don't want to actually buy anything. And, even when you want to buy things... perfect example: I wanted a small set of drawers for a particularly tight alcove in my desk that's otherwise wasted space. I spent some time on Amazon for awhile but amazon's search is even worse than google's, so I googled "closet drawer cabinet -fabric" and the -fabric bit is quite important because I was getting frustrated getting page after page of hits on Amazon that were shitty little fabric drawer setups. I wanted shitty particle board, thank you very much. And Google, in it's infinite brilliance, returned, I shit you not, a full page of shopping advertisements that were all fabric drawers. Google is still my first go, out of habit more than anything at this point, but increasingly I find their search tool lacking and I know I'm far from alone in that.

wiremine 3y ago

A lot of tech industries, such as operating systems, search, and social media, benefit greatly from network effects. The rule of thumb is there is a major winner, an also-ran second place, and everybody else. Again, it's a rule of thumb, not a hard and fast rule. Sometimes this is driven by data (like search), and sometimes it's not (like operating systems). I think it remains to be seen if AI is one of those industries that benefits from network effects or not. A related question is: Are AI models platforms, or are they applications? If they're platforms, they'll benefit from more users and more data. If they're applications, there will be very different market economics in play. IMHO, they're applications.

zirgs 3y ago
Stable Diffusion is a platform. It now has a huge community that makes custom models for it.
to11mtm 3y ago
> IMHO, they're applications. IMHO, it's hazy. I finally built a new PC [0] with the intention of actually playing with AI stuff instead of just shitposting about the dumb things AI Chatbots do. As another commenter responded, Stable Diffusion strikes me as a platform. I feel like OpenAI is trying to position themselves as a 'platform', and ChatGPT is like versions of windows...almost [1] LLaMA is amazingly ambiguous; frankly at the moment it is, to me[2], at least the easiest to 'hack'; I will say that LLaMA models feel more like 'applications' but there is still an overall 'platform'. > I think it remains to be seen if AI is one of those industries that benefits from network effects or not. I think it can. Aside from the aforementioned Stable Diffusion (and also speaking from experience with it,) having a 'cookbook' is handy to get started. Network effects are huge in that regard. [0] - 10 years since my last fresh build, 5+ years since my last true upgrade. [1] - It is worth noting people complaining about things 'breaking' when new models get released

campbel 3y ago

One thing folks downplay in the original search wars was the UX decisions of Google. It was a plain page with just a search box and the results were clutter free and easier to parse. As a young computer user at this time, this is what brought me to Google. I had no sense of which platform was providing more relevant results.

TillE 3y ago
Google was also fast. Previous search engines would take multiple long seconds, and the results were worse.

andrewla 3y ago

> Eventually, Google figured out how to create a real moat, by using click data to improve search result ranking This is revisionism -- Google was far superior to any competing search engine long before Microsoft embarked on its search engine adventures. Google was hand-coding heuristics well into the Bing era. It wasn't until Amit Singhal left Google and search that they pivoted to more machine learning techniques that could use the click data effectively. This corresponded with the beginning of Google's long decline in search quality, buffeted mostly by the fact that their on-page quality systems were extremely sophisticated at cutting out spam and SEO. The detection was far from perfect, but so many miles ahead of the competitors that their competitors kept unearthing spam that Google had long since excluded from its index but whose fossilized remains still polluted the web. The moat that Google had was just that they were really good at search quality and PageRank was only a small part of that. In other words, no moat at all, just a better product.

dartos 3y ago
I’ve only started hearing people talk about moats recently, at least by that word. What happened to building good products?
- tomcar288 3y ago
  a moat is any product or feature set so good that you absolutely need to use it or it's just that good. for example, Gmail and google maps was a moat for google in the early days.
  - saulpw 3y ago
    Not quite. A moat is a reason that you can't/won't leave the company/product. An unapproachable feature set might be a moat, but generally a moat is something other than product, that prevents your competitors from succeeding by creating a clone of your product.
    - g_p 3y ago
      I guess a good example of a moat in consumer email could be the fact that once you have the user, their email address is forever tied to your service. They can try to forward emails or fetch them, but they can't retain that email address on your domain without still using you (at least to some extent). Sender authentication then means they likely need to use you to send emails. That's a fairly effective barrier to switching for many people, as they won't want to lose their email address now, or need to go through every site they ever signed up with and change it.

bigbillheck 3y ago

> This reminds me of people saying that search engines were doomed as a business in the late 90's. I don't recall people saying anything of the sort.

deleted 3y ago

[deleted]