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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 outs

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.

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.