Domination in Search Markets: Why? How? & How to Respond? by Steve Wildman

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This is Professor Steve Wildman’s leaving lecture entitled ‘Domination in Search Markets: Why? How? and How to Respond?’. The lecture was given on 20 April 2015 at the Communication Arts and Sciences Building at Michigan State University.

Domination in Search Markets by Steve Wildman from Quello Center on Vimeo.

Abstract

With rare exceptions, national markets for Internet search services are dominated by a single company, in most cases Google. Factors contributing to highly concentrated national search markets have been vigorously debated. In this talk I present findings from research projects with two sets of collaborators. Results from an econometric study of Yahoo’s local search service with W. Wayne Fu and Carol Ting suggest that positive two-way feedback between the number of consumer searchers using a search engine and the number of advertisers purchasing paid placements on its search results page is of sufficient magnitude that an initial advantage for one search service in either paid ads or consumer traffic could be amplified over time to become a nearly insurmountable barrier to competitors trying to displace it. The second study with Adam Candeub suggests that strategic selection of other internet services to bundle with a search service can contribute to substantial lock-in of a search service’s customers. The implications of both studies for policy design are also discussed. Steve was introduced by the Chair of Media and Information, Professor Johannes Bauer, and the lecture concluded with closing remarks by the Dean of Communication Arts & Sciences, Professor Prabu David.

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Google’s Project Fi + Free Muni Wi-Fi = Customer Savings + Carrier Disruption

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Yesterday Google officially announced Project Fi, its much anticipated wireless service, which I’ve previously blogged and tweeted about during its pre-announcement rumor/leak phase. Now that more details, including pricing, are available directly from Google, an updated post seems in order, especially following recent posts about newly launched municipal Wi-Fi services in NYC and Boston (later on this post I’ll consider how these two developments may be related and synergistic).

As expected, Google’s wireless service will route user traffic over a mix of Wi-Fi connections and, via MVNO arrangements with Sprint and T-Mobile, the two carriers’ cellular networks. This “three network” approach alone makes the service pretty unique. In a blog post yesterday, VP of Communications Products Nick Fox explains:

As you go about your day, Project Fi automatically connects you to more than a million free, open Wi-Fi hotspots we’ve verified as fast and reliable. Once you’re connected, we help secure your data through encryption. When you’re not on Wi-Fi, we move you between whichever of our partner networks is delivering the fastest speed, so you get 4G LTE in more places…If you leave an area of Wi-Fi coverage, your call will seamlessly transition from Wi-Fi to cell networks so your conversation doesn’t skip a beat.

The Project Fi FAQ page explains further that its “software is optimized to not put extra strain on your battery by only moving you between networks when absolutely necessary.”

Also as expected, Project Fi’s multiple-network functionality will initially only be available on Nexus 6 smartphones, via a special SIM card. The device costs $649-$699, depending on its storage capacity, with a no-interest, no-fee option to pay for it over 24 months (an approach similar to what most cellular carriers now offer to their customers).  Under this plan, the monthly cost for the device is $27.04-$29.12.

Though the multi-network functionality will initially only be available on the Nexus 6, Google aims to make it easier to switch not only between networks, but also between devices. As its Project Fi announcement explains:

Talk, text, and check voicemail with the screen nearest you. Your phone number now works with more than just your phone. Connect any device that supports Google Hangouts (Android, iOS, Windows, Mac, or Chromebook) to your number. Then, talk and text with anyone—it doesn’t matter what device they’re using.

While much of the above was previously confirmed via rumors and leaks, I hadn’t seen anything about Project Fi pricing until Google officially announced the service, which has a pretty simple fee structure.

For a base price of $20 per month, Project Fi customers receive the following:

On top of this base price, cellular data service is available for $10 per GB (for detailed pricing comparisons I’d suggest recent posts at The Verge and arstechnica.

ArsGraphiconProjectFiPriceComparison

The above graphic from arstechnica illustrates that, although Google’s pricing becomes less competitive the higher the monthly data allowance, it is the least expensive service for a 1 GB tier of service.

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Signs of Google’s Global Ambition for Project Nova

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In a post yesterday I discussed the disruptive potential of Google’s Project Nova. Having just discovered an article by Christopher Williams published last weekend in the UK’s Telegraph, I thought I should add an update on international aspects of Nova’s ambitions and potential impacts.

Williams reports that, according to industry sources, “Google is in talks towards a deal with Hutchison Whampoa, the owner of the mobile operator Three.” He also notes that “Google and Three declined to comment.”

The two giants are discussing a wholesale access agreement that would become an important part of Google’s planned attempt to shake-up the US mobile market with its own network. It is understood that Google aims to create a global network that will cost the same to use for calls, texts and data no matter where a customer is located. By linking up with Hutchison, it could gain wholesale access to mobile service in the UK, Ireland, Italy and several more countries where the Hong Kong conglomerate owns mobile networks. Sources said Hutchison was a natural partner for Google in the plan, because it has also sought to eliminate roaming charges for Three customers.

According to CNET:

Hutchison Whampoa would be a potentially powerful global partner to help Google cut roaming fees. It operates the UK’s Three network and is trying to acquire the UK’s O2 network from Telefonica. It also operates networks in Hong Kong, Macau, Indonesia, Vietnam, Sri Lanka, Italy, Sweden, Denmark, Austria and Ireland.

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Unlicensed Spectrum: A Look at Google’s Project Nova

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Though Google has not revealed much in the way of details, the Internet search giant is expected to launch a WiFi/MVNO wireless service sometime in the near future. Based on limited comments from company executives and reports in the Wall Street Journal (see here and here; subscription may be required) and elsewhere, it seems that the service will:

Speaking at the Mobile World Congress held March 2-5 in Barcelona Spain, Sundar Pichai, Google senior VP of products, appeared to downplay the scope and disruptive impact of the MVNO service, known internally as Project Nova.

As reported by TechCunch, Pichai said “We don’t intend to be a network operator at scale. We are actually working with carriers.” And according to Wired, Pichai also pointed out that “[c]arriers in the US are what powers most of our Android phones [and]…[t]hat model works really well for us.”

Google may, in fact, have limited ambitions for Project Nova. But I suspect the cautious nature of Pichai’s comments reflects a desire to avoid prematurely upsetting the industry’s dominant carriers—whose customers purchase huge numbers of Android devices—more than it does a lack of Google-scale ambition for Project Nova. And the fact that Google won’t be operating its own network and will be “working with carrier partners” doesn’t mean Nova doesn’t have potential to seriously disrupt the mobile industry’s status quo.

I expect Google to approach Nova the way it approaches most new product introductions: start small in “beta” mode, then adapt to market developments. Sometimes this leads to products being killed, revised or merged with others (see a partial list here), while at other times it leads to aggressive expansion, as was the case with the Android operating system.

While there are parallels between Project Nova and Google Fiber, the company’s investment in local fiber optic networks, there are also important differences that could translate into much faster growth potential for Nova. The key difference is that Project Nova doesn’t require Google to undertake the time-, labor- and dollar-intensive task of building fiber networks city by city and block by block. As a result, while Google Fiber is intended to be a profitable business and is gradually expanding to more cities, Project Nova could allow Google to move very quickly and relatively inexpensively to deploy a nationwide service using other companies’ physical networks.

Having read a mix of pre-launch speculation available online (see excerpts below), I’m inclined to believe that:

  1. Pichai’s comments notwithstanding, Google is aiming high in terms of Project Nova’s strategic value to the company and its impacts on industry dynamics;
  2. Even if the project stumbles initially and/or needs substantial revisions along the way, Google will stick with it for the long haul and, over time, succeed in expanding its role and disrupting the status quo in the wireless communication sector.

Below are excerpts from online commentary that have helped inform this point of view. As always, comments are welcome, especially from those who see things differently.

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