George Colony Eats Crow Over Google

Forrester Research founder George Colony went looking for column-inches last year and he predicted ominous stuff coming for Google. It hasn’t happened, and he is not repenting:

Q. Let’s talk about Google. You came out against it to some degree last year, citing competition from Microsoft, Yahoo and AOL. But Google has done well. Were you wrong?

A. This is how I saw it: that Google has three major challenges in front of it. No. 1 is competition. They have a lot of money, a lot of power and they want Google’s business, so probably No. 1 for Google is competition. Problem 2 for Google is what I call “switching costs.” There are no switching costs to move from one search engine to another. Before Google, I used AltaVista. I changed to Google in about 27 seconds. I will leave Google in about 27 seconds. The third problem is, Google is a fantastic technology for a page-oriented, HTML-based Internet, which is what we have today. The problem is, we’re not going to stay in a page-oriented world.

These are fine points (although it is a little bizarre for Colony to implicitly claim ownership (“what i call …”) for the phrase “switching costs”. Nevertheless, he is right: from a pure search perspective there are no more switching costs at Google than there were at any of its briefly favored search predecessors. You could change search sites in heartbeat.

But that is devious illogic. Google has successfully levered its search prowess into dominance in other stickier markets, of which the most obvious and important are advertising brokerage & placement. While Google’s search business itself is no stickier than Altavista’s (or Hotbot’s, or …) , its media/advertising business has much higher switching costs. No, not infinite — Google is still not Microsoft — but higher than its search predecessors ever obtained.

Does that make it worth its current valuation? Of course not, but it is also a canard to fixate on the switching costs in Google’s search business when Google has cleverly increased switching costs where it count: Paying customers.


  1. As to low swithcing costs – this has worked in Google’s favor, not against it (yet). Yahoo in particular has lost large number of users to Google’s services as they roll out (mail, maps, search, etc).
    They are taking risks (rich DHTML on maps for example) but not giving up on being the best relevancy engine (see: Froogle). Competitors should be very worried. When Internet Bubble II is over this fall, valuations will shift.

  2. If Google were to stop at searching Colony might have been right. There is no point in seeing the situation as static though. Google is poised to convert is cash-pile into other products and services that will make me at least coming back to its sites. Picassa and Gmail are only two such examples. On the other hand, I too find its valuation as optimistic but it’s only a matter of high demand and low supply…