Monday, October 29, 2007

The market is winning: Google's ranking is under strain

It's an interesting philosophy question: When an irresistible force meets an immovable object, what happens?

Google has invested billions in computing and commercial infrastructure in order to secure its immovable dominance in search, which is fundamentally based upon parsing the web graph of links better than anyone else. It has a gigantic $210 billion market cap that is also fundamentally based upon its continued ability to generate reality-defying free cash flow from that search dominance.

That free cash flow creates an irresistible force -- the market, in all its insane brilliance, attempting to reverse engineer Google's map of the Web and modify the link domain to suit the commercial desires of thousands, millions, of individual participants.

Unless Google had an endless bag of tricks up its sleeve, this was never going to end well. And indications are increasing that it's going to end badly. As Peter suggests, fighting paid links is like fighting terrorism. I've got an even more terrifying analogy than that: Fighting paid links is like fighting spam. At best the forces of order are at stalemate in the spam war, and there "we" benefit from the fact that there's no single obvious beneficiary from the current borked email system, and so every major Internet company is motivated to work together to stem the tide. In search, MSN and Yahoo and Facebook are perfectly happy to see Google go down... so defeat is even more likely than what we've seen on the spam front, not less.

I am seriously unhappy with the extent of Google's current dominance... but the prospect of a chaos without center may actually be worse.

This is going to be fascinating to watch. Google has incredible resources to bring to bear, and as I've said before, they haven't even really been tested yet. But... my money is on the market. I'm not short Google, but I'm not long, either. They're priced to perfection, and there are plenty of signs that all is not perfect out there.

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