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Google Outlines The Secret To Its Success

Posted by Eric Zeman, Feb 25, 2008 01:03 PM

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Apparently, there's some level of mystery involved in Google (NSDQ: GOOG)'s success. So much so that Google's chief economist Hal Varian put together a bunch of ideas on why Google continually succeeds. Varian has one answer. I have another.

Varian spends the first half of his post explaining some things that can lead to a firm's success: supply side economics, lock-in, and network effects. But he doesn't think Google has any of those going for it. Rather:

The answer, at least in my opinion, is a much older economic concept called "learning by doing" that was first formalized by Nobel Laureate Kenneth Arrow back in 1962. It refers to the widely observed phenomenon that the longer a company has been doing something, the better it gets at doing it.

Google has been searching the web for nearly 10 years, which is far longer than our major competitors. It's not surprising that we've learned a lot about how to do this well. We're constantly experimenting with new algorithms. Those that offer an improvement get rolled into the production version; the others go back to the drawing board for refinement.

So I would argue that Google really does have a better product than the competition -- not because we have more or better ingredients, but because we have better recipes. And we are continuously improving those recipes precisely because we know the competition is only a click away. We can't fall back on economies of scale, or switching costs, or network effects, to isolate us from the competition. The only thing we can do is work as hard as we can to keep our search quality better than that of the other engines.

All very interesting thoughts. I decided to apply some of those to my own life, just for comparison's sake. I started playing guitar about 10 years ago. I took a couple of lessons to get the basics under my belt, but in the end, only one thing makes you better: practice, or, learning by doing.

This thought makes sense when applied to what Google does. Varian's last paragraph leads me to my own conclusion on why Google is successful. He says that Google continually refines how its systems work to stay ahead of the competition. And that's the key. Its systems work.

Google's search yields results that work. There's a reason why "Google it" has become part of our lexicon. People know that Googling something will get you the answers you need or want.

We don't say "Yahoo (NSDQ: YHOO) it" or "MSN Live Search it" or "Ask.com it". Sure, those three sites provide similar/comparable search results to Google, but people have developed an innate trust in the answers Google provides because (most of the time) it just works.