Googlenomics

I've been contemplating Google lately (which hardly makes me unique) and trying to understand their economic model and what it means for the future, blah blah.

Here's the essence, in my view:

• They extract value from massive amounts of freely available stuff. Doing anything massively requires a big computation infrstructure, so there's a barrier to entry.
• They provide some added value for free to the community (search, tools for making more stuff). This brings them attention, the important currency of this economy.
• They figure out a way to extract some money on the side (literally in their case, that's where the ads are).

Of course, that's the user's view. In reality the tail wags the dog, and the advertising part of Google is actually much bigger and more important than the first two points. Google puts much more effort into the advertising side than in the search side, which makes sense -- all those free meals and fancy buildings and jet planes have to be paid for somehow.

In the meantime here I am creating content for free using Google-owned tools.

Recently bhyde and others have commented that long-tail economics brings benefit only to the hubs, the filtering and aggregating services. I don't think that's quite right. Assuming Google as a paradigm, it actually does bring some benefit to small content creators who can run advertising and take a share of the money stream. The people who are going to get killed are the middle-sized middlemen. Economies of scale will produce a few massive hubs like Google or EBay, consumers and small producers on the edges will get some benefits, and the smaller aggreators (like the huge publishing house that I work for, or the small publishing house that my friend runs) will suffer.

Note: I do not actually have an Internet pundit license and may have no idea what I'm talking about.

Google vs. print

One of last night's dinner guests runs a small publishing company, so I took the opportunity to ask what she thought of the Google Print controversy. She was unambiguously on the anti-Google side, but I didn't think much of her reasons, which amounted to:

- It's a copyright violation to scan the whole book (arguably true, but the argument applies equally to scanning web pages, so if this were to hold it would put search engines out of business, not good for anybody).

- Serving up excerpts is not fair use (seems false to me though I suppose there's some legal case to be made)

- Once they serve up excerpts they will then go ahead to serve up entire copyrighted works without paying the copyright holders (certainly a false argument; they could obviously be sued if they started doing that).

- It's rude of them to mess with copyrighted works without asking permission first (not a legal argument, but true as far as it goes. Google seems to be pissing people off unnecessarily).

- Google is a huge behemoth with a $400 stock price, whereas small-press publishers is a tiny, marginal, we-do-it-for-love operation, and they are afraid of getting crushed under the wheels.

This last point, which is not really an argument, is probably at the root of it. Publishers are scared, and rightlly so, of Google and the entire Internet, which is a threat to their business model. Publishers are middlemen and the net generally serves to drive them out of business with much cheaper and often nbetter alternatives (like Craigslist is doing to newspaper classifieds). I happen to work for a company that is owned by one of the largest publishers in the world, and they are scared, so I guess it's reasonable for a one-person company that is run out of a living room to be scared too.

Publishers are not mere middlemen, they can add a lot of value by finding, nurturing, and promoting authors. A lot of the infrastructure of the counterculture is associated with threatened old-media microinstitutions like independent bookstores and small publishers and magazines. These marginal economic activities provide a living to a multitude of authors and middlemen. If all this is replaced with a structure that consists of unpaid content creators (bloggers) and huge technocorporate behemoths (Google, telecoms) that is not necessarily an improvement. Content may be more diverse, but all the money flows to the big entities rather than the creators.