Nick Carr: Still wrong on Google, Part 2

by Mathew on October 26, 2008 · 12 comments

I came back from a weekend away to find that Nick Carr had picked a fight with Tim O’Reilly about Google, and whether the company’s size and market power has been a result of network effects. This argument was a sort of spin-off of an issue that came up earlier in the week, when Hugh McLeod pondered the topic of “cloud computing” and whether it could produce a giant monopoly. O’Reilly argued that it likely wouldn’t, because it doesn’t benefit from network effects in the same way that Google does.

Nick took issue with this line of argument, asking:

“Is the network effect really the main engine fueling Google’s dominance of the search market? I would argue that it certainly is not.”

In fact, he says categorically that Google’s rise to dominance has “nothing to do with the network effect.”

I don’t know why a smart guy like Nick would make an argument like that, but I think he’s totally wrong. Let’s review what the network effect means: As Tim describes it, it refers to systems that “get better the more people use them,” which is a pretty good paraphrasing of the Wikipedia definition as well as other definitions you can find in various places. The classic example used is the telephone, which becomes more useful the more people use it.

Nick says that this doesn’t describe Google at all:

“The fact that my neighbor uses Google’s search engine, rather than Yahoo’s or Microsoft’s, does not increase the value of Google’s search engine to me, at least not in the way that my neighbor’s use of the telephone network or of Facebook would increase the value of those services to me… Indeed, if everyone other than myself stopped using Google’s search engine tomorrow, that would not decrease Google’s value to me as a user.”

I think Nick is being disingenuous here, and/or splitting rhetorical hairs. To argue that Google doesn’t benefit from the network effect is to deliberately miss the point. Google’s strategic point of differentiation from other sites was the fact that PageRank does a better job of determining worthwhile links. And how does it do that? By measuring how many sites (and which ones) point to them. The more sites, the higher the page ranks. I’m simplifying it, but that’s pretty close to how it works.

That is at least as strong an example of the network effect as the telephone, and probably more so. It’s true that it doesn’t matter whether Nick’s neighbours use Google or not. That’s because Nick is deliberately focusing on Google the search engine — the little box with the search button — and trying to distract you from the other Google: the indexing engine that produces those links, and uses powerful network effects to do so.

I think part of the problem is that the network effect we’re talking about doesn’t really belong to Google per se — it’s inherent in the nature of the Web. But let’s go back to what Nick originally said: He said that Google’s rise to dominance had “nothing to do with the network effect.” That’s just plain wrong. Google may not have invented the thing that produced the network effect (i.e., the Web), but it came up with algorithms that took advantage of that effect better than anyone else.

I’m not sure why Nick wants to pretend that network effects don’t exist, or that they didn’t play a role in Google’s rise to prominence, but he’s going to have to do a whole lot better than that.

Update:

Tim O’Reilly has responded to Nick’s post, and as far as I can tell he says pretty much the same thing that I did, but better — and somewhat longer :-)

  • Brad

    The difference is that Google's “network effect” was not internal. The network effect only really refers to something that builds internal momentum and grows exponentially. This does not apply to Google because their growth was not directly effecting the growth of the network.

  • http://www.mathewingram.com/work mathewi

    It may not be internally generated, Brad, but I disagree that the network effect is something completely external to Google — links that appear highly in Google are in turn linked to by lots of sites, which reinforces the extent to which they are seen as valuable. There's a definite symbiotic network effect at work there, I think.

  • Femi

    it seems so obvious that network effect is a huge part of google's success. i don't get it.
    wouldn't you argue that the google advertising model is one of the best examples of the network effect? and that's what made them so successful!

  • http://www.techcrunch.com/ Mark Hendrickson

    You're confusing the idea that Google has benefited tremendously from the Web's network of pages with the altogether different idea that it has achieved its success through the establishment of a network effect.

    A service that enjoys a network effect gains value simply by having more people participate in it directly. Often, this value gets so large that users are reluctant to use competing services that don't have as many users (bars and parties, by the way, experience this exact phenomenon all the time — who wants to hang out at an empty drinking hole when there's a rager next door?).

    Ebay and Facebook both owe their successes (in large part) to the network effect because they managed to establish attractive user bases early on that then enticed many others to jump aboard instead of going elsewhere.

    Google, on the other hand, doesn't get much more fun or useful if ten of my friends start using it. Sure, it does get more useful if ten of my friends start to blog or create websites (as do Yahoo and Live Search). But it's a contortion of the term “network effect” to suggest that this is the same type of scenario as the one above simply because it involves a “network” of people or things in a general sense.

  • http://techdirt.com/ Michael Masnick

    Now, I'm one who tends to believe that Nick Carr is almost always wrong, because time and time again he has been shown to have been wrong, but on this one, I think he's making a good point (and trust me, I'm surprised that I'm saying this). Google's success with users is not due to a network effect among *users* — which is the point that Tim was making. There are different network effects that you're talking about and that Nick are talking about. You're talking about the network effects that Google leveraged to make its service useful, but that isn't impacted by how many people use it, and those same network effects can be replicated without getting users.

    The network effects that Nick is talking about are ones where it's the user-generated-network effects that matter. And, for the most part, Google isn't built off of that.

  • http://www.bitcurrent.com Alistair Croll

    Yeah, this is splitting hairs.

    Google relies on links to find relevance. More links to more places means better data. Advantage O'Reilly.

    But Google itself is just as useful whether I'm the only one using it, or whether the whole world is. It's not like a telephone, where having the only one is useless. Advantage Carr.

    Ultimately, however, Google gets tremendous advantages from its use. Carr ignores things like navigational search, or the use of the Google toolbar. Why? Because those wily crawlers need to know what to crawl; so when someone types a URL into a search instead of an address (which they do 20 percent of the time) Google can use this to broaden the list of sites it crawls. Ditto for the toolbar.

    Carr's right that the utility of the search box isn't itself more useful when more people use it. But Google has its fingers in so many pies that the response is disingenuous. Millions of people annotating Google maps data? A liquid market for relevance-based ad placement? A checkout model that allows the company to bill per transaction but bucket those transactions to pay less? The list goes on.

  • http://www.mathewingram.com/work mathewi

    Thanks for the comment, Mark — as I said in my reply to Brad above, I know that Google didn't invent the network effect that it benefits from. But at the same time, I don't see how Nick can make the statement that Google's success has “nothing to do with the network effect.” That's just not true.

  • http://www.mathewingram.com/work mathewi

    You're right, Mike — and I realize that what I'm describing doesn't really fit the definition. But as I said to Brad in my reply above, I think Google is inextricably linked with the network effect created by the Web. And I don't see how Nick can say that the network effect had absolutely nothing to do with Google's success. That just doesn't make any sense.

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    “nothing to do with the network effect.” are you kidding???

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    “nothing to do with the network effect.” are you kidding???

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