How Google Works

by Eric Schmidt

but in any industry.

Key insight - ANY industry!!!

Rather than growing the biggest possible closed networks, companies are outsourcing more functions and working with a bigger and more diverse network of partners.

Coase’s law, in effect, backward:

Nowadays firms should shrink until the cost of performing a transaction internally no longer exceeds the cost of performing it externally.”

In the Internet Century, the objective of creating networks is not just to lower costs and make operations more efficient,

but to create fundamentally better products.

Lots of companies build networks to lower their costs, but fewer do so to transform their products or business model. This is a massive missed opportunity for incumbents in numerous indust...

These companies assembled existing technology components in new ways to reimagine existing businesses. They set up platforms for customers and partners to interact, and use those platforms to create highly differentiated products and services.

This model can apply just about anywhere: travel, automobiles, apparel, restaurants, food, retail—there are ways to make products in virtually every industry better as more people use them.

This is the difference between twenty-first-and twentieth...

Whereas the twentieth century was dominated by monolithic, closed networks, the twenty-first will be driven by global, open ones. There ar...

The successful leaders are the ones who ...

Another approach is to find ways to specialize;

sometimes the best way to grow a platform is to find a specialty that has the potential to expand.

To grow its search platform in the late ’90s, Google focused on one thing:...

s...

acc...

ease ...

comprehens...

fres...

At the time, most competitive sites were intent on becoming “portals,” multifunctional media sites that catered to a wide variety of interests and needs.

we didn’t choose to specialize in that area because our crystal ball told us it would ultimately be more lucrative and impactful than the alternate, more popular portal business model.

Rather, we focused on search because it was something we felt we were better at than anyone else.

while these leaders of the industry were busy tending to their business of bu...

Google search got better and better at providing great ...

Hard to remember back 20 years ago, but this is spot on. Fascinating to see how it played out!

Platforms generally scale more quickly when they are open.

This singular decision to keep the Internet open (which was not a foregone conclusion at the time), directly led to the remarkable web we use every day.

under government mandate, AT&T opened up its network to new devices and other carriers, and innovation took off.

all innovations that became possible only after the platform went from closed to open.

Another example is the IBM PC, which launched in 1981 with an architecture that allowed software developers and manufacturers to build applications and add-on components,

and even their own “clone” PCs, without paying IB...

This is such a counterintuitive decision for a large corporation like IBM and so singularly brilliant!

This decision helped establish the IBM PC as the definitive standard in the emerging “microcomputer” market, giving a huge boost to a couple of small companies called Microsoft and Intel.81 It also drew flocks of applications, accessories, and competitive manufacturers into the ecosystem, and ult...

None of this would have happened if the PC had been a...

it means sharing more intellectual property such as software code or research results, adhering to open standards rather than creating your own, and giving customers the freedom to easily exit your platform.

This can seem heretical to traditional, MBA-style thinking, which dictates that you build up a sustainable competitive advantage over rivals and then close the fortress and defend it with boiling oil and flaming arrows.

Like most things heretical, open is terrifying to the est...

With open, you trade control for scale and innovation.83 And trust that your smart creatives will figure it out.

If you are attacking an entrenched incumbent, you can use its very entrenchedness to your advantage.

Your porcine competitor is probably feasting at a closed trough, and you can take it on by matching your disruptive produc...

Open can play that part very effectively. It drives innovation into the ecosystem (new features for the platform, new applications from partners) and drives...

All of this leads to more value for users and more growth for...

usually at the expense of the incumbent’s (presumably...

Open also allows you to harness the talents of thousands of people,

“no matter who you are, most of the smartest people work for someone else.”

There is another, less obvious but equally important benefit to open source. Putting all your information online shows that there are no hidden agendas.

In software, when we open source code, everyone can see whether or not that code delivers any particular benefit to one company, and if it does, take action to rectify that advantage.

Removing this suspicion of unfair advantages helps growth.

A final thought on defaulting to open is the concept of user freedom, a practice that is the opposite of customer lock-in:

Make it easy for customer...

When customers have low barriers to exit, you have to work to keep them.