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October 14, 2007

Comments

Blue Ocean Creator

Dear Victor,

When I read your thoughtful reply I was pleased to get your opinion on this important issue. If you don't mind, I would like to explain my understanding about GOOG and Blue Ocean.

Your explanation about Google's competition with MS is very interesting. In someway it is right that every Blue Ocean company can have competitors and this can be explained by PMS(pioneer- migrator- settler) map. However we need to talk about whether Google created a blue ocean or not. Did Google create or enlarged the market with new customers? Was it based on low cost and differentiation? Let's look at just these two criteria even there's a lot of other litmus tests of blue ocean creation.

First, Google did enlarged the search services market, which is explained by word "Googling". Before that, users did not use the search services as a activity but just as a supplement. Today people say googling not web surfing.

Second, based on low cost and differentiation (value innovation), I think google's best exceptional value to buyer is the high performances of searching techniques(differentiation) which was developed by the founders of Google. This is the Google's strength in low cost.

They also did not spend as much as other search suppliers to develop this attractive service. They did not compete with others. Look at the start page. It's different from others. Google eliminated lot's of contents, like current news or hot issue menus. They just focus on searching! Searching is the hot reason why customer visit the searching site.

And also because the "low cost" means "giving buyers exceptional value without additional cost", even the "cost per dollar" data would be same, it is hard to compare directly. In a blue ocean strategic concept, buyer's value per cost or Market Share per cost are better index .

However, Google in your post is not a pioneer anymore but rather migrator or settler who needs to think of another strategic move to create a new the blue ocean.

Finally as you mentioned above, GOOG is competing with MSFT. But I am still wandering whether GOOG itself does recognize this competitive situation. They will see and recognize others but if they are the Blue Ocean Creator, they will choose another leap in value rather than fight for grabbing more of the pie.

Thank You Victor, I really enjoyed this time.

P.s. I will make Buyer Utility Map of Google which can explain it's exceptional value and, if there is, strategic movement also.

Many thanks
June


Victor Cook, Jr., New Orleans, Louisiana

Louie,

Thanks for your comments. I must say they add much more than a "little something" to the analysis of the competition between Google and Microsoft in the "desktop/network" space. Your analysis of the future of Vista and Microsoft Office is an eye-opener! And the links you include are really informative.

Everyone interested in this battle should read the IDC report published on the Linux-watch.com site. Fascinating and complex interactions between hardware and software will determine the future not only of GOOG and MSFT but also other big players like HPQ, DELL and JAVA. Sun is especially interesting in this regard since their CEO Jonathan Schwartz has started giving away their Solaris operating system in anticipation of stimulating demand for its servers. See Business Week's story "That's One Way to Reinvent A Company" http://www.businessweek.com/magazine/content/07_42/b4054059.htm?chan=search In this article Schwartz says "There's value in volume, even if you're not paid for it."

The IDC report cited by Linux-Watch states that "HP and Sun were the only top-five server vendors to outgrow the market in Q1 -- growing factory revenue 18.1 percent and 39.5 percent respectively -- and gaining x86 market share in the process." Is this a result of Schwartz's Solaris strategy?

Does it also have something to do with changing the company's ticker symbol from SUNW to JAVA? By the way, Schwartz is one of the few CEOs who write his own blog. And most of the 386 comments posted on his site in response to the announcement of the ticker change were not pleasing to read (http://blogs.sun.com/jonathan/entry/java_is_everywhere)!

Finally, the article on csmonitor.com backs up your take on Vista:

"...is the new Windows Vista operating system (OS), a great leap forward or the last big splash as computing migrates to the Internet and away from PC-based software?"

Great insights on some alternative futures in the battle for your desktop/network! Thanks.

~V

Victor Cook, Jr., New Orleans, Louisiana

Dear June,

Thank you for your comment and your kind words about this post. Please consider these two different points of view regarding the competition between Google and Microsoft.

First, you seem to believe that blue ocean companies never have competitors. Yet, the evidence is that all blue ocean companies eventually attract serious competitors. For example, buyers do compare GOOG and MSFT in selecting search services. According to the Hitwise sample of 10 million internet users in September, 2007 Google captured 63.6% of searches compared with MSN's 7.8%. They also are beginning to compare MSFT's dominant Windows desktop applications to GOOG's infant online applications. It is likely that Vista is the last of MSFT's locally installed applications. My belief is that it is instructive to observe the transition from being a blue to a red ocean company.

Second, you overlook the significant and direct competition between GOOG and MSFT in their competition for capital. Investors worldwide place bets by comparing the financial performance of these two companies millions of times every day. Today MSFT was traded 11 million times on the DASDAQ exchange. GOOG was traded 2 million times on the same exchange. Never forget that the competition for capital is just as important (and even more intense) than the competition for customers. While the interactions between capital and product markets are subtle, they are none-the-less very important.

Finally, a point of clarification. This post shows that over the last ten quarters GOOG's cost per dollar of revenue was about the same as MSFT's cost per dollar. In this sense the company was not "low cost." Rather, it operated much closer to its "optimal cost." And as a result was able to produce maximum earnings while MSFT didn't even come close to maximizing its earnings.

You are welcome to use the charts from my blog in your workshops. Just cite my book and web log as the source.

~V

Blue Ocean Creator

Dear Victor,
first, I want to appreciate your kindness on my blog and your responsibility on your word.
I think you have got some inspirations to see the market's situation or competition. I also agree with you that Blue Ocean Strategy is a proper tools for analyze the markets. However, according to your post, google is the blue ocean company and MSFT is the red ocean company which is competing each other. Shortly, company in Blue ocean doesn't compete with others. That's why we call it a Blue Ocean. furthermore, as you know that Blue Ocean Strategy is based on buyer's point of view, buyers do not choose or compare between those two company. Maybe it is only the professionals' trap again.
About my workshop today, I mentioned those two company to explain how powerful the blue ocean is. As we can see on your next post, Google's expense is amazing! Low cost and differentiation. We call it Value Innovation and Google is the good case for that. Today I mentioned some facts from your post(chart) without your permission. sorry Victor.
ps.
you can see Buyer Utility Map on my blog. hope you can get some ideas from it.

many thanks
June

Richard Lewis

Victor, a little something to add to your thoughtful analysis: Microsoft may in the not so distant future find itself ruing its having left $2.3 billion on the table and competing with Google. It can be suggested they’re taking on the wrong competitor. Steve Ballmer has stated that MSFT’s biggest threat is Linux as a network server operating system. According to IDC, Linux has posted consecutive increases in server market share for the last fifteen quarters. Linux servers in Q1 2007 showed a double-digit increase in adoption. Linux servers now represent 12.7 per cent of the server market. MSFT competed strongly here, actually gaining 1.9 points of revenue market in Q1 2007, propelled by strong growth in the server market (Linux server market share keeps growing, 2007).

This may seem like good news, but bigger threats loom. As broadband connection speeds and uptake continue to accelerate, server and desktop virtualization do also. The combination of server and desktop virtualization is ideal for the stable, secure, resource-economical Linux OS. Linux has made progress here, adding new virtualization capabilities to the Linux kernel. A number of commentators, Gartner Research among them, have proposed that MSFT Vista could be the last box operating system MSFT deploys. The same could be true for Office 2007 (Lamb, 2007). The combination of thin-client Linux machines, software-as-a-service a la salesforce.com or Google Apps, and ubiquitous high-bandwidth Internet connections will eventually spell doom for the MSFT revenue model of boxed per-license software. When that happens they’ll need more than money—they’ll need somebody like Lou Gertsner to pull them back from the brink.

Linux server market share keeps growing. (2007, May 29). Linux-watch.com. Retrieved October 16, 2007, from http://www.linux-watch.com/news/NS5369154346.html

Lamb, G.M. (2006, December 21). Microsoft's Vista: Last big PC release? Csmonitor.Com. Retrieved October 16, 2007 from http://www.csmonitor.com/2006/1221/p17s01-stct.html

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