Google Isn't Unique In Embracing The Economics Of Free Complementary Markets

Overhype

from the open-your-eyes,-Nick dept

We’ve pointed out for years, that Nicholas Carr is one of the smartest, most astute thinkers out there — and he always writes interesting articles, that make interesting points and get you to think about things in a different manner. However, it’s frustrating that he continually makes all these great observations, and then at the end jumps to a totally bizarre and often outright incorrect conclusion that isn’t supported at all by the points he made earlier in the article. Yet, because he leads people down the garden path so beautifully, many people take that fanciful leap with Carr, missing the fact that there’s really nothing holding up the structure on the other side.

He did this about a year ago, in pointing out that Google’s main business was in driving all sorts of complementary businesses forward by making them cheaper (or all the way to free), such that they helped its main business (getting eyeballs to sell to advertisers). That’s a good, and important observation — but where Carr went wrong, was to claim that building up complementary businesses was somehow unique to Google, and couldn’t (and shouldn’t) be replicated by most other businesses. That’s simply incorrect. As we’ve been pointing out, if you want to succeed in today’s digital market, you absolutely need to recognize the complementary markets that impact your business — because all markets have those complements.

Yet, it appears that Carr liked his mythological Google-uniqueness scenario so much that he’s trotting it out again, suggesting that Google is in a dangerous position because as it drives prices in those complementary businesses down, it’s apparently wreaking havoc on all sorts of other companies and business models, even if the end result is better for consumers.

What Carr’s missing (and this is common to much of Carr’s writing) is that these complementary markets where the price is being driven to zero isn’t a bad thing, but the natural efficiency of the marketplace, driving goods with zero or close to zero marginal cost down to their most efficiently priced positions — where they then help make many other businesses and markets (those the focus on scarce goods, such as selling attention) much more valuable. It’s the same thing as Luddites complaining about technology making things more efficient. Yes, automated phone switching equipment made phone operators obsolete, but it also enabled much bigger markets and the net benefit to society was huge. Making a market more efficient, even if it changes the business model of those who lived off of the inefficiency before, is not a bad thing. That’s the natural state of the market, and contrary to Carr’s assertion, it’s not just a few companies that are benefiting from this. Plenty of companies and individuals are understanding this every day, and using this basic concept of using infinite complements to make scarce goods more valuable. Carr does a huge disservice to his readers in suggesting that it’s somehow unique to companies like Google and Microsoft. It’s not.

Filed Under: business models, complements, markets, nick carr
Companies: google