Google isn’t right all the time and it certainly has had its share of failures, but generally speaking, when Google decides to enter a category, the company does it well. So how does Google decide what to attack, and in what order? The best explanation I’ve heard is called the “moat strategy.” In a moat strategy, a company seeks to protect a core asset (its castle, or in Google’s case, revenue from search advertising) with products that bolster its dominance (the moat).
As Bill Gurley writes: “Android, as well as Chrome and Chrome OS for that matter, are not 'products' in the classic business sense. They have no plan to become their own 'economic castles.' Rather they are very expensive and very aggressive “moats,” funded by the height and magnitude of Google’s castle. Google’s aim is defensive not offensive. They are not trying to make a profit on Android or Chrome. They want to take any layer that lives between themselves and the consumer and make it free (or even less than free.)”
Google’s acquisition of AdMob (mobile advertising), DoubleClick, Teracent, and Invite Media (display advertising), YouTube (video), and Wildfire (social advertising), can also be seen from a moat perspective. AdMob combines with Android to protect mobile search, display acquisitions protect the Google Display Network, and social and video acquisitions simply get Google into these games, which they have been desperately trying to do for many years.
Of course, whenever Google enters a new advertising market, it comes up with tons of collateral and sales initiatives to convince its millions of advertisers to start buying on these new channels. The question for advertisers is this: Should you follow Google’s lead and diversify your budgets based on its recommendations, or should you chart your own path, regardless of whatever moat Google is currently building?
On the one hand, I generally feel that most new channels Google enters are done with impressive foresight. Perhaps the best example of this is YouTube. An acquisition that was mocked by many at the time as ridiculously expensive now drives billions in annual advertising revenue. Google has bet heavily on video, display, social, and mobile, and advertisers who ignore these moves do so at their own peril.
On the other, like any business, Google is self-interested. Enhanced Campaigns – which removed mobile and tablet management granularity from AdWords – involuntarily ushered millions of advertisers into the mobile age, likely before many were equipped to do so. I have no doubt that mobile advertising will eventually be a core channel for most advertisers. It’s just that for many, that time has not yet come.
Put another way, when Google talks, you should listen, but that doesn’t mean you should immediately do what it recommends. Perhaps this seems an obvious recommendation, but for those of us stuck in the echo-chamber that is Silicon Valley in general and SEM in particular, it’s worth mentioning.