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Strategies and Prescriptions
In all of Microsoft’s successful battles, it has used the same strategies. It undercuts its competitors in pricing, unifies previously separate markets, provides open but proprietary APIs, and bundles new functions into platforms it already dominates. Once it has acquired control over an industry standard, it invades neighboring markets.

In contrast, the losers in these contests have usually made one or more common mistakes. They fail to deliver architectures that cover the entire market, to provide products that work on multiple platforms from multiple companies, to release well-engineered products, or to create barriers against cloning. For example, IBM failed to retain proprietary control over its PC architecture and then, in belatedly attempting to recover it, fatally broke with established industry standards. Apple and Sun restricted their operating systems to their own hardware, alienating other hardware vendors. Netscape declined to create proprietary APIs because it thought Microsoft would never catch up. Google – and Yahoo – would do well to take note.

What will Microsoft do? Publicly, it doesn’t care about building a broad search architecture reaching across many platforms. “There will be a lot of innovation and competition around search by a broad number of vendors, but it is wishful thinking to believe it is a platform tidal wave like the initial emergence of the browser and the Web,” says Charles Fitzgerald, Microsoft’s general manager of platform strategy. And indeed, Microsoft has begun innocently enough: a decent though unspectacular search site, some software, no bundling – nothing, you know, violent. But the company will provide APIs to its Web search engine, and its long-term strategy could be brutal. If it acts logically, it will bundle better search facilities into Internet Explorer and Office; it will build advanced indexing and searching tools into both its PC and server operating systems; and it will alter its own products to make searches of many kinds more fruitful. Search tools could tailor results to a user’s interests, based upon data collected by the operating system. Microsoft could even deliberately cause failures in Google’s products – for example, altering its file formats so that Google’s crawlers could not properly index Word or Excel files. Microsoft has been accused of such conduct repeatedly in the past, notably in its battles against the DR-DOS operating system (an attempted clone of MS-DOS) and Lotus spreadsheet software.

If it acts logically, Microsoft would also perform a “cashectomy” on Google – just as it did in the browser wars when it gave away Internet Explorer. Even with nearly $2 billion in cash, Google is vulnerable to this tactic. For instance, Microsoft could offer free wholesale access to its search engine. Then it could attack Google’s advertising networks by offering free or subsidized advertising placement. These businesses are based primarily upon agreements with third-party websites, most of which have no long-term allegiance to Google. (Google’s forthcoming advertising APIs could, however, change this.) Finally, Microsoft will try to play competitors off against each other, as is its custom. Microsoft thrives when its opponents are fragmented and possess no alternative common standard.

So what should Google do? Given Microsoft’s ferocity in the past, panic might be a productive first step. Google should understand that it faces an architecture war and act accordingly. Its most urgent task must be to turn its website into a major platform, as some other firms have already done. Amazon, as we have noted, does not merely operate a retail website. It has developed proprietary but open APIs that have made it the capital of an electronic economy (see “Amazon: Giving Away the Store,”). Other merchants set up stores under the Amazon umbrella, and other websites can offer direct links to Amazon’s product pages. Recently, Amazon has gone even further, creating ways for consumers to search and find products without visiting Amazon at all.

Thus, Google should first create APIs for Web search services and make sure they become the industry standard. It should do everything it can to achieve that end – including, if necessary, merging with Yahoo. Second, it should spread those standards and APIs, through some combination of technology licensing, alliances, and software products, over all of the major server software platforms, in order to cover the dark Web and the enterprise market. Third, Google should develop services, software, and standards for search functions on platforms that Microsoft does not control, such as the new consumer devices. Fourth, it must use PC software like Google Desktop to its advantage: the program should be a beachhead on the desktop, integrated with Google’s broader architecture, APIs, and services. And finally, Google shouldn’t compete with Microsoft in browsers, except for developing toolbars based upon public APIs. Remember Netscape.

When Google’s Peter Norvig was read this list – presented not as recommendations, but as things that Google would do – he did not deny any of it. When Technology Review asked, “If we reported any of this, would we be wrong?”, Norvig answered, “We don’t like the word ‘beachhead.’ That implies a war, and we don’t want to go there.” Pressed, he said, “Factually, nothing wrong” – although he stressed that APIs were only one way Google might create a “search ecology.” But historically, proprietary APIs have been the only way to create a loyal customer base – one that can’t readily switch to a competitor.

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