Hi, disruptors,
I have two updates since the last article on high-speed rail. ✨✨✨
Ho Ching, the former CEO of Temasek holdings and the first lady of Singapore shared my video on Singapore's semiconductor industry, which is based on an original analysis written here on the Disrupted. She is one of the seminal figures in Singapore's semiconductor development and her sharing reflects the importance of the semiconductors industry to Singapore and the meaning of semiconductors to a whole generation of Singaporean leaders. I’m flattered.
In upcoming issues, I plan to systematically write about the origin of money, the modern money theory, the inefficiencies of our current financial system as well as the rise of the newest contenders, crypto, NFTs, and how these are going to interact with our world and our future.
I’d love to make the analysis on money and the modern financial system into a series starting with perhaps the history of money. Too many internally contradictory and overly simplified economic pseudo-science have flowed around for far too long. The objective would be for me to re-construct and re-orient my understanding of money & the role it plays in our society. Hopefully, this could answer some of your questions regarding what’s going on in our chaotic and often confusing economic signals nowadays.
If you have not signed up yet, join +737 smart, curious, and critical people by subscribing here:
For people in my generation who were born in the post-90s’ Internet era, Google is an important part of our lives. Since its inception, Google has been a tremendous boost to people’s capacity to learn, and with it, knowledge is no longer confined in university libraries. Without Google, the Internet may be a very different place, particularly when it comes to our access to information.
One striking advantage of Google’s products is how consistently essential they are to productive activities. Think about Google search and YouTube, can you imagine your life without any of these services? The ability to quickly access information and knowledge is essential to learning and growth, and Google is THE platform of choice for most people.
Enter TikTok. The latest stats put TikTok as the most visited website in the world, surpassing the traffics of Google and Facebook. It is not an exaggeration to say that Google is worried. The last time I chat with a senior person at YouTube, he said and I quote “internally, there is no higher priority than YouTube shorts”. This is pretty evident in the premium real estate YouTube Short’s tab occupies on the YouTube app.
Long story short, Google, for the first time in 20 years, is worried. It is weary of the real possibility of TikTok killing its unchallenged money printer for 20 years, the 2 biggest search engines in the world, Google and YouTube.
But Google has no short of competitors over the years including many social giants like Facebook and very recently Vine, which was supposedly a similar short video service provider, so, what made TikTok different? How has Facebook failed to challenge Google, and what makes TikTok a different kind of competitor than Facebook and many other ad providers in the Internet space?
Let’s start with Google’s businesses.
Advertising is still the king of Google’s business
Out of the $182 billion dollars that Google made in 2020, $147 billion are from Google’s ad services, which means Google makes money from the ads you see every day when you surf the web or before you watch any YouTube video.
This point is even more clear if we look at Google’s operating income.
For Google’s latest quarterly earnings ended in June 2021, Google basically made all of its money from Google advertisements.
But how is Google able to maintain its advertising leadership over the years? This is one of the most misunderstood factors about Google. People take Google’s category leadership for granted, in fact, it is a classic case of monopoly by enacting an impossible moat.
Google’s unbreakable moat
Google’s unbreakable moat: Chrome, Android, YouTube, & Google search.
According to the latest numbers from statcounter.com, Google Chrome is the absolute monopoly in the browser market taking over 60 percent of the market share.
With Safari at a straight strong 20%, Firefox at 4%, and Samsung Internet, 2.8%. Over 2 billion people have used Chrome making it omnipresent anywhere across all platforms on all devices. Yet, it is free and you know what people say. “If you don’t pay for the product, you are the product.” And if you look at the numbers more closely, what it shows is that Chrome takes almost all of the market share in the PC and desktop market whereas Apple closed its ecosystem off to outsiders.
Chrome’s ascension
The most ironic thing when it comes to Google’s Chrome dominance is how familiar it is looking at the history of browsers. Microsoft did exactly the same thing in the old days. The chronology is that the PC predates the Internet. At the beginning of the 1990s, Windows was designed to be a productivity tool with Microsoft word, excel, and PowerPoint, the Internet was not at all a defining feature of a PC. In fact, when Netscape Navigator, the world’s first web browser was invented, Microsoft has not even created Internet Explorer, and the only reason that Microsoft set one up was that Steve Ballmer, then VP of Microsoft, had discovered on a sales trip that most of his big corporate clients were complaining that Windows didn’t have a “TCP/IP stack” – ie, a way of connecting to the internet. He was furious. Under this backdrop, Netscape Navigator spread like a wildfire, and its founder famously speculated (hubristically)
that the browser would eventually become the only piece of software that computer users really needed – thereby relegating the operating system to a mere life-support system for the browser.
This possibility terrified the leadership at Microsoft culminating in Bill Gates waging a war in the browser market. This document, obtained by the U.S. Justice Department, is an internal memo from Bill Gates in May 1995 explaining to his executives why the Internet is important. Gates effectively, as the Guardian puts it,
“ordered his subordinates to throw all the company’s resources into launching a single-minded attack on the web browser market.”
Gate’s strategy worked, Microsoft eventually won the fight and edged out Navigator in the early 2000s, making Internet Explorer the default browser on millions of Windows PCs. The fight was won, but Microsoft had also paid a huge price. Governments around the world waged antitrust wars against Microsoft which almost broke up the company. Chrome and the entire open-source market is a response to the corporate greed of Microsoft stifling innovation, and bullying smaller companies with its full might.
Just a decade later, history has repeated itself, but this time, Microsoft was on the receiving end. Google Chrome started to gain popularity gradually during the later years of the 2000s. When the founder of Netscape navigator arrogantly speculated that Internet browser will reduce operating systems to a mere life support system”, it was ridiculed and laughed at. But right now, I’m not sure if that’s wrong. Think about your daily interactions with your PC, if you’re like me who spends a lot of time on various technology websites researching and writing. Chrome is absolutely sufficient.
In fact, Chrome was famous for sandboxing its browser tabs to interact directly with processors, making each tab a separate application similar to applications on your smartphones. Chrome takes up so many resources that you can run google documents, youtube, Netflix, and several other resource-heavy applications in one browser. In that sense, Chrome is a platform on top of the Windows operating system that acts as a gateway to the Internet. Before Chrome, Browsers were just another application in parallel with other productivity tools such as Microsoft word, excel, and PowerPoint presentation, but after chrome, it’s chrome or everything else. Chrome became our default application for anything online, Netscape's founder’s prediction has come true.
So, which Google’s product is essential to our lives? Is it its search services, its video services, or its map services? Or maybe it’s advertisement services? Those are the services that we use that make Google money. Since we are paying for them, It must mean that they are irreplaceable parts of our lives, right? It’s a combination, but the critical product to Google that can’t be easily replaced is the infrastructure of the entire internet. In this case, they are Google Chrome and Android.
I have no doubt that Google is one of, if not the best, ad service providers in the world, but its primary strength comes from its ability to keep people in its ecosystem. The more consumers’ hours spent on Google’s apps, the more ads that can be served.
Both Chrome & Android are free on paper, yet precisely because of them, google became an irreplaceable part of our lives. We use many Google applications not because it’s the best out there, though sometimes it is, but because it comes with the operating system or our web browser.
Just like how Microsoft makes Lenovo PCs the empty shell that hosts Windows, Google has successfully made Samsung or Huawei’s smartphone the shell that hosts the android system. If you do not believe me, all you need to do is to check Huawei’s market share now after Google banned Huawei from using its android system.
An Internet without Google
Now, the idea of Google services being replaceable might be unfamiliar to you, but as someone who constantly navigates the Chinese Internet, a world without Google is the reality on the ground. It's worthwhile for us to take a look at how Google’s only surviving alternative Baidu is doing in China, Baidu provides almost all services Google provides, except that it does not have the power of Chrome & Android.
Here’s a summary, Baidu over the years has become an empty shell of its former self. If we compare the market capitalization between Chinese internet giants and their American counterparts. Alibaba Vs. Amazon, Tencent Vs. Facebook. They are all in the hundreds of billions. 300 to 900 billion for Alibaba, Tencent, and Facebook, and in the case of Amazon, 1.8 trillion billion dollars. But you would find very different realities for the search engines of China Vs. the US, here are the numbers: 40B vs 2T. See the difference? Baidu lags far behind Google in terms of market capitalization. Though both of them make money with the same ad services, their fate is completely the opposite precisely because of the lack of Android and Chrome for Baidu.
Digging deeper into Baidu’s situation, starting with its search services. Unlike Google in the US, the tech scene in China is competitive and gladiatorial. WeChat, Taobao and Weibo, Facebook, Amazon, and Twitter of China all denied Baidu access to their webpages, what it means is that when you search on Baidu, most of the internet cannot be found, rendering Baidu, unusable. Since people in China use Chrome, IE, Firefox, and UC, a local Chinese browser. Baidu is also not the default search engine in the first place, rendering Baidu nothing but an internal search engine for the content made by Baidu-affiliated publishers. It’s like a Google search that suggests only results from YouTube videos and Google news. It’s bad.
The same thing goes for other Baidu services like Baidu Cloud, Baidu news, and Baidu video. Without the support infrastructure like Android and Chrome, Baidu is an island that defies the fundamentals of a search service. Short of Android, Baidu cannot be ubiquitous on smartphones, and short of Chrome, Baidu cannot be ubiquitous on desktops.
So now that I’ve established that Google is basically unbeatable in the Internet sector with Chrome and Android👀, why should Google be worried about TikTok?
What’s different this time?
First of all, Google has faced a formidable foe in Facebook a decade ago.
Google predates Facebook. Google started in 1998 and Facebook started in 2004. Facebook started to turn a profit more than ten years after Google did, and to be frank, even this timeline would have been delayed if not for the mobile revolution.
Looking at Google’s revenue growth, the trend is healthy, with a CAGR of +15%.
If we break this number down into search and display ads categories, we can see a fuller picture. Google’s dominance in the search ads category is not only unchallenged, but its monopoly status is also growing with now over 80% of the total market share in the US, and Facebook is nowhere to be found on the list.
Facebook is a much more formidable competitor in the display ads category, but the core point I am trying to share here is that Google and Facebook provide fundamentally different services and users are on these platforms for different reasons. Google is a platform where users join to access information, and Facebook is primarily a social network that people go to for connecting with friends and killing some time.
Secondly, Facebook’s dominance is largely mobile. Looking above at Facebook’s growth by mobile & desktop, you can see that in absolute $ numbers, Facebook’s desktop advertising revenue is anemic whereas its mobile ad revenue rises exponentially. This is not to say that Google is worry-free when it comes to threats from Facebook, but it does show that Facebook so far has not been able to cannibalize Google’s core audiences at their core use cases (search & desktop)
Enter TikTok
In recent years, two important paradigm shifts in the tech space now fundamentally changed Google’s game.
The fall of Intel & x86 architecture.
TikTok and its superior algorithm that merges what’s useful with what’s viral.
Apple’s recent launch of M1 chips built with ARM architecture, and its foray into the desktop space with M1/M1 Pro/M1 Max, in my opinion, is a game-changer. From 2013 to 2021, the OS market share of windows has dropped from 91% to 73% as of December 2021, needless to say, most of those market share was absorbed by Apple. With the launch of M-series chips, it is obvious, that this trend will continue, therefore, exposing Google’s first weakness in Chrome. I’d expect the rise of Safari in relation to Chrome.
Additionally, Google is not oblivious of its weakness in hardware. It has tried multiple times to launch its hardware products including Google Nexus & Pixel phones, and its Chromebooks, those failed attempts demonstrated to me Google’s inability to manage a global electronics supply chain.
Top Internet companies are often ecosystem players vertically and horizontally integrated so as to achieve a dynamic equilibrium with powerful control over its users.
These companies compete on multiple fronts, and their competition is analogous to a military war. Under a dynamic equilibrium resulted from years of competition, all parties are deadlocked, they engage in a war of attrition, a grinding process to win tiny fractions of market share. However, when a vulnerability gets exposed, a full-scale Normandy attack may ensue, and Capital will do what it does best, pursuing profits.
This is precisely why the rise of TikTok is so intolerable for Google. Google has already failed in the arena of hardware which weakens evidently the market share of Chrome & android, TikTok has proven itself to be a formidable competitor in video content.
What’s even worse? TikTok is famous for its recommendation engines. The Wall Street Journal has recently written multiple times to investigate TikTok’s “secretive algorithm”, and is amazed by how quickly TikTok’s algo gets to know a person.
This is the ultimate nightmare of Google — a competitor that not only is chipping away YouTube’s market share but also has a supposedly ‘better’ recommendation algorithm that suggests content that users are more interested in. It’s not just about YouTube, it’s about search too!
Coming back to Google’s moat: Chrome, Android, YouTube, & Google search.
Any military strategist will tell you that the worse type of war anyone can involve himself in is a war on multiple fronts, this is how Germany lost WWII fighting both the allies and USSR. Unfortunately with TikTok, Google is now in that position, war on multiple fronts, with little hope to win any of them. (With still the looming shadow of Huawei figuring out the Harmony OS and building a monster mobile OS fed on the Chinese consumer market.)
And this possibility is evident in TikTok’s track record, it’s parent company ByteDance started its business with Toutiao, a news recommendation service that is notoriously addictive because it knows what type of news to suggest to users and how to keep users engaged on its platform.
This is all for today’s article, thanks for reading.