They say that good things happen to good people. This sentiment can be applied to businesses as well. In the world of business, success often comes to those who have a strong foundation and a strategy that sets them apart from the competition. This is where the concept of an "economic castle" and an "unbreachable moat" comes into play.

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Hatched by Glasp

Jun 28, 2023

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They say that good things happen to good people. This sentiment can be applied to businesses as well. In the world of business, success often comes to those who have a strong foundation and a strategy that sets them apart from the competition. This is where the concept of an "economic castle" and an "unbreachable moat" comes into play.

Warren Buffet, one of the most successful investors in history, has famously stated that he looks for economic castles protected by unbreachable moats when considering investments. An economic castle refers to a great business, while the unbreachable moat represents the strategy or market dynamic that heightens barriers-to-entry and makes it difficult for competitors to gain access to the economic castle.

When we look at Google, it becomes clear that their economic castle is their search business, which is augmented by their AdWords monetization framework. Google's search engine has a clear network effect, meaning that the more people use it, the more valuable it becomes. Additionally, their price optimization through the customer bidding process has allowed them to create a powerful revenue-generating machine.

To protect their economic castle, Google has built an unbreachable moat. In his blog post titled "Meaning of Open," Jonathan Rosenberg reveals that Google's goal is to eliminate any products that stand between the user and Google, as they have the potential to distract users from choosing Google as their search destination. This is why Google has invested heavily in products like Android, Chrome, and Chrome OS. These products are not meant to become their own economic castles; instead, they serve as expensive and aggressive moats, funded by the height and magnitude of Google's castle.

The aim of these moats is defensive, not offensive. Google's strategy is to take any layer that lives between themselves and the consumer and make it free or even less than free. By offering these products for free, Google is essentially removing any economic rent that competitors could extract from the market. This creates a significant challenge for competitors trying to compete in the same market, as they would have to find a way to generate revenue while Google is giving away their product.

In essence, Google's approach to Android and other products is a form of perfect competition. They are not trying to win in the classic sense; instead, they are focused on providing great software at the cheapest price possible for the consumer. This creates a dilemma for competitors who are trying to extract economic rent from the market. If they can afford to build a near-equivalent code base and offer their product for free or at a very low cost, they can compete with Google on price.

This level of competition is unprecedented in many industries. It presents a challenge for businesses that are used to competing in a traditional sense, where profit is the end goal. However, it also opens up opportunities for innovation and disruption. Businesses that can find unique ways to add value or differentiate themselves from Google can still thrive in this competitive landscape.

So, how can businesses stay in the game and compete with the freight train that is Android? Here are three actionable pieces of advice:

  • 1. Focus on differentiation: Instead of trying to compete head-on with Google's free products, find ways to differentiate your offering. Identify gaps in the market or areas where you can add unique value. This could be through specialized features, superior customer service, or targeting a niche audience.
  • 2. Build strong partnerships: Collaborate with other businesses or industry players to create a stronger position in the market. By leveraging the strengths and resources of multiple companies, you can create a more compelling proposition for customers. Look for partnerships that align with your values and long-term goals.
  • 3. Embrace innovation: Don't be afraid to think outside the box and embrace new technologies or business models. Look for opportunities to disrupt the market and challenge the status quo. Innovation can be a powerful tool for staying relevant and competitive in a rapidly changing landscape.

In conclusion, the rise of Android and other Google products has created a unique and challenging environment for businesses. Google's strategy of offering free or low-cost products presents a significant barrier to entry for competitors. However, by focusing on differentiation, building strong partnerships, and embracing innovation, businesses can still find ways to stay in the game and succeed in this competitive landscape. The key is to adapt and find new ways to create value for customers.

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