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Google's 'Algorithmic Hand' Proves an Unstable Market Mechanism

Google's biggest-ever reordering of its search results this past week to reward what Google believes is high quality content and punish low quality content prompted an public epiphany this week that Google has the market power to effectively pick winners and losers in the online content market.

 

 

There are two big takeaways from this public epiphany that "Google is the de facto web content market:"

 

  • First, Google's "algorithmic hand" largely has supplanted Adam Smith's "invisible hand" market mechanism to pick web content winners and losers; and
  • Second, Google has proven to be a highly unstable, unpredictable and capricious economic platform/mechanism for online content entrepreneurs and businesses to try and build a successful and sustainable business on top of.

 

I.  Google's "Algorithmic Hand"

In a competitive market the "invisible hand" is where self-interest, competition and supply and demand combine to efficiently allocate resources. Winners outcompete losers in satisfying demand.

 

  • In contrast, Google is the dominant online gatekeeper for people searching for content online, making it the de facto mechanism for matching consumers with suppliers content.
  • Unlike the invisible hand of a true market, Google uses its algorithmic hand to subjectively decide in advance what micro-sliver of available content users will find, and hence will "win," and what content will effectively "lose" i.e. be buried in digital oblivion.
    • Google's search ranking matters; remember Chitka's research shows that 34% of users click on Google's top result, >50% the top 2 results and ~97% on the top 10 results on the first page.
    • In other words, if Google's algorithmic hand allocates certain content a rank off the first page of results -- they effectively lose in the world's web content market.

Interestingly, Google's artificial intelligence, algorithmic hand, market mechanism differs greatly from the natural invisible hand, market mechanism.

 

  • In natural markets, consumers determine winners and losers by what they buy.
    • In Google's dominant derivative market, Google's programmers subjectively pre-program their algorithm with what Google deems is "quality" content or what content consumers should find useful.
  • In natural markets, suppliers can compete aggressively and sell themselves to consumers to win their business.
    • In Googleopoly's market, Google convicts companies that compete or sell too hard to be found on Google's make-or-break first page of search results, as low quality content, spammers or cheaters.
    • Google's actions make it clear that it expects market players to accept where Google subjectively ranks their content and not try to compete/sell themselves to try and secure a better ranking -- by enhancing the quality that Google publicly claims to value, i.e. links.
    • Simply Google's vision of the web content market is one-way, Google subjectively ranks content, and arbitrarily changes its ranking of content at its will without any transparency, accountability or appeal, and all web content is expected to accept and be grateful for whatever rank Google gives it.
  • In natural markets, the profit motive rules.
    • In Google's algorithmic market Google's CEO explained Google claims to not profit driven -- "The goal of the company is not to monetize anything... The goal is to change the world" -- despite the inconvenient facts that Google made $30 billion in search advertising last year, as the most profitable Internet business in the world by far.
    • This oft-stated ulterior political and not business motive of Google's, leaves the impression that content that conforms with Google's political views about how the world should change would be considered higher "quality" and hence get ranked higher than content with which Google politically disagrees.

II. Google As an UnStable Economic Platform

Google's latest reordering of search results -- without warning or way for those affected to have much effect on their own destiny -- exposes Google as a highly unstable, unpredictable and capricious economic platform for web content providers.

A truism in the economy is that businesses need reasonable confidence and certainty that their actions can generate success in the future in order to justify staying in business, investing, growing and hiring more people.

If companies have legitimate concerns from experience with Google (like this past week) that 20-95% of the demand for their online content could evaporate overnight without warning or way to fix it, and not necessarily because of anything the business did, they can reasonably question whether they have a stable or workable long term business or chance at business growth and success going forward.

  • (Any online business that ignored what happened with Google this past week and hope they will never be affected is naive.)

Compounding the increasing instability and capriciousness of Google's subjective algorithmic market for online content are growing concerns about whether Google is the "honest broker" it represents its search algorithm to be.

 

  • See page 25 of Googleopoly VI for "Why Google is Not an Honest Broker,"
  • See the outstanding quantitative research by Ben EdelmanGary Reback, and Foundem that Google:
    • Subjectively ranks themselves above everyone else with a manual hardcoding to ensure selected Google products and services always rank first on Google's search; and
    • Subjectively blacklists potential competitors to Google search.

 

In sum, Google's aggressive reordering of its search results this past week spotlighted two big conclusions with far-reaching implications and repercussions for the e-content sector:

  • Google's "algorithmic hand" largely has pushed aside the natural "invisible hand" of the market making Google the real picker of web content winners and losers; and
  • Google is increasingly proving itself to be a unstable, unpredictable and unreliable economic platform for online content entrepreneurs and businesses to depend on as they try and build a successful and sustainable Internet content businesses.

 

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FYI: If you missed my previous piece on this subject, click on:

 

 

 

 

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