Google cant Foundem

A recent lawsuit against Google questions the legitimacy of its blockbuster algorithm that ranks search results, and whether there is any human intervention at all in how results are displayed. There are suggestions that Google has, and uses, a system to penalize or blacklist certain sites, which are then relegated beyond the 3rd or 4th page, thus drying up virtually all traffic. When such sites happen to be search engines themselves, things get murkier. The recent accusation of Foundem may be an isolated incident, but there are certain developments that do appear ominous.

Google's innocuous Universal Search that not only returns websites based on search phrases, but also retrieves relevant images, maps, blogs etc., may have put websites such as labnol or mapquest out of business. When searching for a city or town, I remember Google showing links to Mapquest and yahoo maps, but not anymore. The feature is definitely convenient to the user, in the same manner that bundling Internet Explorer free with Windows was.

Players like Google and Apple have been making noises forever about Microsoft's unfair practices, but some of their own actions are disturbingly similar. I cant recall the last time I typed a URL in my address bar directly. Even when I know the URL, it's easier to google half the website name and click through to the website. Thats laziness, of course, but it also shows my trust in Google - that it will fetch me what I am looking for, and usually as the first result. I doubt if I am alone in reposing complete trust in Google. So when more than three-quarters of the world uses Google to search, the results displayed can potentially influence people's actions, including purchase decisions, which means money. And there's the rub. With iPods having the insane marketshare that they do, and their ability to communicate only with iTunes, what is available for purchase, and prominently displayed, on iTunes can affect purchases. Apple's recent decision to take down inappropriate software from its iPhone app store is another example. Amazon can drive or kill book sales simply by adding or deleting a "keyword" to the book description.

This is not a new phenomenon limited to websites. This is true of large players in other industries, and is akin to what Toyota is going through. In an open economy, you are allowed to make defective and dubious products. Its not a crime; customers will simply dump you and switch for better ones. But once you establish certain quality standards and gain customer trust, you automatically take on the responsibility to maintain that. The GEs, Boeings and Cokes of the world cant make the kind of mistakes that a mom-and-pop business can. It may seem unfair, but as the saying goes, with great power comes great responsibility.

Game Theory and Traffic Rules

Game theory attempts to explain our behavior in situations where the success of our choices are impacted by the choices of others. Price wars are the most common example. If Pepsi cuts prices, assuming elastic demand, sales will increase and so will profits. But if Coke follows suit, Pepsi's action will be neutralized such that both Coke and Pepsi end up with lower profits than what they would make if prices werent cut in the first place. So letting prices be is the best course of action for both, which is the conclusion they will eventually reach after the game is played multiple times.

I got thinking if this explains the problem with our traffic rules. When we all follow rules, then it gives those who break them an advantage. Let's say the rule is that we stick to our lanes regardless of traffic. Now, if the traffic is slow, someone can cut across lanes and weave through traffic, assured that everyone is driving in their lane. But once that happens, the rest will naturally feel cheated and start doing it too, and we end up with massive chaos.

I see two ways of addressing the problem. One is to remove the incentive for breaking rules, by imposing hefty and consistent fines, which is impossibly difficult to do in our country. The second is to let people play this "game" enough times until they realize that we are better off following the rules. It doesnt mean every single person has to experience chaos before sanity returns. Once enough people decide to follow rules, a critical mass is reached. You have - tada - a tipping point. You see people following rules, then more people follow rules and so on. The concept of social proof kicks in.

Its not as far-fetched as it sounds. I think it partly explains why Mumbai has better lane discipline and civic sense than other cities - people here have seen traffic chaos so many more times.

I think the unfortunate part is when everyone starts to follow the rules, some of us will be tempted to break them and get an unfair advantage. And when there is no system of fines or penalty, more people will start doing it creating another tipping point and the cycle continues...

Consumer Insight

Carrying forward from the last post, there are two diametrically opposing views on this matter. One believes that consumers are really smart and will call your bluff the moment your product takes them for a ride. Examples include consumers dumping American made electronics and cars in favor of Japanese ones.

On the other hand, some believe that consumers are gullible and will willingly buy a golden noose only if you knew how to sell. Examples include Coke and credit cards. There was no "need" for cola. Someone made up with a drink and transformed it into a habit. If Fair and Lovely really worked, half of us in India would be swans now. Yet, the product continues to mint money for HUL, and has spawned a market for fairness creams.

How does one reconcile these two observations? The popular notion of succesful businesses is a neatly laid out set of numbers, projections and valuations, but any business is incomplete without the understanding of human psychology, which provides the most crucial insights. Mr Charles Revson, co-founder of Revlon famously said, “In our factory we make cosmetics. In the store we sell hope”. That's the key. What you are making and selling are often two different things.

Even in case of more mundane products like ball pens, consumers are buying expectations not products. And if the performance doesnt meet the expectations, well, you are screwed. And these expectations can stem from totally irrational notions. Chinese products are presumed cheap so its really tough for a Chinese manufacturer to sell premium products. In such situations, the solution is not in the 4Ps but rather in the other often neglected P - the Psychology of consumers.