This seems overstated. True, Google ads do not enjoy the network effect often ascribed to them, but the company has at least the following traditional strategic advantages.

ECONOMIES OF SCALE
Web searches rely upon giant data centers. Google’s massively parallel data center architecture facilitates the fastest web searches, most frequent index rebuilds, etc. It also facilitates the cheapest hosted services, such as email, photos et al. They have way more computing power than anyone else. As Varian might point out, this architectural advantage is temporary. However, when everyone else inevitably copies this architecture, data centers revert to a pure scale contest. Whoever buys the most boxes wins. Google can currently outspend everyone but Microsoft; by the time Microsoft builds a similar architecture (probably years), Google will be able to outspend them, too.

BRAND
For 10 years, Google has defined web service innovation. They are increasingly trusted outside the narrow field of search (email hosting, for example). As a result, increasingly, when Google releases a new web service, other things equal, they will automatically win.

NETWORK EFFECT
The anti-spam system in Google’s hosted email enjoys network effects, because it relies upon group intelligence to decide what is spam, then rolls out the answer to all users simultaneously. The effectiveness of this system improves dramatically with scale. The largest network has the best spam control. Yes, anyone can copy the architecture, but again, by the time they do, Google will already be the biggest. They are probably #2 or #3 already, and their most logical competitors — Yahoo and Microsoft/Hotmail — are asleep at the wheel. By the time they figure it out, Google will be #1, and able to run away with this network effect.

No suggestions being made here. Just observing.

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To restate the problem: Hotmail has a terrible spam filter, which makes it hard for a legitimate business to deliver mail there. Hotmail misclassifies spam in both directions, but mainly rejects too much legitimate mail, failing to make the most obvious, basic inferences from user behavior. For example, if a user marks a message from A as “not spam,” then any other mail engine would assume all future messages from A are not spam. Not Hotmail. It doggedly continues to mark all mail from A as spam. Worse, every message in the spam folder is deleted without warning after only 72 hours, making it impossible for a legitimate e-goods business to prove delivery.

My efforts to register with Microsoft as a legitimate sender, via SenderID and other initiatives, were ignored. MSFT appears not to actively support these initiatives, and they certainly do not respond to inquiries. What to do?

Google Apps.

Google Apps provides hosted email, using Google’s mailserver to send your messages. Because Google is too big to ignore, Hotmail dutifully delivers whatever you send. Done.

Now, if you are a spammer, this probably will not work. Google will catch you and shut you down. But for legitimate senders, this is a total solution that costs $50 per year.

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The concept of personal privacy began very recently, with the Industrial Revolution and consequent transition to urban living. Before that, most people lived in small towns, where there were no secrets.

The advent of privacy brought with it sociological advantages (one could be unusual without facing close-minded social pressure) and disadvantages (dangerous weirdos can operate unchecked).

For better or worse (I won’t argue for either one), this recent concept of privacy is now declining as the cost of information transmission, storage and search fall to zero. This brings good and bad, but is a technological inevitability.

Google is just a messenger of change. The trend will happen regardless. As Sun founder Scott McNealy said years ago, privacy is dead — deal with it. Anyone can find out anything
about you for under $50, and legislating against that is like shouting at the wind.

In short, then, it’s time to get very comfortable with who you are and what you do, because it might be on the front page of Slashdot tomorrow. Everyone will have access to that info.

Luckily, keep in mind that most people won’t care. We tend to overestimate our own importance (for example, by writing blogs), but in truth, the odds are low that anyone will find out your embarrassing secret, whatever it may be.

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Google accounts for 68% to 91% of my search engine traffic, depending upon the site.

My sites are all #1-ranked for their primary search phrases. My site content is highly diversified (video games, Palm image software, and investment newsletters). The implication is that my results are representative of search traffic generally. It implies strongly that Microsoft’s share of search traffic has fallen dramatically (more than half) in the past year.

This may explain their desperation to attract advertisers.

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July 2006: $30
Feb 2007: $100
Mar 2007: $200

Tables don’t communicate the drama as well as a graph:

On current trends, within a few months, it will be cheaper for MSFT to just buy out my business than to convince me to try their ad system.

At any rate, $200 is a lot of money, so I visited AdCenter and found the front end has been completely overhauled, but contains the same amateur-hour website errors.

1. Incompatible with Safari browser. Safari is inconsequential for the general population (probably 2%), but widely used by web designers (probably 30%) — AdCenter’s primary target audience. But OK, I can use Firefox.
2. Fails silently on incompatible browsers. AdCenter doesn’t bother to detect and warn of incompatible browsers — it simply fails in various comical/nonsensical ways, halfway through whatever task you were attempting. Browser detection (”sorry, this site is incompatible with Safari”) is vanishingly easy to implement, so it’s utterly amateur for an organization MSFT’s size to ignore it.
3. Credit card entry page is 1200 pixels wide. Good thing I upgraded my monitor last month. Clearly no one outside the ivory tower tested this app, or they would have noticed most people don’t have a monitor this big.
4. On Firefox, the voluminous “Terms and Conditions” legalese appears in a tiny text box only 2 lines high by 20 characters wide. It’s like reading Tolstoy through a keyhole.
5. On credit card validation, received mysterious “Alert: www.contentmedianetwork.com has sent an incorrect or unexpected message. Error Code: -12263.” I click “OK,” and am greeted with “Thanks for signing up!” So everything is OK now? Who was contentmedianetwork.com? What was error -12263? The mysterious unexplained errors are nothing like a normal Web experience. They remind me more of… Windows.
6. Inside the app’s campaign center, web pages load forever, evidently to keep a live connection with the server. How can that scale? They keep a connection open for every user simultaneously?

It is absolutely shocking how far behind Microsoft is in this arena.

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Adwords is a significant substitute for eBay. Small vendors can buy customer visits through micropayment advertising, as an alternative to paying eBay an auction fee for access to eBay visitors. Signals have been accumulating for some time:

1. eBay discovered in January that it no longer has power to raise auction prices, because larger sellers are balking.
2. eBay announced it is entering the private-label merchant site business, to slow down departures of its major sellers.
3. Google announced Tuesday it is entering the payments business.
4. It’s been true since Adwords inception that Google does not accept PayPal as a form of payment.
5. Meg Whitman was caught angling for Eisner’s job at Disney a couple of months ago.

Taken together, one might infer that Google plans to eat eBay’s lunch, and eBay is scared. Will be interesting to see what happens.

I don’t mean to suggest eBay would cease to exist. Their auction business is still great, still a natural monopoly. However, a big chunk of eBay sales (a third? don’t know for sure) come from professional sellers that aren’t really auctioneers, but rather fixed-price vendors holding auctions to take advantage of eBay’s network. They would probably rather operate their own websites and run their own ads, if they can make just as much that way. Their presence on eBay has never made sense to me — private sites and Adwords are a simpler, better branded, more logical arrangement, if the scale and ROI are similar.