The Invisible Hand of Google

Google’s “Don’t Be Evil” philosophy to avoid exploiting users has resulted in it missing out on profitable opportunities and seems counter-intuitive to what a company should be doing. For example, Google recently chose to cancel its translation API in order to preserve the possibility of good translations in the future. Some say Google has this policy because it is a good company that puts its consumers ahead of profits. I think they are making these decisions not because they care more about customers, but because having a good image directly affects profits (due to the unique nature of the search market). Having a good reputation is important to Google's business.

Google significantly invested in facial recognition technology, but then refused to release it because totalitarian governments could misuse it. The company also joined a free speech pact to defend online speech in restricted countries. Most notably, Google chose to stop censoring their search results in China, which resulted in it being unable to operate in the large Chinese market.

While this course of action costs Google money in the immediate future, it is more profitable in the long-term for an internet business to have a consistent philosophy. The short-term gains are not worth the costs of breaking users' trust, as stated on their website.

The product Google "sells" — access to a search database with advertisements — is in an undifferentiated market. All of the products in this market (Google, Bing, and Yahoo) are very similar to one another. Because of the market’s unique features, competing for users is fierce. Since there are not many inherent advantages to using one product over the other, improving services does not provide much gain. The only way companies gain an edge is to find alternative ways of providing their services.

Google is not being nice to its consumers to better society. By promoting good publicity, Google is attempting to differentiate itself from its competitors. It is creating something non-tangible that its consumers value, similar to how Coke spent over $2.9 billion in 2010 on advertising. Since sodas are similar to one another, companies have to attract customers by providing intangible value.

Another reason Google cares about its image is because the search engine market is two-sided. A common, key factor of such markets is that the two sides of the market are lopsided in value. In this case, consumers are much more valuable to advertisers than advertisers are to consumers. As such, Google’s most profitable strategy is to subsidize its consumers in order to create a customer base large enough to make advertising on Google highly desirable.

Unfortunately for Google, the price it charges for its product is already at zero, and thus it is impossible to directly subsidize the product more. Spending money on improving its image is the company's way of indirectly subsidizing the consumer. This is similar to how Microsoft and Sony subsidize their gaming consoles in order to increase their total user bases and make it attractive for developers to make games on their platforms. 

Internet companies have the tendency to be more responsive to public opinion than those outside the tech sector; they are almost always service-type businesses that directly interact with the public. This makes them more accountable to the public as opposed to companies that only sell products to other businesses.

Decisions that are in a company’s best interest are oftentimes in the public’s best interest. Google’s "Don’t Be Evil" philosophy is not an example of a company being good for its own sake; it is an example of Adam Smith’s invisible hand guiding the market.

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