Porter's five (5) forces model for industry analysis posits that, all else equal, the bargaining power of buyers is higher when they face fewer switching costs. That is to say, to the degree that "costs" are low for buyers to switch from using one comapny's product or service to using another's, the better position buyers are in relative to the seller.

In a recent article about the Google's acquisition of YouTube, one entitled "Million-Dollar-a-Month Headache: YouTube's a Losing Proposition", ABC News' Mike Cudgell argues low switching costs in the search engine market are inherently low. That fact, as Cudgell sees it, combined with the ever-present prospect of an "out of nowhere" disruptive innovation, is part of what motivated Google to buy YouTube:

Analyst Josh Bernoff of Forrester Research said Google gets something it doesn't have -- a community of viewers, the young and growing users of YouTube. "Google is a utility," he said. Google processes requests for information. There have been other Web search engines, like Infoseek, that were killed by the next best thing. There's always concern that somewhere there's a 20-something kid in a garage who could slay the Google giant. People don't have any emotional connection to a search engine, but according to Bernoff, it's far tougher to leave a company that creates social connections. "You'd be leaving your friends," he said. YouTube users post their own videos, pictures and music to share with their friends and family. They've built a community. That's what Google is buying.

I am not so sure I agree with Cudgell's assessment. Theoretically it is true that there is little cost in switching search engines, at least little economic cost. Yahoo and MSN and Dogpile are just a click away. And yet, I almost never use them. The main reason being is that for me at least, Google has become the de facto standard. It is not only the market leader, it is widely perceived as performing searches extremely well. For me, and perhaps other web searchers, even if I use another service, I'd probably still do a Google search as well unless -and here's the important part- I was very certain that the other search was far, far superior. So in some sense switching does have costs: the time associated with performing two searches or the cognitive cost of worrying that my one non-Google search was inferior and the possible economic or performance costs associated with an actually inferior search.

Another reason why search engine switching costs are not zero is that the larger search enginess provide a variety of services beyond the search utility. As a colleague of mine Kathleen Carley pointed out back in 2001, older search engines typically have "more features to lock users in." That combined with the fact that "most users rarely use more than two sites in a single search session" would suggest to me that low switching costs were not a driving factor in this move by Google. Building a community may very well be, as might a levelling off in growth of profits and sales in the search market. Time will tell. And by "Time" I don't mean Time magazine.

For a different viepoint see Nicholas Carr's piece from last November entitled "Search is a Commodity, again" The discussion in the comment thread is very interesting.

And for a strategic analysis of the search engine space, see The Economist's article from June of this year entitled "The un-google."

Tags: google | youtube | Search |