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> Eventually, Google figured out how to create a real moat, by using click data to improve search result ranking

This is revisionism -- Google was far superior to any competing search engine long before Microsoft embarked on its search engine adventures. Google was hand-coding heuristics well into the Bing era. It wasn't until Amit Singhal left Google and search that they pivoted to more machine learning techniques that could use the click data effectively.

This corresponded with the beginning of Google's long decline in search quality, buffeted mostly by the fact that their on-page quality systems were extremely sophisticated at cutting out spam and SEO. The detection was far from perfect, but so many miles ahead of the competitors that their competitors kept unearthing spam that Google had long since excluded from its index but whose fossilized remains still polluted the web.

The moat that Google had was just that they were really good at search quality and PageRank was only a small part of that. In other words, no moat at all, just a better product.

Bah, kids these days. It's not revisionism. I worked on search quality during the hand-coded heuristic era, 2005-2009. I spent some of that time working on the "navboost" team which used click data to alter the search results. Even by 2007, click data was quite valuable, arguably the single most important component of the algorithm.

The algorithm was hand-coded, sure. You don't need machine learning in order to use click data. You just need a few people to have searched for that particular query before. When someone clicks on a result and stays there a while, it's a "long click" and you boost that search result for that query.

Bah, kids these days who think of 2005 as "early times". I had, in one week in July of 2000, during a road show for my startup, meetings with Lycos, Inktomi, Excite, Yahoo, and a few other search engine companies, all of which were considered strong at the time.

Google was already so far ahead in 2000 that everyone who actually cared used it -- although some people still had Altavista bookmarked and used that because they did not know any better. (The internet-using community was much smaller and more knowledgeable back then; Laptops were expensive and heavy and were used mostly by traveling businessmen, the majority had dial-up internet and AOL was the largest ISP. Essentially all internet access was through desktops running Windows 95 or Windows 98. And Google was already head and shoulders above the rest)

By 2005 Google had such an insurmountable edge that there was barely a discussion. Microsoft started development in what would become Bing before that, and despite all their efforts were never really able to catch up to anything that Google was doing.

Yes, click data helps but really only at the head, where Google already excelled. On the tail the increasing dependence on click data (and later on machine learning and an increased focus on user-specific results) has steadily made Google worse and worse, and Google's supremacy has really only lasted this long because of their page quality measures, which is still a huge problem even now on Bing.

Yeah, not revisionism. Google had better search quality for tech users but Altavista, Lycos, Yahoo, AskJeeves, Excite, Inktomi etc had a better results for general users. So tech users adopted Google and when asked by non-techie friends which search engine they used would reply Google. And then Gmail moat appeared and getting a Gmail account was the highest prestige and everyone was trying to get one.

I’ve only started hearing people talk about moats recently, at least by that word.

What happened to building good products?

> only started hearing people talk about moats recently

It’s a decade-old term [1] describing an older concept [2].

> What happened to building good products?

This is necessary, but insufficient on its own. Big “M” marketing is important. (Betamax vs VHS is the canonical example.)

[1] https://en.m.wikipedia.org/wiki/Economic_moat

[2] https://en.m.wikipedia.org/wiki/Porter%27s_five_forces_analy...

No quality of products can compete with a monopoly. The money goes where the largest profits are expected, which is where one hopes to capture a new market

The term moat was used in a leaked Google internal document about the AI space competitiveness, and now everyone is using it like sheep.

It's a Buffett-ism. https://en.wikipedia.org/wiki/Economic_moat

a moat is any product or feature set so good that you absolutely need to use it or it's just that good. for example, Gmail and google maps was a moat for google in the early days.

That's not the usual sense of "moat". A moat is usually a structural or regulatory protection that prevents a superior product from competing without first crossing that moat.

For example, once upon a time building a superior web browser was hard, because the moat you had to cross was that Microsoft would always prefer their own browser, so Windows created a structural barrier to adoption of new browsers. So the amount by which you had to be better than Internet Explorer back in the day was critical, because if you were just a little better you would never get enough adoption. You had to be much better or convince Microsoft to lower the moat.

Bringing up a new stock exchange was another protected industry -- the incumbents had built a huge regulatory apparatus around themselves which meant that to compete with the incumbents, you first had to comply with a lot of regulations which were themselves molded after what the incumbents were doing. Exchanges like BATS took a long time to clear that hurdle, and many exchanges never made it there, even with superior execution technologies, and were consigned to be dark pools instead of lit markets.

Theoretically social networks have had the moat of the "network effect" of having a large user base -- Facebook is useless because all your friends are on MySpace so there's no reason to switch, and MySpace is useless because all your friends are on Friendster. The implications here are that incumbents protected by moats are fragile; once the moat is crossed they can no longer compete because they've languished, so get eaten alive (as the two examples here or say traditional taxi services).

Not quite. A moat is a reason that you can't/won't leave the company/product. An unapproachable feature set might be a moat, but generally a moat is something other than product, that prevents your competitors from succeeding by creating a clone of your product.

I guess a good example of a moat in consumer email could be the fact that once you have the user, their email address is forever tied to your service. They can try to forward emails or fetch them, but they can't retain that email address on your domain without still using you (at least to some extent). Sender authentication then means they likely need to use you to send emails.

That's a fairly effective barrier to switching for many people, as they won't want to lose their email address now, or need to go through every site they ever signed up with and change it.

> I’ve only started hearing people talk about moats recently, at least by that word.

Then you're one of today's Lucky 10,000! The idea of an "economic moat" was popularized by Warren Buffet, starting in 1986. https://xkcd.com/1053/

Can confirm, google was superior from the start. I remember switching from altavista to google and it felt as revolutionary as switching from Windows 3.11 to Windows 95.

Search engines have always been a bit weird. Do they have network effects? Why is it actually winner-take-all? I've had spirited conversations with a lot of different people and academics/microeconomists on the topic and I don't think anyone truly has a good conclusion. It doesn't naturally seem like it should be the case.

Anyway, I think your point here is interesting and was kind of the idea behind a lot of the "gather lots of data" startups. A lot of those failed in part because the frontier of AI is moving pretty quickly. You need a lot less data to do interesting thing today than you did not that long ago. Because we've thrown more and more data at more and more compute, I think people don't appreciate how much we've truly progressed algorithmically. You need an order of magnitude less data to do the same thing for each "generation" of AI.

That frontier cuts against the ability to build a moat on user-generated data, so long as it's readily available or somewhat replicable. Your competitor is naturally going to have a cheaper time getting into market than you if they wait longer to do so.

However, this definitely does stand if your area truly is obscure (e.g. specific industry), annoying to gather data in (e.g. certain healthcare applications), or actually proprietary (e.g. your own device data with a different modality).

Not putting words into your mouth that you aren't saying the latter here—just making a distinction since it's easy to imagine any data being a moat, which is a common mistake I see.

> Why is it actually winner-take-all?

The power of defaults, mostly.

The average user experience of picking up an internet-connected device has been very intentionally cultivated by Google. Whether you're in your browser or on your phone, Google's spent a lot of money building up Chrome as a browser ecosystem, Android on mobile, and paying off Apple on iPhones and competing browser vendors like Firefox, to guarantee that, whenever possible, Google is always the default search engine. The only non-Google default will typically be on Edge, which only has about 5-6% penetration. Since Google historically has always been the best search engine in the space, does not explicitly charge its users money, and (at least for average users) is really good at surfacing what they're looking for, most users feel no need to look elsewhere for a search engine because the default just works, switching would demand an effort, and Google is what they'd want anyways. The moat isn't big, but Google has put a ton of work into ensuing that any competing search engine requires an intentional and active choice of users to seek you out while they're worse.

At least until the recent AI play by Bing, this tiny moat was always sufficient, because if you start from scratch on search, you're essentially guaranteed to be worse, and all other 'serious' offerings under the hood were weak alternatives: essentially one of "Bing search API wrappers" (worse results), "nation-state-actor search engines" (for most users, worse results), or "Google, but with some cursory privacy measures, a subscription fee, or filtration features" (which wasn't something most users care about).

Recent chat AI represents a competing alternative to doing a search in the first place, which jeopardizes the "we have essentially all defaults and users can't be assed to switch to a worse search" barrier to entry that Google historically relies on, which is ringing alarm bells for them.

Agreed that it's not intuitive. My guess is that it's not a network effect in the traditional sense (where having more users makes the product more valuable), but rather that there is something about a product category being free that lends itself to being winner take all. Users are less motivated to comparison shop, and if any one company gets enough marketshare to be a default choice then maybe it just snowballs. Like if tissues were free, would Kleenex have a monopoly bc everyone just reaches for it by default?

Potentially—I suppose free can lead to more justifiable laziness in finding different resources for different things.

The argument I generally hear from certain microeconomists is that they still expect there to be value in niches, given Google's highly general nature. If you're looking for super specific topics, it often doesn't perform extremely well. You'd find it valuable to go to a resource tailored for your area.

Anecdotal, but I've personally found it to be true—for specific hobbies, or for more "real" reviews, I search reddit. Except I use Google to search reddit, since reddit's search sucks, but still. Amazon or Etsy or whatever can be considered "search engines" for highly specific topics (purchases, and purchases of a specific type of product) and they do have success there too, but Google is still often the front-page to get people to those sites.

Maybe it's just that Google is just a default "front-page" and enough tech-non-savvy people just use it to get to where they want to go (e.g. the classic "type Facebook into Google to get to Facebook") that it sticks. That's maybe the most compelling reason I've heard, but it is also somewhat unsatisfying as well (as well as precarious if the defaults ever change—but maybe that's true!).

> The argument I generally hear from certain microeconomists is that they still expect there to be value in niches, given Google's highly general nature. If you're looking for super specific topics, it often doesn't perform extremely well. You'd find it valuable to go to a resource tailored for your area.

I think that is true, but only within a very narrow band of topics that are broad enough to require a search functionality (lexusnexus, webmd, arxiv, etc). I think most topic niches that I would be interested in are more often served by niche publications (ie I wouldn't need/want a search engine geared toward photography, I would mostly go to specific publications and sites that I trust).

> Why is it actually winner-take-all?

Is search winner takes all? Or is it advertising?

That's an interesting question since advertising certainly follows search dominance, but it doesn't necessarily follow the other way around. Google figured out how to monetize its dominance with advertising before it had the behemoth ad platforms they have today. It's pretty much the same with the popular social networks.

The answer (more logically) should kind of be neither. Advertising obviously has a lot of channels, and even though Google has both Adwords and its display advertising network, it doesn't follow those really need to be the same provider... at least outside of more data to do more targeted ads. But, again, advertising dollars will follow platforms that price for ROI.

Better targeting mainly adds to the amount that Google and Facebook can charge for their ads and still have companies pay for them. It doesn't really add to their dominance directly (I say directly since, obviously, more money can buy more R&D/employees/regulatory capture/acquiring competitors/just-paying-for-dominance like with Google paying Apple. But that's all indirect).

Nothing prevents users from switching search engines. I switched mine! Advertisers on the other hand want as many eyeballs that fit their target profile as possible.

Once Google became a verb well then ..that's when they won?

Because the phrase is "Just google it" not "Just search-engine it"

Just search it.

One thing folks downplay in the original search wars was the UX decisions of Google. It was a plain page with just a search box and the results were clutter free and easier to parse. As a young computer user at this time, this is what brought me to Google. I had no sense of which platform was providing more relevant results.

Google was also fast. Previous search engines would take multiple long seconds, and the results were worse.

Don't worry, Google are hard at work undermining the product they worked so hard to build. Every year google search is worse at surfacing what you're looking for and better at an ads platform, and the advent of LLMs and SEO agencies flooding the internet with no-value regurgitated content is also not helping.

Additionally, Google dismissed the trend of other search engines: everyone was building a portal, which for the most part didn't add much value for users. Even today, Google, which is really just an advertising company, has no ads or other content on its main page. (it does have a few internal links on the extreme edges, but has arguably the most white space of any online company)

If Google really has a moat why do they pay Apple so much to be the default search engine and why do they need Android to avoid getting cut out of mobile advertising?

Moats come in all sorts of flavors.

Having a hyper profitable business that you dominate can provide a cash moat: the ability to crush your competition by outspending them.

You can do that in lots of ways: lawyers (Microsoft was nearly sued into oblivion early on), advertising/marketing/brand building, creating a talent roach motel (they go in, they never leave) just to deprive your competition of the best people (by paying way above what your competition can match), paying for positioning in the market (for example: buying shelves at retail stores for distribution), you can even afford better networking globally to be faster by spending large sums; and so on.

Being able to buy positioning to lock out the competition, by leveraging your enormous profit machine, is a type of moat.

Google (Alphabet) can get away with that spending (re shareholders) because that's the business they're in, it's core, and it's already generating hugely, so shareholders view the spending as protecting an existing critical business (maintaining a moat in this case by continuing to pay Apple etc). Microsoft can't get away with the same spending (even though they can technically afford it), because it's a prospective business (a maybe outcome) that isn't spitting off huge profits and the return on massively ramping up spending is questionable to shareholders (who will ask questions about a missing $20b in profit next year).

Does Google have a quality / performance moat with their search product? Even if they do, given the ~$100 billion in profit at risk (for that division, it subsidizes a lot of the rest of Alphabet), it's not a question they want to find out the answer to necessarily. Instead they can spend $20 billion and not have to find out if a competitor could take them down.

The parent post suggests that Google's moat is search quality, I suspect that is not true. Google earns about $70-80B a year, if they even suspected there was a way to reduce or eliminate a $20B yearly expense it would be top priority to investigate. We can assume they've looked at this problem from a lot of angles. That they keep paying implies they have a lot of confidence that it's necessary and if they didn't have the default slot a lot of users would use something else.

I think they are in a minor prisoner's dilemma at this point.

Apple is now secure enough in their standing for mobile that they wouldn't be afraid to switch to Bing under the right circumstances[0][1]. Ironically I'm reminded of the days where Intel would pay Dell to not use AMD (even though they weren't always better) and even Intel was aware it was a devil's bargain and could let them get bullied.

This does all lead to an interesting question; What are the value props of all of these deals? If their product is so good, why do they need to spend the money on the default slot? And what do they know is 'missing' that makes it worth them to pay third parties to convince them?

[0] - Whether those circumstances are easily achievable is out of scope of this theorycraft.

[1] - Apple probably could buy a search engine, but they are smart enough not to for lots of reasons. (mostly from the aspects of 'attracting regulatory attention' and 'can they keep improving it')

I tried switching to Duck Duck Go a while back and so far haven't returned to Google. Some things are better on Google but for my usage pattern it doesn't seem to be a clear win any more, and I'm somewhat picky. What I take from that is if Apple switched default search providers most people wouldn't care or wouldn't bother changing the setting. So my guess is Apple likes the money and doesn't have any motivation to rock the boat, while Google is worried that losing Apple would both cost them revenue directly and create room for competitors to grow. Stable situation for now.

> Eventually, Google figured out how to create a real moat, by using click data to improve search result ranking. Even though Microsoft is willing to spend billions of dollars on Bing, they don't have access to Google's user data, and aren't quite able to match Google's search quality.

I was nodding along until I got to this. Google had, past tense, excellent search results. Now they are at best, a solid mid-tier search product that I often find myself abandoning in favor of either DDG or even Bing on occasion.

IME, Bing shines in one particular area, which is location/near me type searches. It's peerless in this space in particular and IMO they should be leaning into it more in their marketing. Google can get me the best seller of gizmos on the Internet, but if I want to go to a store and get something that day, Bing is better at that.

Meanwhile Google is steadily trending downwards in very nerdy niche searches, which is a shame because it used to be quite good at them. You specify terms in your quotes or block with minuses, but these are treated as "suggestions" now, that are overridden if Google's mystery algorithm decides that you don't actually know what you need despite directly expressing it to the bloody thing, especially if their "correction" means they can direct you to buy something even if you don't want to actually buy anything.

And, even when you want to buy things... perfect example: I wanted a small set of drawers for a particularly tight alcove in my desk that's otherwise wasted space. I spent some time on Amazon for awhile but amazon's search is even worse than google's, so I googled "closet drawer cabinet -fabric" and the -fabric bit is quite important because I was getting frustrated getting page after page of hits on Amazon that were shitty little fabric drawer setups. I wanted shitty particle board, thank you very much. And Google, in it's infinite brilliance, returned, I shit you not, a full page of shopping advertisements that were all fabric drawers.

Google is still my first go, out of habit more than anything at this point, but increasingly I find their search tool lacking and I know I'm far from alone in that.

A lot of tech industries, such as operating systems, search, and social media, benefit greatly from network effects. The rule of thumb is there is a major winner, an also-ran second place, and everybody else. Again, it's a rule of thumb, not a hard and fast rule. Sometimes this is driven by data (like search), and sometimes it's not (like operating systems).

I think it remains to be seen if AI is one of those industries that benefits from network effects or not.

A related question is: Are AI models platforms, or are they applications? If they're platforms, they'll benefit from more users and more data. If they're applications, there will be very different market economics in play.

IMHO, they're applications.

> IMHO, they're applications.

IMHO, it's hazy.

I finally built a new PC [0] with the intention of actually playing with AI stuff instead of just shitposting about the dumb things AI Chatbots do.

As another commenter responded, Stable Diffusion strikes me as a platform.

I feel like OpenAI is trying to position themselves as a 'platform', and ChatGPT is like versions of windows...almost [1]

LLaMA is amazingly ambiguous; frankly at the moment it is, to me[2], at least the easiest to 'hack'; I will say that LLaMA models feel more like 'applications' but there is still an overall 'platform'.

> I think it remains to be seen if AI is one of those industries that benefits from network effects or not.

I think it can. Aside from the aforementioned Stable Diffusion (and also speaking from experience with it,) having a 'cookbook' is handy to get started. Network effects are huge in that regard.

[0] - 10 years since my last fresh build, 5+ years since my last true upgrade.

[1] - It is worth noting people complaining about things 'breaking' when new models get released

Stable Diffusion is a platform. It now has a huge community that makes custom models for it.

Google and Facebook didn’t have a moat (Remember MySpace? They had network effects too), but they were first in creating a culture where they approached data capture and utilisation as part of their DNA. AI startups might be very well suited to capture initial market share but can always be turned to features by Microsoft or Google as the incumbents are just smarter and faster this time around. I can potentially see AI startups disrupting product categories as they be can take more PR risk (uncensored models for instance). But if they get too big they’ll be turned into features at any given time. I think it’s just more brutal of a market in 2023 than it was back in 2003.

MySpace AI

> This reminds me of people saying that search engines were doomed as a business in the late 90's.

I don't recall people saying anything of the sort.

The article applies to medium and small businesses. For 99% of these businesses, search engines are a doomed endeavor.