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Article Title:
Comparing Google's Search Franchise to McCormick's Spice Franchise

Article Description:
Google has a competitive advantage. In fact, one might even say it has a
franchise in web search. I wouldn't say that. I mean, Google does have a
franchise; but, it doesn't have a monopoly on web search and never will.

Additional Article Information:
1135 Words; formatted to 65 Characters per Line
Distribution Date and Time: Wed Mar  1 21:35:41 EST 2006

Written By:     Geoff Gannon
Copyright:      2006
Contact Email:  mailto:[EMAIL PROTECTED]

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Comparing Google's Search Franchise to McCormick's Spice Franchise
Copyright © 2006 Geoff Gannon
Gannon On Investing

Google has a competitive advantage. In fact, one might even say 
it has a franchise in web search. I wouldn't say that. I mean, 
Google does have a franchise; but, it doesn't have a monopoly on 
web search and never will. There are real problems with Google's 
model that are often overlooked. It does a poor job of finding 
certain sites that are difficult to describe in keywords. For 
this reason, there may still be a market for web search in the 
form of specialized niche directories and in some of these 
"social search engines" (e.g., Stumble Upon) for many years to 

I'm not suggesting any of these services will be as successful as 
Google; I'm sure they won't be. I am simply pointing out that 
there is a difference between a need and the means by which that 
need is satisfied. Even as the dominant search player, Google 
will only have a franchise on the means (keyword search); it will 
not have a franchise on the need (finding stuff on the web). 
Also, Google can not, at present, rightly be called the dominant 
search player. There is no dominant player in search. Google is 
the leading search player. It is also the catalyst for many 
changes in search. But, it is not yet the dominant player in 
search the way McCormick (MKC) is the dominant U.S. spice 

Looking at McCormick's franchise is actually a pretty good way 
of evaluating Google's. Why do I say McCormick is the dominant 
player (domestically) in spice, but Google is not yet the 
dominant player in search? There are a few reasons.

McCormick has a 45% share of the U.S. retail spice market. Its 
closest competitor has a 12% market share. We may differ about 
exactly how the web search pie is carved up. But, I think we can 
agree that Google's share of the market is less than 45%, and 
that at least two of its competitors have a share of the market 
greater than 12%. So, Google's position differs from McCormick's 
in two material respects (already). Google has a smaller slice of 
the pie, and the search market is less fragmented than the spice 

The spice market is an upside down funnel. The few producers are 
at the top. They feed their products through three distribution 
paths: retail, industry, and restaurants. In each case, the shape 
of the upside down funnel remains intact, because the widening 
happens at the very end. The ultimate consumer of McCormick's 
product doesn't get to choose from all available spices. His 
choice is always indirect. He picks a grocery store, a food 
product, or a restaurant. Then, must choose from the spices that 
particular supermarket chooses to carry, or the restaurant he 
frequents chooses to use (and/or make available).

In search the story's a little different. There is still 
something of an upside down funnel shape in search. Although, it 
is less pronounced than it was a few years ago. Search results 
are fed through dependent sites that searchers visit. But, it is 
the searcher who chooses the dependent sites. A few of these 
dependent sites account for a large part of all searches. That 
is very different from the spice market, where no supermarket 
or restaurant chain accounts for a large part of all spice 
consumption – none even comes close. So, the searcher has a much 
bigger role in choosing his search provider than the spice 
consumer has in choosing his spice provider. Even though it is 
true you are sometimes searching without knowing Google is the 
search provider, the situation is nothing like it is at 
McCormick. When eating a meal you aren't thinking about 
McCormick. Quite often, however, you are using a McCormick 
product. Whether it was in that package of spices you used to 
cook a meal at home, or in that manufactured food product, or 
in the dish you ordered at the restaurant, you are a consuming 
a McCormick product.

What matters as far as the investor is concerned is that the 
ultimate consumer of McCormick's product rarely makes an active, 
unfettered choice to consume that product over all other 
competing products (or even many competing products). The closest 
he comes to making such a choice is at the supermarket; though 
even there, the decision of how much shelf space to allocate to 
each company's products was made for him. To use Google, the 
first time searcher must make an active, unfettered choice.

Finally, there is the matter of infrastructure. This consists of 
two parts: production and distribution. McCormick has an existing 
production infrastructure which is helpful as far as costs are 
concerned, but isn't especially valuable. It could be duplicated 
by a new entrant with deep pockets. McCormick's distribution 
infrastructure is almost impossible to duplicate. It is worth far 
more than it cost McCormick to create it. Prying McCormick's 
customers (situated at the narrow of that inverted funnel) away 
from the company's products would not be easy. This distribution 
infrastructure gives solidity to McCormick's spice franchise in 
the U.S. In some instances, it will also help McCormick aboard 
(as some of the company's customers are expanding globally and 
will be inclined to stick with McCormick in their overseas 

Google's production infrastructure (the algorithm and the index) 
is easy to duplicate and will become even easier to duplicate in 
the future. There isn't much of a barrier to entry here. Google 
may currently offer the best search service around, but there is 
no reason to believe this will always be the case. Distribution 
is very often the most valuable part of any franchise (it is 
usually the part that is hardest to duplicate).

So, the natural question is: in the world of search, if you build 
it will they come? Will the best search engine always attract the 
most searchers? Probably not. That's good for Google, because it 
won't always be the best search engine. Google has a great brand. 
Whatever value is in Google comes from that brand. That brand is 
what will keep searchers from flocking to the inevitable newer, 
better search engine.

All of Google's revenues are ultimately dependant upon attracting 
searches. Getting those searches requires two things. First, 
millions of people must make the active, unfettered choice to 
search Google. Then, those millions of people must keep searching 
with Google. The brand is the key to step one. The service is the 
key to step two. Search customers are sticky. But, they probably 
aren't as sticky as we think. It's very easy to take immediate 
action on the web (just click a link). Switching away from Google 
isn't like switching away from Windows.

That leaves the brand. True, when you think search, you think 
Google. But, is that brand worth $120 billion? No – and neither 
is Google. 

Geoff Gannon is a full time investment writer. He writes 
a (print) quarterly investment newsletter and a daily value 
investing blog. He also produces a twice weekly (half hour) 
value investing podcast at:



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