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AT& T, IBM, Intel, Microsoft . . . Google?

For loyal Google employees, fresh oysters qualify as cafeteria food.
For loyal Google employees, fresh oysters qualify as cafeteria food. (By Randi Lynn Beach For The Washington Post)

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By Steven Pearlstein
Wednesday, October 24, 2007


My first visit to Google came on the day after the company had announced a 57 percent increase in quarterly sales, the day its share price had broken through $650, rumors swirled that its executives were mulling a multibillion-dollar investment in and an ad deal with Facebook, its political troubles in China were splashed across the front page of the Wall Street Journal, and the company cafeteria was featuring fresh oysters and a scrumptious seafood concoction in a puff pastry shell.

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In other words, just another day at the world's hottest company, the company everyone, it seems, now wants to own, work for, collaborate with and advertise through.

These days, Google conjures equal doses of respect and fear, not just at technology firms but at advertising agencies, movie companies, record labels, cable and telephone companies, libraries, book publishers, newspapers, television networks, travel agencies and real estate brokers.

Through the ad revenue it has generated, it has financed tens of thousands of Web-based start-ups. And by putting the power of information in the hands of consumers, it has busted up monopolies, driven down costs and threatened governments.

Here in Silicon Valley, Google's success and the wealth that it has created have almost single-handedly pulled the region out of the dot-com doldrums. Its management style and philosophy are widely imitated. When it comes to employee loyalty, corporate transparency, social responsibility -- or simply the ability to spur innovation -- Google has become the gold standard.

You can't visit the Googleplex without getting caught up in the energy and excitement, the sense that something special is happening. But while it is special, it is not unique.

We have seen this story before. We saw it at AT&T in the 1950s, IBM in the 1960s, Intel in the 1970s and Microsoft in the 1980s. They were the hot technology companies of their eras, the darlings of Wall Street and the very models of modern corporate management. And, in time, their success was so overwhelming that each, in turn, became targets for antitrust enforcement.

With its proposed purchase of DoubleClick, Google has followed suit in drawing the scrutiny of the competition police, both at home and in Europe. The reason is simple: Like its predecessors, Google shows every sign of pulling away from the pack in a market that naturally tends toward a single, dominant firm.

In just about every industry, the biggest companies enjoy powerful competitive advantages. This is particularly true in industries with high upfront costs, which takes in most of the technology sector.

In Google's case, for example, after it has set up its servers and devised its famous algorithms, the cost of conducting one more search or displaying one more search ad is close to zero. So once the fixed costs have been covered, every new customer represents almost pure profit.

But there is another reason for the winner-take-all quality of technology markets, sometimes referred to as a "network effect." Simply, a networked market is one in which customers are better off doing business with the company that already has the most customers.

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