Chapter 85 Section 2 Norwich Theorem

Dr. Peter Norvig, director of Google Research Institute, senior member of the Association for Computing Machinery (ACM), and artificial intelligence expert Dr. Peter Norvig, said that when a company's market share exceeds 50% After that, it is no longer possible to double the market share.This is a vernacular that almost everyone understands, but it tells the root cause of the rise and fall of many multinational companies. Like people, a company has growing adolescence, stable middle age, and declining old age.When a company is just emerging, it is full of vigor and leading technology, but its market share is very small.The whole world is almost infinite to it. As long as it does its own thing well, it can continue to occupy the market and grow geometrically without worrying about the space for growth.In Xin Qiji's words, it means that teenagers don't know what it's like to be sad.However, when it occupies most of the market, its growth is subject to the development of the entire industry.And Wall Street still expects this new company to continue to create miracles.At this time, the company must find new growth points in order to continuously exceed Wall Street's expectations, and the company has to be busy with revenue every day (what will happen if it fails to meet expectations, we will talk about its serious consequences later).Unlike traditional industries, a technology company is very easy to mature, and may grow to saturation within a few years.

Let's use the example of Google to see how quickly tech companies reach saturation.On the wall of the second floor of Building 42, the Google headquarters in Mountain View, there is a large picture one meter high and several meters wide. It is a must-see scene when visiting Google.The graph plots the growth in Google search traffic from 1999 until 2004, when Google went public.It was a very beautiful curve that grew exponentially.The horizontal direction on the graph is time, and the vertical direction is search volume.From 1999 to 2000, the search volume increased tenfold, and the top of the curve was about to break the height of the paper, so the scale of the curve had to be reduced tenfold.However, soon, the doubling of the growth rate in a few months forced the curve to shrink tenfold again, and so on several times, until Google could no longer disclose its own traffic after it went public in 2004.

When Google was first established, there were only tens of thousands of searches per day. Even if the number increased by 10,000 times, it would not have a great impact on the market.Larry Page told us personally that his original dream was to turn Google into a company with hundreds of millions of dollars in profits.But Google was moving much faster than Page's own dreams. Not long after Google was founded, the search volume increased hundreds of times, reaching millions.Urs Hoelzle, Google's vice president of engineering at the time, also sent a congratulatory email.At the time, Google had single-digit servers, and Holtz had to oversee them himself.Within two years, Google's search volume grew a hundredfold, and Google itself grew into a Baby Giant.By 2002, it was not only the most popular search engine in the world, but it also powered the world's two largest portals, Yahoo and AOL, and accounted for an estimated half of global traffic.During the four years from 1998 to 2002, Google's growth was mainly obtained by grabbing market share.But when Google signed a search cooperation contract with America Online, there was almost no big market share left in the world to occupy.At this time, Norwig, who had just joined Google, pointed out the simple and classic theorem above.Fortunately, Google's entire management has seen the crisis ahead of time. Google's march from search advertising and content-related online advertising (Ad Sense for Content) began at that time.Today, the latter's turnover has accounted for one-third of Google's entire turnover.

Today, Google, which is just ten years old, has a share of more than 50% in the global search market (according to data provided by third-party companies such as Comscore, Nelsen, and Hitwise). Google's revenue growth from its search business has largely been constrained by the growth of businesses on the Internet as a whole. Google's growth rate has also doubled every year from the early years, to 70% in 2006 the previous year, 50% in 2007 last year, and 30% in the second quarter of this year.Therefore, the key to the development of a company like Google at this time is to open up new growth points.

For a company that dominates a certain global field, it is dangerous not to foresee market saturation (or to avoid the problem) earlier.At that time, Lucent already accounted for more than half of the program-controlled switchboard market in the United States, and it still dreamed of achieving rapid growth in this shrinking market.This is of course impossible, and Lucent avoids the problem by creating a virtual market that doesn't actually exist: it sells equipment to companies that don't have money at all.From the perspective of short-term results, the turnover announced by Lucent has increased, although a large amount of money still only appears on its financial statements as accounts receivable, but it has not actually entered the account.But when the money really couldn't be recovered after 2000, Lucent collapsed completely (the same mistake will be made by non-technology companies, financial companies headed by the world's largest bank, Citibank, in order to achieve rapid growth The purpose is to lend to customers who cannot repay the loan at all, resulting in hundreds of billions of dollars of loans becoming bad debts and having to report losses, and this black hole has not yet been seen to the end).

Norvig's theorem determines that a company that occupies a dominant position in a market must constantly develop new sources of income in order to achieve long-term prosperity.So far, there are only two effective ways to develop new financial resources, while there are countless random attempts.Proven avenues include “leveraging” existing businesses and transformation. Google's expansion from search-based Adwords advertising to content-based Adsense advertising, and Microsoft's expansion from operating system software Windows to application software Office are all successful extensions.GE's transformation from an electrical appliance company to a media and financial company is a successful transformation.Expansion is applicable when the business in one's own specific field tends to be saturated, and there is still a lot of room for expansion in larger related fields, such as search advertising tends to be saturated, and the potential of the entire Internet advertising market is still great. possible.The latter is suitable when the development of the entire large industry has been saturated and there is no room for expansion.

Expansion is when a company applies its existing technology and business advantages to related markets.We might as well take Google as an example to see how a successful company can get rid of the fate of Norwich Theorem through expansion. Google's technical advantage in the advertising industry is that its advertising system is highly accurate and highly automated. Its commercial advantage is that it is one of the largest advertiser networks in the world.Readers who are interested in Google's dynamics may have noticed that Google acquired the video site YouTube two years ago, and acquired Double Click, a company that can be used for YouTube advertisements, a year ago.At the same time, in 2007, Google led the establishment of the mobile phone alliance based on open source Linux, code-named Android.Everyone saw that this was a sign of Google's expansion from the Internet to mobile phones.Some critics believe that Google has not focused on its core business in recent years, and has focused too much on expansion.However, if you analyze carefully, you will find that Google's expansion is actually still carried out around the Internet advertising business, and technically speaking, whether it is video advertisements on YouTube or corresponding advertisements on mobile phones, it is only a relative improvement of Google's existing technology. promotion in neighboring areas. Since Google's advertising technology can be used on the Internet, it may be used in traditional media after transformation. Google already has many advertisers who used Google to advertise on the Internet in the past, and may also use Google to advertise on traditional media and new tools (such as mobile phones) in the future.Clearly, Google is not doing more than the original advertising industry.It's not working on consumer electronics like Apple, or traditional media like NBC.The premise of expansion is that there is room for expansion in similar fields. Google's situation just meets this premise, so it adopts an expansion strategy.

In the history of industry, there are many such successful expansions, such as Microsoft's expansion from microcomputer operating system software to microcomputer application software, HP's expansion from minicomputers to microcomputers, Disney's expansion from children's cartoons to traditional film and television and entertainment, and so on.Expansion can maximize the use of the company's original experience and advantages, making them quickly gain a foothold in new areas.However, when an industry has entered an old age and cannot expand, leading companies in this field must transform if they want to continue to develop or even survive.

Transformation is much more difficult than expansion.In the history of industry, there are many more examples of transformation failures than successes.First of all, the general direction of transformation is not easy to find.Secondly, even if the direction is found during the transformation, the possibility of failure in the implementation process is still very high.Among the examples of failure, the most classic example is the failed transformation of General Motors in the fields of electronics and aviation. Everyone knows that General Motors is the largest automobile company in the United States, accounting for more than half of the American automobile market, and has been the world's largest company in sales for more than half a century, until it began to decline in the past two decades.However, few people may know that General Motors had a relatively successful history in the electronics and aerospace fields, and was once the leader in global satellite manufacturing, because these divisions of GM no longer exist today.Many American readers may use DirecTV's satellite TV service at home, which is the largest satellite TV network in the United States and the world.And DirecTV used to be just a division of Hughes Electronics, the electronics arm of General Motors.

After entering the 1980s, the US auto industry had almost no development at all.Needless to say, rapid growth, even maintaining existing profits has become a luxury.In 1985, General Motors, which had not yet been in decline, took the right step and successfully acquired Hughes Aircraft (Hughes Aircraft) for $5 billion, and merged with its own electronics division Delk Electronics ( Delco Electronics) to form Hughes Electronics.Hughes Electronics soon became the world leader in satellite manufacturing and satellite communications.Older readers may recall that the first commercial launch of China's Great Wall rocket was the Asia-1 communications satellite for the Hughes Corporation in 1990.Since then, China's Great Wall launch vehicle has repeatedly launched satellites manufactured by Hughes for countries around the world.Since the 1990s, Hughes has been one of the world's leading companies in the manufacture of communications satellites. In 1994, Hughes Electronics launched the satellite TV service DirectTV, and became the world's largest satellite TV service provider after merging the TV service of Pan Am Satellite.At the same time, Hughes is also one of the four major radar manufacturers in the United States (the other three are Lockheed Martin, Raytheon and Northrop Grumman), so it often receives large orders from the US government and military.In addition, Hughes is also the world's largest provider of enterprise-level satellite communication services. Its customers include Wal-Mart and many other multinational companies. These companies use Hughes' satellite-based Communication service.Undoubtedly, while GM's own business was struggling, Hughes Electronics' business was thriving.

After the 1990s, the U.S. automobile manufacturing industry was impacted by Japanese companies (mainly Toyota and Honda), and the situation went from bad to worse.It would have been a good time for General Motors to sell its car brands (such as its Cadillac, which was still a very valuable brand) and transition into the electronics and aerospace fields. However, General Motors made the opposite decision and continued to sell to make money. Its electronics division, using the cash it gets to subsidize its hopeless car manufacturing, is tantamount to killing the chicken and picking the egg.In 1997, General Motors sold Hughes' defense industry sector, including aircraft and radar technology, to Raytheon, an arms dealer. In 2000, it sold its satellite manufacturing business to Boeing. Since then, We never heard the news about the Hughes satellite launched by the Great Wall rocket. In 2003, GM sold Hughes' remaining divisions, including its largest business, DirectTV satellite television, to Murdoch's News Corp for just $20 billion.At this point, General Motors has completely disappeared from the world of satellite and communication technology. After News Corporation acquired Hughes, only the DirecTV satellite TV service was left, and some other small electronic departments, including the Hughes Network System, which provides satellite communication services for enterprises, were sold one after another.Then DirecTV was relisted, and now the market value of this part alone is as high as more than 30 billion US dollars, and the profit is considerable.As for GM itself, after several blood transfusions, it is still alive and well, and its current market value is less than 6 billion U.S. dollars (it lost 15 billion U.S. dollars in the second quarter of this year). One-fifth of what DirecTV is worth today.The root of GM's failure lies in its deep-rooted way of thinking: it has always believed that it is a car company, and it must be a car company.It's like on the chessboard, GM has a big dragon that has been in operation for a long time but has no gas, and a space with a perfect layout and a large space for expansion. GM is always reluctant to sacrifice the big dragon that it has been running for many years. If you mistakenly give up the promising real space, you will lose everything in the end. A successful transformation is one that loses something and gains something. General Electric, for example, often does this.In the process of such a great shift, the roots or genes of a company need to be changed.And changing the genes of a company is as difficult as changing the genes of a person.We will introduce the genetic determination theorem in the next section. We can see that the genetics of a company almost determine that the failure of its transformation is inevitable, but its success is accidental.Of course, these miracles happen from time to time. There are too many failed attempts by a company to develop new sources of revenue, and we won't list them all.The most common and worst situation is that a company cannot find a new market, its eyes are only limited to the existing market, and it always feels that other companies have a bigger cake than its own, and uses its own disadvantage to compete for other people's plate. meal.Just like the chess champion Kasparov wants to beat Tiger Woods on the golf course, the possibility of success is slim.These companies may sometimes lose their edge due to distraction.Once the big economic environment is not good, the company's expansion will all fail, and even lose its basic disk and lead to bankruptcy. Whenever we go back and evaluate the rise and fall of a company, it is not difficult for us to find the reasons.However, as the decision-making party at that time, it was difficult to make a completely correct judgment in the environment at that time.Even when you see your direction, it is often difficult to carry out your intentions.Why is it so difficult for a company to transform?