The Google effect: It's got Wal-Mart, others worried

Wal-Mart, the nation's largest retailer, strikes fear in the hearts of its competitors and suppliers. Makers of goods from diapers to DVDs must cater to its whims. But there is one company that even Wal-Mart eyes warily these days: Google, a 7-year-old business in a seemingly distant industry.

"We watch Google very closely at Wal-Mart," said Jim Breyer, a member of Wal-Mart's board.

In Google, Wal-Mart sees both a technology pioneer and the seed of a threat, said Breyer, who is also a partner in a venture-capital firm. The worry is that by making information available everywhere, Google might soon be able to tell Wal-Mart shoppers if better bargains are available nearby.

Wal-Mart is scarcely alone in its concern. As Google increasingly becomes the starting point for finding information and buying products and services, companies that even a year ago did not see themselves as competing with Google are beginning to view the company with some angst — mixed with admiration.

Google's recent moves have stirred concern in industries from book publishing to telecommunications. Businesses already feeling the Google effect include advertising, software and the news media. Apart from retailing, Google's disruptive presence may soon be felt in real estate and auto sales.

Extending its reach

Google, the reigning giant of Web search, could extend its economic reach in the next few years as more people get high-speed Internet service and cellphones become full-fledged search tools, according to analysts. And ever-smarter software, they say, will cull and organize larger and larger digital storehouses of news, images, real-estate listings and traffic reports, delivering results that are more like the advice of a trusted human expert.

Such advances, predicts Esther Dyson, a technology consultant, will bring "a huge reduction in inefficiency everywhere." That, in turn, would be an unsettling force for all sorts of industries and workers. But it also would reward consumers with lower prices and open up opportunities for new companies.

Google, then, may turn out to have a more far-reaching impact than earlier Web winners such as Amazon and eBay. "Google is the realization of everything that we thought the Internet was going to be about but really wasn't until Google," said David B. Yoffie, a professor at Harvard Business School.

Google, to be sure, is but one company at the forefront of the continuing spread of Internet technology. It has many competitors, and it could stumble. In the search market alone, Google faces formidable rivals including Yahoo! and Microsoft.

Microsoft in particular is pushing hard to catch Google in Internet search.

"This is hypercompetition, make no mistake," said Bill Gates, Microsoft's chief executive. "The magic moment will come when our search is demonstrably better than Google's," he said, suggesting that this could happen in a year or so.

Still, apart from its front-runner status, Google is also remarkable for its pace of innovation and for how broadly it seems to interpret its mission to "organize the world's information and make it universally accessible and useful."

The company's current lineup of offerings includes software for searching personal computer files; an e-mail service; maps; satellite images; instant messaging; blogging tools; a service for posting and sharing digital photos; and specialized searches for news, video, shopping and local information. Google's most controversial venture, Google Print, is a project to copy and catalog millions of books; it faces lawsuits by some publishers and authors who say it violates copyright law.

Google, which tends to keep its plans secret, certainly has the wealth to fund ambitious ventures. Its revenues are growing by nearly 100 percent a year, and its profits are rising even faster. Its executives speak of the company's outlook only in broad strokes, but they suggest all-but-unlimited horizons.

"We believe that search networks as industries remain in their nascent stages of growth, with great forward potential," Chief Executive Eric Schmidt told analysts last month.

Eyeing new ventures

Among the many projects being developed and debated inside Google is a real-estate service, according to a person who has attended meetings on the proposal. The concept, the person said, would be to improve the capabilities of its satellite imaging, maps and local search, and combine them with property listings.

The service, this person said, could make house-hunting far more efficient, requiring potential buyers to visit fewer real-estate agents and houses. If successful, it would be another magnet for the text ads that appear next to search results, the source of most of Google's revenue.

In telecommunications, the company has made a number of moves that have grabbed the attention of industry executives. It has been buying fiber-optic cable capacity in the United States and has invested in a company delivering high-speed Internet access over power lines. And it is participating in an experiment to provide free wireless Internet access in San Francisco.

That has led to speculation that the company wants to build a national free GoogleNet, paid for mostly by advertising. And Google executives seem to delight in dropping tantalizing, if vague, hints. "We focus on access to the information as much as the search itself, because you need both," Schmidt said in an analysts' conference call last month.

Telecommunications executives are skeptical that Google could seriously eat into their business anytime soon. For one thing, they say, it will be difficult and expensive to build a national network. Still, they monitor Google's every move.

"Google is certainly a potential competitor," said Bill Smith, chief technology officer of BellSouth, the Atlanta-based regional phone company.

The No. 1 rival to phone companies in the Internet-access business, Smith noted, is cable-television operators. "But do I discount Google? Absolutely not," he said. "You'd be a fool to do that these days."

In retailing, Google has no interest in stocking and selling merchandise. Its potential impact is more subtle, yet still significant. Every store is a collection of goods, some items more profitable than others. But the less-profitable items may bring people into stores, where they also buy the high-margin offerings — one shelf, in effect, subsidizes another.

Search engines, combined with other technologies, have the potential to drive comparison shopping down to the shelf-by-shelf level.

Such services could lead to lower prices for consumers but also to relentless competition that threatens to break up existing businesses.

Challenging media

A newspaper or a magazine can be seen as a media store — a collection of news, entertainment and advertising delivered in a package. A tool such as Google News allows a reader or an advertiser to pick and choose, breaking up the package by splitting articles from ads. And Google's ads, tucked to the side of its search-engine results, are often a more efficient sales generator than print ads.

"Google represents a challenge to newspapers, to be sure," said Gary B. Pruitt, chief executive of The McClatchy Company, a chain of 12 newspapers including The Star Tribune in Minneapolis and The News & Observer in Raleigh, N.C. "Google is attacking the advertising base of newspapers."

At the same time, Google and search technology are becoming crucial to the health of newspapers as more readers migrate to the Web. As one path to the future, Pruitt speaks of his newspapers prospering by tailoring searches for local businesses, but also partnering with search engines to attract readers.

Breyer, the Wal-Mart board member, watches Google closely in his job as managing partner of Accel Partners, a venture-capital firm in California's Silicon Valley. These days, he advises startups to avoid a "collision course" with Google, just as he has long counseled fledgling companies to steer clear of Microsoft's stronghold in desktop software.

Internet search, like personal computing in its heyday, is a disruptive technology, he said, threatening traditional industries and opening the door to new ones. "We think there is plenty of opportunity for innovation in the Google economy," Breyer said.