Wednesday 2 December 2009

Luxury Briefing: Google vs LVMH

Google vs. LVMH, by Alexander Gallé, is a column published originally in Luxury Briefing's December 2009 edition.

Google vs. LVMH
by Alexander Gallé

2009 will be remembered as the year luxury giants piled up the lawsuits against the internet giants. First came eBay, then Google.

In a recent column, I took eBay's side in the ebay vs. LVMH case, presenting eBay as a modern-day saviour of the free market system, the very thing that ensured the success of the luxury industry to begin with. Some readers responded that the basic flaw of the free market is that it only works in a 'perfect information' environment. Simply put, the point made is that true demand / supply equilibrium can only be achieved when consumers have all the information about the options at hand. This has long been the ground for accusations made against the advertising industry: that it distorts the information presented to the consumer.

In this column, I argue that what is true for goods and services is equally true for information: a free market in information ensures near-perfect information, much in the way that the free market ensures a near-perfect match between the supply of goods and services and what people actually want.

Let's imagine, for example, that a documentary comes out explaining some horrible method of producing everyone's favourite food. Having watched the documentary, opponents of the free market will immediately call for tough regulation to ensure new standards in food production.

What they are forgetting, however, is that the documentary itself is a product of free entreprise: a producer sees an opportunity to produce a documentary that everyone will want to watch - which means he will sell it to many TV channels and get a high return on his investment - and invests in getting the best possible information to make his case, invests in cameras, cameramen, etc. The documentary is made, lots of people see it and make up their own minds as to whether they still want to consume their favourite food. The market in everyone's favourite food is then adjusted accordingly. Problem solved.

Of course, not every product or service on the market deserves a documentary. Some things just require lots of press articles, or academic papers, or opinion pieces, or blogs, or other forms of cheaply-produced information. As the free market, via the web, supplies all this information, we find that some of it is very valuable, and some of it less so. A measure of information value is called for. That measure is relevance.

Enter Google: the search engine that ensures the highest possible relevance in relation to consumers' information requests.

A quick description of Google's services. Google has turned the web into a questions-and-answers medium. Users type a question in the form of keywords, and they receive an answer in the form of links to various websites that all claim to address the subject of enquiry.

Google's way of measuring relevance is two-fold.

First, the website publisher makes a claim in his website's meta-data that it is about a particular subject, by attaching keywords to it. Google measures the frequency of said keywords in relation to the website's actual content. If this frequency is high, the site is deemed more relevant.

Second, the website is linked to by other websites, by other people who find its content useful or interesting. Google values this type of relevance the way an academic paper is valued when many people refer to it in their own work: the more people quote you, the more important you become. According to Google, the more people link to you, the more important you become.

The usefulness of this method of sorting has proven itself by the very fact that Google became, without advertising or substantial PR activity, the preferred search-engine for hundreds of millions of web users. You only have to cast your mind back to the mid-to-late 90s - the pre-Google era - to see the value of this service, which is provided to the world in unlimited quantities entirely free.

Now, Google operates in a free market. Just as we do not expect bakers and butchers to provide bread and meat out of some charitable sense of duty to society, we do not expect Google to do this work unpaid either. Google's source of income is in the paid-for search results. Google makes no claim that this information is not paid for: the paid-for search results are separated, and highlighted in a different colour to the rest of the algorythm-generated content. It is, in other words, not Google undermining the integrity of the information by telling you this paid-for information is relevant to the keywords you entered, but the people who paid for it.

LVMH are now suing Google because some of the (mostly paid-for) search results come from vendors of counterfeit goods. But suing Google is suing the messenger, or the postal company, who delivered a letter with bad news. If LVMH is in the mood for suing, let them sue the people who paid for the keywords. If their claim is that there are too many to monitor, let them create their own search engine to track them all: the data is as accessible to them as it is to Google. They may not even need to do much of the tracking work themselves: if they think consumers are up for denouncing the vendors of counterfeit goods, let them create a simple peer-to-peer network that will enable consumers to report the vendors.

This will ensure that the information - the vital ingredient that ensures market recognition of the superior quality claimed by LVMH and other luxury brands - remains free-flowing and, of course, near-perfect. |