Black swans never land where you're expecting them.
Have you heard of Shmoogle? I only learned about it recently. That's what people inside Google called the scenario in which a competitor shows up and eats their search business. It sounds funny, but it was a very real and very serious project.
Here's how it went. Google modeled the threat.
They pictured it roughly like this. Somewhere in a garage, two programmers come up with a new search algorithm. The results are so much better than Google's that the first user immediately sends the link to friends. They try it and start recommending it too. A few months later, Google is screwed.
For Page and Brin, there was nothing far-fetched about this. They had done exactly the same thing themselves: a university project, a first office in a garage, and a search engine that crushed competitors with money, staff and users. So they imagined the next threat the same way: somewhere out there, fanatics just like them were preparing the next breakthrough.
The name is funny, of course, but Google defended its business in deadly earnest.
The antitrust case files include a 2009 presentation called Bing Response. It literally lays out the answer to a virtual competitor: what to fix this week, what to launch within a month, what to have ready by the end of the summer. Later, engineers separately studied Bing's speed, comparing how fast results loaded and how it performed on different devices.
At the same time, Google paid huge sums to Apple, Mozilla and other partners to stay the default search engine. How huge? $26 billion in 2021 alone. So much for the funny Shmoogle.
All in all, it looked like this kind of protection could handle a dozen Shmoogles. A new search engine would have to beat Google on quality, speed and accuracy, break users' habits, earn trust in its brand, and so on.
While I was reading about this, I remembered a conversation.
It was in early September. A friend of mine ran marketing at a big car-sharing company. I was sure we'd talk about competing with taxis. I even had something to add: I had recently taken taxis and rented cars myself.
But he told me something else.
When he took over marketing at the car-sharing company, he prepared for roughly what I had imagined: winning market share from taxis. In reality, the hourly car rental market in Moscow shrank by about 30%.
People started switching to the affordable metro and comfortable buses. Fuel got more expensive, people had less money, and public transport suddenly became the most rational option.
So pay attention here. He was looking for ways to take a bite out of the taxi market. Meanwhile, people decided that a car isn't all that convenient, and on top of that it's very expensive. Doesn't matter which kind: a taxi or an hourly rental.
The black swan flew in from a completely different direction.
The same thing happened to Google. The company was preparing for a search engine that would search better. What showed up was ChatGPT, where you don't need to search at all.
What's more, one of the key technologies was developed at Google itself. In 2017, its researchers published the paper "Attention Is All You Need," which described the transformer, the architecture GPT is built on.
See the irony? The company invested billions to protect its monopoly in search. It did so rationally, precisely and ruthlessly. And it still wasn't ready.
The deals with browsers and device makers helped Google be first wherever people wanted to search the internet. But suddenly it turned out you don't have to search at all: you can just ask a question in a chat and get an answer.
Because, as Taleb wrote, you can't predict a black swan.
How did Google respond to the new competitor? Well, we all remember.
In February 2023, Google introduced Bard. In a promotional example, the bot got a fact about the James Webb telescope wrong. Amid that mistake and investors' worries about competition with Microsoft, Alphabet lost about $100 billion in market value in a single day.
Today Google is an active player in the AI race, but answering the challenge took an enormous amount of resources.
My friend's story isn't over yet. The crisis continues, and the company still needs to double its growth.
Right now he's looking for cases where car sharing is genuinely better than both the metro and taxis. For example, when you need to stop at several places and pick up shopping. Several taxi rides get expensive, and on the metro you end up hauling bags through transfers. In that situation, renting a car has clear value.
Black swans will never appear where you expect them. Otherwise they'd be called something else.
You can't predict every disaster, but you can make your business less fragile. For example, don't keep all your eggs in one basket, make lots of small bets, and follow the so-called barbell strategy: protect most of your resources and put a small share into risky experiments with big upside.
Don't count on your customers ordering a taxi. They may not need to go anywhere at all.
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