Google’s Secret Sauce Revealed

Just like Coke protects its secret formula, Google does the same when it comes to Google’s algorithm. While I was at Google, they took every measure to protect secrets from entering or leaving the company. After all, another search engine is just one click away.

Hal Varian, Google’s chief economist, was asked a question. “How can we explain the fairly entrenched position of Google, even though the differences in search algorithms are now only recognizable at the margins? Is there some hidden network effect that makes it better for all of us to use the same search engine?”

The answer, at least in my opinion, is a much older economic concept called “learning by doing” that was first formalized by Nobel Laureate Kenneth Arrow back in 1962. It refers to the widely-observed phenomenon that the longer a company has been doing something, the better it gets at doing it.

Google has been searching the web for nearly 10 years, which is far longer than our major competitors. It’s not surprising that we’ve learned a lot about how to do this well. We’re constantly experimenting with new algorithms. Those that offer an improvement get rolled into the production version; the others go back to the drawing board for refinement.

So I would argue that Google really does have a better product than the competition — not because we have more or better ingredients, but because we have better recipes. And we are continuously improving those recipes precisely because we know the competition is only a click away. We can’t fall back on economies of scale, or switching costs, or network effects, to isolate us from the competition. The only thing we can do is work as hard as we can to keep our search quality better than that of the other engines.