Not needing Google: the web version of a “Wide Moat”

By , October 29, 2010

It has been with interest I’ve watched the discussions about being dropped from Google over the last day. It seems as if the Epik website network has been dropped from the search engine listings. I never really looked at Epik’s offerings, so I don’t have an opinion on it. I think Rob Monster generally has something intelligent to say in his blog. In any case, as one commenter put it:

guess that will send them into bankruptcy. Once google cans you its over.

And I thought, my god, what a horrible position to be in. The reason this topic is so relevant to me is because last week we realized here at the office that easyDNS had gotten delisted from Google for over a month! The amazing thing about it was that we didn’t even notice.

We got delisted because some code in our website was barfing behind the scenes. The pages were rendering in web browsers ok, but after the page loaded some included code was coughing up  a “500 Server error” http header with every page load (how embarassing!). Web spiders didn’t take too kindly to it, so after awhile we were gone from Google…and Bing.

We figured it out, we fixed it, and happily started re-appearing in Google within days. At this point we’re almost back to the search engine placement we were accustomed to, basically being the second search result after Wikipedia for some central keyword terms here in Canada, and being on the first page for those terms in the U.S.

So…why didn’t we go out of business last month?

As it happens, only about 10% of easyDNS’ traffic comes from search engines. And of that traffic, more than 80% of the searches that bring a user to our  website are “easydns”, “” or “easyDNS Technologies”. In other words, people hitting the website already knew where they are going by the time they got here.

At the risk of sounding self-congratulatory (not my intention), but this drove a key value investing point home for me. That of the “wide moat”. As I try to take the principals of value investing and apply them to new media segments some of the concepts reveal themselves to me within the context of my own “circle of competence”.

For example: Warren Buffet used the “moat” concept in situations like his Washington Post investment: it was the only newspaper in town; or Coca-Cola: even though the occasional eccentric like me will drive across town to the only place in Toronto that sells China Cola, nobody is going to put Coke out of business anytime soon, and no matter what happens people will keep drinking the stuff (or use it to clean their transmissions).

Out here on the Internet, companies like Verisign have a wide moat: they own the .com registry and from the looks of it, will do so in perpetuity. But what else does a moat look like in the absence of a pseudo monopoly? It means not being reliant on any single external entity for one’s success. The biggest one these days is Google.

If your entire business exists at the whim of  Google,  then I think you’re in the wrong business.

Over the years people have gone from gaming the search engines to becoming completely reliant on them, they end up putting more effort into SEO and SERPS than they put into the actual business products and services. It all becomes that horrid “marketing funnel” that drains value at every step of the way: clickthrough rate, opt-in rate, conversion rate, sellthrough rate, upsell rate, every trick in the book being employed to gain the slightest “edge” .

I have a friend in the US who is incessantly bugging me for “backlinks”, every time I tell him about a new website or blog I’ve started the first words out of his mouth are “well how about some links”, and I ask him why he’s still playing this game and he tells me “because it’s trench warfare, very competitive”.

When I look at a business that is competing for backlinks, trying to game the search algos or otherwise making it their singular goal to hit the top of Google, I am looking at a business that is not unique, not compelling, not adding value and has no moat. I’ll take a pass on investing in this type of company every time, regardless of much cash it’s spinning off at the moment.

These companies should be putting the same effort, and then some, into their core products and services. Make those compelling and add value and over time your moat starts to build itself.

Circling back to Epik, I almost hesitate to comment since I’m so unfamiliar with the product. I saw another comment that said “without Google, Epik is just another parking company” and I thought that was somewhat encouraging for them. Parking companies exist without their pages being in Google, yes, their golden era has past, but they are still here (and still sending me cheques every month)

Rob seems like a smart guy, and my advice to him would be to continue building out his product – worry about what he’s offering more and worry about how Google views it less. Don’t “play to Google” as a central tenet of your existence – if you want to live or die by Google then just sell everything you own and put it all into GOOG shares and then go wait for Google to decide your destiny. Otherwise, build your business as if Google didn’t exist. If you can successfully do that, then you are probably looking at a successful business with a wide moat.

It’s not for everybody, but that’s what works for me.

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