Google’s application with the Federal Energy Regulatory Commission to become an electricity marketer, reported in today’s Wall Street Journal, has some interesting parallels and carries important lessons about corporate strategy.
The company said its motive is to better manage energy supplies for its own operations, which some estimates suggest could require over a gigawatt of capacity today, and to gain greater access to renewable energy supplies, which would further its efforts to become carbon neutral.
Google’s focus on energy is strategic. And it suggests parallels with other corporate strategic moves that ran counter to conventional wisdom but ended up proving very shrewd. I have two examples. Perhaps you have others.
Example number one is Amazon.com. At the dawn of the e-commerce era, it was widely believed that the Internet was rendering bricks and mortar irrelevant to retail success. The Web browser was the competitive battle ground. Whoever could provide the best online experience would win the customer.
Amazon, meanwhile, plowed hundreds of millions of dollars into the development of sophisticated distribution centers to ensure it could provide a high-quality nationwide order fulfillment and delivery experience as well. Logistics and distribution, which had been a bit of a backwater industry and an afterthought for most online retailers, emerged as a competitive differentiator for Amazon. (As it is for Walmart off line). And having made such a substantial investment, Amazon created a major barrier to competition, one that was especially difficult to overcome when the capital markets turned against Internet ventures after 2000.
Example number two is Google itself. Among IT industry veterans it had been long accepted that with hardware costs on a perpetual downward trend, hardware was fundamentally a commodity; competitive advantage for vendors of end-user applications and tools lay in differentiated software.
Google showed the world that this was an oversimplification. Fueled by venture capital investments followed by a very rich initial public offering, Google has made staggering investments in its physical computing infrastructure (along with sophisticated competencies for managing that infrastructure). This allowed the company to set a new standard for search performance (and later the performance of a wide range of online tools) that would be impossible for all but the very richest competitors to match.
There is a parallel between Google’s focus on energy and these two stories. In all three cases, a resource believed to be a commodity emerged as a strategic weapon in the right hands. Many companies still give little more thought to their energy usage than they do to their water bill. But smart companies, especially those in energy-intensive businesses, recognize that energy is a strategic resource, not a commodity. And at companies of all types, even less energy-intensive ones, strategists would do well to revisit their assumptions about the sources of competitive advantage.