Reference no: EM133287266

The latest estimates from ComScore suggest that almost two thirds of all searches are done via Google. Microsoft's Bing, the next highest competitor, has less than 20 percent of the searches. What accounts for Google's success in this business? One element of Google's success story comes from the cost side of the picture. Search has been called the ultimate scale driven business. Think about what a firm needs to compete in the search business. To convince people to use the search engine, it must be the case that when someone types in a term like "economies of scale," he or she gets back a reasonable set of sites. Likely, Google would want to make sure that the search picks up related terms, terms like "scale economies" or "economies to scale" or even "diseconomies of scale." Surely Google should also make sure the search accepts spelling mistakes.

Google was an early pioneer in the search business. How did that early lead interact with the fact of scale economies in Google's favor?

One of the more recent innovations in computer technology is called "cloud computing." With cloud computing, information and software are provided to computers on an "as-needed" basis, much like utilities are provided to homes and businesses. In 2018, Amazon and Microsoft were ranked number one and two in terms of size for cloud services providers. In a statement advocating the advantages of large, public cloud providers like Amazon.com over smaller enterprise data centers, James Hamilton, a vice president at Amazon claimed that "server, networking, and administration costs the average enterprise five to seven times what it costs a large provider."

Question 1: What does Hamilton's statement imply about the returns to scale in the cloud computing industry? Explain.

Question 2: What does it indicate about the size of the companies that will most likely dominate this industry in the long run?