Why I worry about Googleā¦
- 23 May 06, 01:15 PM
I went to Googleās āZeitgeistā conference for its European business partners yesterday. The non-business highlight was that the England team were in the same hotel and David Beckham wandered into the reception in his kit! For the record his metatarsals looked in great form...
The business highlight: here is an anecdote told by , the CEO, about how they came up with their world beating online ad system (which is destroying everybody elseās business model of advertising day by day):
āLarry Page was stapling spreadsheet printouts to a whiteboard one Friday afternoon...
...and wrote in larryscript ā āWhatās wrong with these ads?ā The problem was they were not getting enough response. People started writing comments on the printouts as they went past and I thought, thatās interesting. By Saturday night we got an email from a [software] engineer who does not work on the ad side, saying: āI have figured out a new algorithm for the ad system and I have implemented it. I hope Larry is pleased.ā
It is innovation at a lightning pace, with all the traditional corporate barriers missing, that characterises this company: and the fact that it is innovating in a space it has more or less invented means it is able to branch out unpredictably: there are whole sectors of commerce, advertising, publishing, even online finance that fear their proverbial chips are about to be over-vinegared by some unsuspected invention at Googleās Mountain View HQ. That is what has made Googleās share price ā and it is not what worries me.
What worries me is Larry Pageās response to this anecdote. , if you have never seen him, can give off an air of public diffidence that is often found among software geniuses and not highly valued among global top 100 executives. Larry simply looked surprised and said āI donāt remember that at allā. Of course the whole double act between āhard-headed Ericā and āgenius Larryā is meant partially ironically ā but if he really does not remember, and the companyās innovation path is really random, unknowable and ungovernable, that would be a problem.
Googleās growth strategy is, as publicly stated, to move its advertising model into ever wider sectors of the ad market (TV, radio etc) and to set up development teams in more countries (100 in a year was the target discussed yesterday). At the same time to innovate behind closed doors on a massive scale. Its main challenge is to keep track of the rate of innovation and roll it out as products.
Why, I asked them, donāt they do what pharmaceutical companies do, and make the āpipelineā of innovation public? The reason this is important is, someday Google will run into other competitors, or regulation, that makes it hard simply to grow by replication: the innovation has to continue and has to underpin the expected growth that is driving its share price.
Hereās what they said:
Eric: āThis is why we talk about our development model ā which is 70% project time goes into core search technology, 20% individual project time for the key engineers. We made a specific decision not to talk about our development pipeline as such because we didnāt see the competitive advantage ā and we saw competitive disadvantage. We are not about stock price we are not about projecting we are about innovationā¦ā
Larry: āAnd itās gonna be hard to value. In the medical case they have small number of big projects, numbering 100m dollars each. In our case we have three person budgets ā itās not easy even for us to value them.ā
Me: āThe market would value them.ā
Eric: āWe are not focused on the market value we are focused on the end-user innovation package. We deliberately do not alter, manipulate or simulate the launch paln ā we roll out when weāre ready, sometimes weāre too optimistic, sometimes too pessimisticā¦.
So Google is a company whose bosses refuse to predict how it will grow through innovation; have an untransparent pipeline of innovation (if you discount the Google Beta programme, which is of course huge but already known); who can joke publicly about not remembering how it was that they came up with a world-beating piece of code; whose known growth model is therefore primarily replication.
The future of Googleās unknown (unknowable?) pipeline depends on recruiting what they call in America āraw smartsā ā bright young people who donāt know the meaning of āyou canāt do thatā. That, if truth be told, is their innovation strategy longterm. Most people recruited at that age in other companies are trained in a positive but narrowly defined set of values by their corporation: Google by definition just has to keep them creative and get the value out of that. There is a risk that like will recruit like: that if the next big innovation is to be found via the 10% free time of a bunch of geeks, you might recruit the wrong sort of geek and miss it. Like an indigenous tribe that does not marry outside often enough, entropy sets in. (And I mean this in ).
If this were a normal company there would be a lot of outsiders worried about this, because there is no way of shareholders knowing adequately how to price the future risks and rewards of the innovation path: basically part of Googleās market share or profits in 2010 may rely on somebody currently sitting their school examsā¦in Hyderabad. The future growth factored into Googleās share price is basically a bet that they can recruit the right kind of people and commercialise their ideas, somewhere adjacent to their core business model of selling ads against search results.
But Google is not a normal company: its two-tier share structure means the people really in charge are Eric, Larry and co-founder Sergei Brin. It is a part-public company that acts like a private one under the control of its majority shareholders. One thing I worry about is whether they can keep this going: it is not unusual in the media world ā but it is a model under pressure from institutional shareholders.
I came away from the Zeitgeist event worried about another thing: not the shareholders; but the competitors ā whether the whole world of business has really understood what a powerful beast Eric/Larry/Sergei have created. And whether anybody in the same markets has the same absence of internal barriers to creativity.
Basically can anyone compete with them? The sheer number of suits from IT and media megacorporations there to pay homage at the court of Eric and Larry suggests the mood of āif you canāt beat em join emā is prevalent in the world of noughts and ones.
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The internet can change at an amazing speed. Only a few years ago, blogs were unknown, as were sites such as Myspace and Flickr. They've grown from nothing to having millions on members on less than half a decade. The next 'Google' could knock the current one of their perch if they create the thing which everyone wants and not sell out to one of the media big boys. Most of Googles other projects, apart from Gmail, have not had nearly as much success as the search function and Adsense; they are not invincible.
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I think you also mean "inbreeding" (as well as "entropy").
Lots of geeks, all the same age and background ...
mmm.
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Maybe I'm missing something but I can't see what the problem is. So what if the market can't value Google properly or people have to risk their money? Isn't risk just part of doing business (let's coin a phrase: Risk 2.0!)?
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I've never heard anyone say, "raw smarts." Also a typo, "paln." But it's a good article.
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Paul Mason from New Zealand?
This is somewhat off topic but I've been Googleing (sp)? Trying to find a friend from the mid 1960s.
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How do you post a complaint on google, you tube or any other site about a company??
What do people do and who do they contact???????
I DESPERATELY NEED TO KNOW HOW TO DO THIS!
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Jean, do you mean in Google's results? If a result is wrong, speak to the webmaster of the offending site. On YouTube, look at the policies section.
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