September 19 2008 / by Mielle Sullivan
Category: Business & Work Year: General Rating: 9 Hot
Google has been the Golden City of Silicon Valley and indeed the whole world wide web for the past several years. The savvy start-up that grew from a garage in Menlo Park to one of the biggest companies in the world in less than a decade is not only a business wunderkind, but a cultural icon whose name has become a verb for finding information on the Internet. Yet as Google’s rise to fame attests, the Internet is a fast and fickle place where a good new idea can change everything.
In a recent interview with Mad Money host Jim Cramer, Google CEO Eric Schmidt said that Google can avoid the flat-line in growth that eventually plagued it’s high tech giant predecessors IBM & Microsoft. Google will accomplish this, Schmidt says, through increasingly targeted advertising, breaking into new businesses and keeping to the mantra of not being “evil.”
Is this a realistic forecast? Can its very size and success be a detriment to Google’s innovation? Can it really conquer new markets? Though the company’s stock has consistently outperformed expectations and grew an impressive 26% last quarter, there are some tell-tale signs that Google’s empire is not immune to the forces of time or economics.
Innovation by Acquisition: By Schmidt’s own admission, Google will need to innovate at a high rate to remain competitive. The company has released several products in the last few years including Gmail, Google Earth, Google Docs (which I am using to type this article), Google Calendar, Knol, and most recently its web browser Chrome. But much, if not the bulk, of the company’s innovation has been generated through acquisitions. While many of the purchases have been a big boon for Google, i.e. DoubleClick is estimated to have brought in $90 million dollars for Google last year, several of the innovative companies acquired have mysteriously entered the ever widening Google black hole. Jaiku, a twitter-like micro-blogging company was purchased in October of 2007 and is still closed to new users. GrandCentral a site the allows you integrate all your phone numbers and voicemail boxes into one account, accessible from the web, had a markedly similar fate. Even Blogger, once the king of blogs, has withered from lack of development and upgrading since being acquired. It now seems doomed to forever live in the shadow of it’s successors Wordpress and Movable Type.
A quick look at this comprehensive list of Google’s acquisitions reveals many great ideas that either are dead in the black hole, being developed by Google, or in use but just not being promoted. It’s hard to say which, but considering how old some of these acquisitions are and how quickly the Internet world moves, even in the best case scenario of “development” Google is proving it simply hasn’t been able integrate and develop it’s acquisitions quickly enough.
Scaling New Innovation, Or Not: The problems with Google’s start-up purchases strikes at the core of Google’s innovation shortcomings. First, many of the best new web ideas in the last few years have come from start-ups – not from Google, so it has to buy up little companies to keep the best new ideas coming in. This is to be expected. No one company can come up with all the new ideas. But it does illustrate that Google does depend, and in fact must compete with, start-ups for innovation. Just like Microsoft, it is not above such competition, as a few of Schmidt’s comments and Google’s general “we can do anything” attitude, may reflect. Second, it hasn’t been able to figure out how to quickly integrate and develop its acquisitions so that they can gain or retain prominence. Why can’t they be integrated more quickly? Why buy a company and then sit on it for several months to a year, or longer? Surely Google does not need to be told how quickly Internet culture moves. Yet it has repeatedly delayed scaling it’s acquisitions in their own right (with the notable exception of YouTube).
The Google Hole:In some cases, Google appears to be acquiring the personal talents of the creators rather than an actual company and, in some others, aspects of an acquisition are merged into a service it already offers. This is all reasonable. However, it does not adequately explain all the apparent disappearances of companies inside Google. Most likely, integration is just very difficult at Google and unless it is made top priority, as it was with YouTube, it takes a long time and too many resources. In other words, Google is suffering due to the complexity inherent in a large corporate structure. Unfortunately, the gravity of this internal infrastructure will probably continue to suck the vitality out of ideas both born within Google those acquired. From scratch, Google is unlikely to ever be the source of much revolutionary technology.
The Mobile Search Market: Google also believes it can eventually make more money from mobile search than it does from desktop search. There are many more mobile users world wide, over 2.7 billion world wide compared to about 900 Million desktop users and this is estimated to grow at 11% this year. Smartphones (phones that can be used for searching) are expected to account for about 15% of the global sales of handsets this year, reaching 65% of sales by 2012. This means there could be over a billion smartphone users by 2012. If indeed Google maintains its approx 67% share of the global search market, that’s 670 million mobile searchers.
Schmidt is right to point out that mobile search will be more targeted because people take their phones with them everywhere and more targeted ads mean even more money for Google than desktop search. But, once again, Google’s attempts to lock itself into the mobile market in a meaningful way have been at a glacier’s pace. The much hyped Android, a mobile phone software platform by Google, still isn’t out yet. It was scheduled to be released in mid-August, then mid-September and now will only see the light of day “by the end of the year.” And Google acquired Android in 2005!
Privacy Issues as a Growth Inhibitor: Google says its specialty is measurable, targeted advertising. If its growth is to continue at such a high rate, especially as it moves into mobile search and other markets, Google will need to develop more and more targeted advertising. This means gathering more and more data about it’s users. So far, privacy concerns remain in the background of general public opinion about Google, but eventually the collection of so much data could lead to a backlash against the company. As Schmidt says, “You carry your mobile phone everywhere, it knows all about you.” Now that’s a little creepy – it’s an admission that Google intends to track all the movements and activities of it’s mobile customers. Also, as an avid user of Gmail, I am less than thrilled the ads it displays to me are “personalized” because bots read through my email.
Just think about it. Google could eventually possess all my email, search history and a record of all the places I have taken its mobile device. That’s an unprecedented amount of information for any one organization to have about an individual. We put up with this as consumers because the convenience is so great and we have no idea how to combat the accumulation of our personal information. Most of us aren’t even sure how exactly the technology assembles the information. But it’s conceivable that one or a few aggravating events, such as the misuse or hacking of our data could quickly sway public opinion and hurt Google’s market share.
Relevance of the Algorithm: As good as Google’s algorithm is at helping us find information, it is far from perfect. Searching with any traditional search engine, including Google’s, still returns a lot of irrelevant information to sort through. Enter the semantic web. New services like Twine promise to bring more relevant, more powerful searches that could compete with Google. If the semantic web does indeed turn the web into a giant database as Nova Spivak, Kevin Kelly and world wide web creator Tim Berners-Lee say it will, I think it is valid to question whether or not Google’s search algorithm will retain its relevance. For all Google’s golden glory, it is still very much a web 1.0 service. The semantic web will change the landscape and though Google has purchased a few start-ups specializing in semantization, it yet again seems that very little of that technology has been put to use yet.
Conclusion: I don’t mean to suggest Google is on a downward spiral. The company will continue to grow for the next few years, and probably continue to be a huge player on the Internet for at least the next several. It is a proven leader in the digitization and organization of information. It has made big advances in the retroquant industry, a potential multi-billion dollar market. It is bolstered by the expansion of online advertising, which is growing at 20% a year. The Internet remains a frontier for advertising. This is all very good news for Google.
But underneath the obvious success and growth opportunities reside the company’s not so obvious shortcomings. Though Google is not the one trick pony Microsoft CEO, Steve Balmer, claimed, it is also not a leader in innovation – Perhaps the reality is that no big company can lead innovation.- Google has also not proven itself all that competent at breaking into new markets except, perhaps, for retroquant. We are already seeing the inevitable slowing of Google’s organic growth. Eventually it will face the same forces IBM and Microsoft had to confront: competition from a newer generation of more innovative companies, a fading of its golden reputation, potential consumer backlash, and an evolving cultural and technological landscape. Due to its successful track record and brand recognition Google is unlikely to collapse in on itself, but it can’t do everything either; the company should learn from its own lesson and leave the bulk of the innovating to hungry, independent little start-ups.