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Now What?: Google, Finally a Public Company, Faces Huge Challenges, So of Course Bob Tells Them What to Do

Status: [CLOSED]
By Robert X. Cringely
bob@cringely.com

In one of the most agonizing Initial Public Offerings ever, Google, by far the dominant Internet search company, is finally public. Now what? While the usual pundits argue about whether Google's founders should have talked to Playboy, or whether they sold enough (or too much) of their personal shares, or whether the price was too high or too low, or those unregistered shares should get Google in trouble, I'd prefer to think about the future. What's next for Google?

The company is incredibly secretive, a characteristic that I believe comes from nothing more than micromanagement and being overwhelmed. Try to get an interview with Larry Page and Sergey Brin, and you'll see how it is. I've tried and failed, and it isn't because they aren't nice folks or because I'm not nice, either (I did the Google founders' first-ever TV interview on the same day I did the first-ever TV interview of Linus Torvalds). Heck, if I can't get an interview, hardly anyone can get an interview. The problem is that the company has built layers and layers of folks who aren't allowed to make any decisions. That feels like delegation, but isn't. Microsoft's Steve Ballmer, for example, gives his PR department a certain number of his hours per month when he works for them. During that time, they can have him talk to Newsweek, Bob Cringely, or Mad Magazine, he doesn't care as long as they don't go over their time allocation. I can get an interview with Steve Ballmer because they don't have to ask him. But that's not true of Sergey or Larry (or more precisely, Larry and Sergey, since I believe Page has the stronger hand).

We've seen this kind of behavior before from another pair of Stanford grad students, Jerry Yang and David Filo at Yahoo, who set a standard for strong founders and are probably something of role models for Page and Brin. But eventually the Yahoo founders figured-out that all aspects of business couldn't be reduced to an algorithm, and being the biggest brain in the room didn't always make you the best decision maker. The Google founders have yet to learn that lesson, but they will. The great thing about guys like these is they tend not to make the same mistakes more than twice.

There's an interesting effect here that I've noticed over the years -- smart people don't make the same mistake twice while REALLY SMART people don't make the same mistake three times. Since they tend to make fewer mistakes to start with, really smart people tend to repeat the mistakes they do make because they are initially convinced that the outcome was someone else's fault or perhaps because of cosmic rays.

Back to Google. They are secretive and because they are secretive, the Google IPO prospectus said precisely NOTHING about what they plan to do with all that money -- $1.2 billion plus the $550 million they had in the mattress already. What's the plan? What amazes me most is how little investors seemed to care, driving Google stock up 18 percent on its first day (which is good) on no real news at all (which is bad). It all feels to me like those girls I knew in college who spent their senior years planning weddings yet had no idea what would be happening the day after the honeymoon.

I'm just guessing now, but my guess is that there is a plan, which ought to be reassuring to all those new shareholders. And that plan ought to include extending Google into other related businesses. Google has been incredibly successful at generating revenue from its search business, but there are limits both to the size of the searching market and the patience of Google advertisers, some of whom have told me they aren't getting as much for their money as they'd like. Buy a few Google ad words and you'll see what they mean. Unless you are VERY careful you can quickly blow your budget by getting lots of hits that convert into very few sales. For as big as it is, Google still represents less than one percent of the total advertising market meaning, that it is making for the most part mad money -- money that advertisers are willing to lose in order to come to understand whether this is a fertile area that deserves more investment. If advertisers decide that buying ad words really isn't the way to go, then the ad word business will cease to grow. And that's the biggest reason why Google needs an expansion (really a diversification) strategy.

The second reason Google needs to grow is because they have become a target. Any billion dollar market involving IT is one that Microsoft wants to own, for example. And Yahoo, which shares a VC and a board member with Google in Sequoia Capital's Mike Moritz, now probably sees Google as their greatest single threat. Look for Moritz to make a choice soon about which board he really wants to be on. These aren't the only Google competitors, just the biggest. And the logical response to competition is to compete, so I'd expect Google won't be avoiding possible areas of conflict with both those companies. This doesn't mean that Google will attempt to become a portal in the Yahoo mold or they'll be starting a cable TV network like Microsoft, but anything that either of those companies does involving searching, Google will be doing too.

Google's strengths are its technology, its brand recognition, its current status as a stem cell of Internet business, and of course there's that $1.75 billion. Look for the company to accelerate its acquisition pace with a strong emphasis on acquiring smaller companies with interesting technologies. Don't expect any big mergers for Google. And don't expect them, either, to use much if any of that cash since another benefit of going public is they can now buy companies with stock. The cash won't be used for expansion, won't be used to cover necessary losses as the company enters new fields, it will be used as a get-out-of-jail-free fund in case Google stumbles and needs to reinvent itself. That's the Microsoft model of cash management, by the way, and was actually invented by David Packard of HP back in the 1960s.

Whatever the company does will be incredibly technical because that's their greatest strength. Remember, Google's CEO is Eric Schmidt, who used to be Chief Scientist at Sun Microsystems, so technology doesn't scare these guys. In fact, they prefer it because machines are more predictable than people, as Schmidt learned when he tried to turn around Novell. THAT's why Google is cut from whole cloth with every new hire chosen to be of the body.

The key to making money in search is to get between people and what they are searching for, and that's where Google is on a collision course not only with Microsoft and Yahoo, but also with Amazon and eBay. Amazon is vulnerable to the Googlization of all the millions of retailers who aren't running Amazon storefronts just as eBay is vulnerable to the Googlization of auctions where localization, pricing, and seller fees can all be improved.

But wait, there's more! What about GoogleMedia? Find all the pictures, video, and music, then create a marketplace for it. I'm not just talking about taking on iTunes, though that is a logical possibility. I'm talking about new ways of buying and selling all types of intellectual property. And given this week's court decision against the movie studios and in favor of Grokster et al, that could even come to include GoogleMovies. But any system for buying pictures to put in your term paper also requires a means to pay for it. So expect either a GooglePal or more likely an alliance with some established financial institution already convinced that PayPal must die.

Since most Internet outfits don't think more than 24 months into the future -- not even Google -- that's enough from me for now. The announcements should start happening soon.

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