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Why I worry about Google…

• Paul Mason
• 23 May 06, 01:15 PM

I went to Google’s “Zeitgeist� 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 else’s business model of advertising day by day):

“Larry Page was stapling spreadsheet printouts to a whiteboard one Friday afternoon...

...and wrote in larryscript – ‘What’s wrong with these ads?’ The problem was they were not getting enough response. People started writing comments on the printouts as they went past and I thought, that’s interesting. By Saturday night we got an email from a [software] engineer who does not work on the ad side, saying: ‘I have figured out a new algorithm for the ad system and I have implemented it. I hope Larry is pleased.�

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 Google’s Mountain View HQ. That is what has made Google’s share price – and it is not what worries me.

What worries me is Larry Page’s 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 “I don’t remember that at all�. Of course the whole double act between “hard-headed Eric� and “genius Larry� is meant partially ironically – but if he really does not remember, and the company’s innovation path is really random, unknowable and ungovernable, that would be a problem.

Google’s 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, don’t they do what pharmaceutical companies do, and make the “pipeline� 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.

Here’s what they said:

Eric: “This is why we talk about our development model – 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 didn’t see the competitive advantage – and we saw competitive disadvantage. We are not about stock price we are not about projecting we are about innovation…�

Larry: “And it’s 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 – it’s not easy even for us to value them.�

Me: “The market would value them.�

Eric: “We 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 – we roll out when we’re ready, sometimes we’re too optimistic, sometimes too pessimistic….

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 Google’s unknown (unknowable?) pipeline depends on recruiting what they call in America “raw smarts� – bright young people who don’t know the meaning of “you can’t do that�. 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 Google’s market share or profits in 2010 may rely on somebody currently sitting their school exams…in Hyderabad. The future growth factored into Google’s 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 – 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 – 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 “if you can’t beat em join em� is prevalent in the world of noughts and ones.