Ken Auletta - Googled - The End of the World as We Know It

Schmidt also believed that Google’s Android investment would produce many more Google searches and provide opportunities to play a dominant role in all portable devices. He remained bullish that cloud computing would take off, particularly with the advent of four-hundred-dollar (and dropping) netbook laptops that could be powered by Android and store their data in a Google server rather than Windows. Between YouTube, Android, and cloud computing and its Chrome browser, Schmidt remained hopeful that Google was still on its way to becoming the first hundred-billion-dollar media company.

For its employees, Google did something else that defied the bleak economic times. The company had awarded a total of $1.1 billion in stock-based compensation in 2008; by the end of the year, those stock options had declined below the current Google stock price. So Google announced that any employee whose stock options were “underwater”-priced above the value of Google’s stock price as of March 6, 2009-was eligible to exchange this stock for new options pegged to the March 6 price. Although the founders and Schmidt declined to partake, this generous bailout cost the company $400 million. Google reported that 93 percent of employees exchanged their old options for new ones priced at $308.57. It was a magnanimous gesture, and also a way for Google to keep valued members of its team from fleeing to a start-up. Many on Wall Street saw Google’s repricing-Google was not the only company to do this-through another prism, as if Google were unfairly granting employees a benefit denied other shareholders.

Asked in April 2009 what he considered Google’s biggest accomplishment of the past six months, Eric Schmidt said: “Our safe landing. We want to be the least affected by the recession.” There was evidence that Google succeeded. Although it experienced its first quarter-to-quarter revenue decline since going public in 2004, its net income rose 8 percent in the first quarter of 2009; new cost controls sliced expenses by more than two hundred million dollars, and its profit margin swelled to 39.2 percent. Its 2009 revenues were projected to drop by 31 percent over the prior year, but were still projected to grow by 4 percent.

What gave Schmidt more angst was the management upheaval that loomed ahead. With a number of relatively young senior executives blocking the upward path of the next tier, what happened with Sheryl Sandberg was happening with others. In February, Tim Armstrong, thirty-eight, announced that he was leaving to become CEO of AOL. A popular figure at Google,with salesmanship and people skills that are uncommon at engineering companies, Armstrong’s departure was widely mourned. Soon after, Singh Cassidy, who also reported to Omid Kordestani and supervised business in Latin America and the Asia-Pacific region, also left. In April, Kordestani, the company’s longtime sales chief, stepped aside to become a senior adviser to Schmidt and the founders. He was succeeded by the president of international operations, Nikesh Arora.

Google was not accustomed to such management turnovers. But Schmidt knew he was sitting atop a bigger management powder keg. With the development of Android, and the ambition to expand to provide the operating system for not just mobile phones but also the new generation of lightweight, low-cost netbook laptops, Google was on a collision course with Apple. This risked turmoil at the most senior levels of Google. “Because it is open source, Android is a horizontal system,” explained a senior Google official. “It is not devoted to any one hardware supplier. Apple is a vertical system that serves one supplier”-Apple. Already, as we’ve seen, Schmidt awkwardly left the Apple boardroom during iPhone discussions. By the summer of 2009, Schmidt and Jobs agreed the situation was untenable because, as Jobs said in a statement released to the press, “he will have to recuse himself from even larger portions of our meetings due to potential conflicts of interest.” Schmidt resigned. Arthur Levinson, who is on both boards, will probably have to choose between them, as will Al Gore. Most disruptive of all, Coach Campbell, the colead director at Apple and almost a brother to Steve Jobs, has told friends he would regretfully choose to sever his ties to Google. Tensions between Apple and Google were simmering. By the end of 2009, it was likely they would come to a boil.

Media companies can be divided into two broad categories: the few who create waves, and the many who ride them-or drown. The elite companies that generate waves are rare, the wave riders common. A company can be successful-Cisco, Dell, Oracle-yet not fundamentally alter the behavior of consumers or other companies. Dell’s approach to efficiently making computers was an innovation, not a disrupter; it did not alter the way consumers behave. Steve Jobs and Apple are wave makers; companies like Dell-or Quincy Smith’s CBS and Irwin Gotlieb’s GroupM-attempt to ride the wave; newspapers crash into them. The Apple wave started with the Apple II, which launched the PC era in 1977; followed in 1984 by the Macintosh, with its innovative graphical user interface; followed by Pixar studios, which transformed movie animation; followed by the iPod and iTunes and the iPhone. It’s probably safe to say that Intel and HP created waves. Ditto Amazon. There are those who say Microsoft doesn’t qualify because it rode the waves others invented, but it is inarguable that it has thrived for three decades and changed computing. It is much too soon to know whether companies like Facebook, YouTube, Twitter, or Wikipedia will have a lasting impact.

It is not too early, however, to call Google a wave maker. The planet has been Googled, with the company becoming, as Larry Page has said, “part of people’s lives, like brushing their teeth.” Google has eliminated barriers to finding information and knowledge. “The Internet,” Hal Varian said, “makes information available. Google makes information accessible.” The Google wave has crashed into entire industries: advertising, newspapers, book publishing, television, telephones, movies, software or hardware makers. Its power is measured by the companies that fear it and the public that adores it. Google has fostered the growth of the Web by nurturing Web sites with its AdSense and AdWords programs, which have delivered advertising dollars and enabled small businesses to reach new customers. Google’s way of building its business-make it free and attract users before figuring out a way to make money-became the template for Web start-ups from Facebook to YouTube to Twitter to Ning. Google is responsible for creating an entire new industry of search marketers and search optimizers who gather by the thousands several times a year under the umbrella of Search Engine Strategies (SES); these companies set out to outwit Google’s algorithms so they can advise companies how to jump to the top of search or advertising results. Google has created a new model for an innovative business culture. Its search results provide a graph of our times, revealing which subjects preoccupy us; by studying search data on Google Trends, economists believe they can spot trends and better predict consumer behavior. By making information available, Google has facilitated political participation, as YouTube demonstrated throughout the 2008 presidential campaign. It has made institutions, from governments to corporations, more transparent. And with its open-source Android phone and cloud computing and YouTube and DoubleClick, it threatens to extend its considerable reach.

“Fifteen to twenty years ago, entrepreneurs would have said, ‘I want to be the next Bill Gates and Microsoft,’” Michael Moritz said. “Today people’s great ambition is to be the next Google. They went from zero to twenty billion dollars in revenues in four hundred weeks! Google has become the front door to the world for many people, the place they go for information. They are probably the most visible service concocted by mankind. Was Henry Ford more recognized in 1925? I doubt it. Because of the Internet, Google has leapt geographical boundaries.” Perhaps the only company visible to more of the planet’s occupants, he guesses, is Coca-Cola.