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

The Internet and its Google surrogate impose pressure on companies to simultaneously play both offense and defense. Jeff Zucker, CEO of NBC Universal, explained that to be a CEO in the digital age “feels incredibly exciting, and incredibly scary.” He is aware of how quickly businesses can collapse, as did Wang and Gateway and Compaq computer, and of the ups and downs of companies like Motorola or Sun or Yahoo. He is wary of too quickly embracing a fad, as CBS seems to have done when it invested in Joost, a free Web site offering licensed full-length TV programming. After winning coveted innovation awards-and the commensurate buzz-when it was introduced in 2007, today Joost stumbles and in mid-2009 exited the consumer video market. Zucker is aware of the danger of throwing overboard the wrong business, as the company that once owned the NBC network, RCA, did when it decided at the start of the seventies to abandon consumer electronics. Convinced that no new breakthroughs were possible in consumer electronic products, RCA stood still while Apple and Microsoft and Sony surged. “What we all worry about,” said Zucker, “is destroying value as we innovate. And not letting that paralyze you is really the pressure that I personally feel. The scariness is not that I’m going to miss an opportunity, but that the business model will be destroyed as we’re innovating.” The “Innovator’s Dilemma.”

Every media company is speculating on where the digital wave is heading and how to ride it. This much is clear about Google: the company has a big appetite. After I watched the 1,500-strong Google sales force gather at the Hilton in downtown San Francisco, I met Eric Schmidt in a hotel conference room. Pressed to describe Google’s growth strategy, he was jaw droppingly candid. “All large media companies are both distribution and content companies,” he said, and “we really are competing with the distribution” side of these companies. Google wants to be the agent that sells the ads on all distribution platforms, whether it is print, television, radio, or the Internet. To advertisers, he said, “We say, use us.” In addition, he said, “As our technology gets better, we will be able to replace some of their [large companies‘] internal captive sales forces. They are not doing that much work; they are not automated. So the eventual goal is, again, to replace some of these sales functions by automation.”

So Google will disintermediate the functions of these traditional media companies? Schmidt disputed the word, but not the effect: “Disinterme diation is not the correct word to use. It’s better sales technology.”

He thought mobile phones would probably be “a smaller target for us” because to get on those platforms Google would have to pay large fees and cede control to telephone companies. Perhaps the biggest future opportunity for Google, he said, was YouTube. “If that works,” he said of YouTube’s effort to sell advertising and, he admitted, to become a content company, “then that’s the creation of the equivalent of the CBS network in the 1950s. It’s the creation of both content and a monetization mechanism.”

Sergey Brin told me that it is Google’s willingness “to experiment,” to “take risks” and “innovate”-to do the bold things Schmidt described-that will continue to set Google apart. However, companies with large appetites can get fat. Marc Andreessen believes Google aims “to do everything,” but is dubious that they can succeed. Andreessen also believes that in the digital age, technology alters the competitive battlefield, just as it did in World War II. Germany in 1940, as New York University professor Clay Shirky points out in his provocative book Here Cornes Everybody, was not the invincible power “etched in communal memory” Germany teetered near bankruptcy; its army was smaller and its tanks were inferior to France ’s. So why did the German blitzkrieg succeed? Because its tanks were equipped with a technology the French tanks lacked: radios. These radios allowed Panzer commanders to share intelligence and make quick decisions, leaving French commanders standing still and guessing while German tanks moved in concert. Even if the French had radios, Shirky writes, the Germans held another advantage: “The French regarded tanks as a mobile platform for accompanying foot soldiers. The Germans, on the other hand, understood that the tank allowed for a new kind of fighting, a rapid style of attack…” The technology advantaged Germany, but so did a superior strategy that allowed Germany to prevail.

One morning in 2007, Joe Schoendorf was breakfasting at II Fornaio, the Palo Alto restaurant that serves as a Valley canteen. A burly, avuncular man with a prominent mustache, Schoendorf is a principal at the venture capital firm of Accel Partners, a primary backer of Facebook. In his more than forty years in Silicon Valley, Schoendorf has seen companies come and go, but he’s still humbled by the eye-blink speed of change. “If we were having breakfast in 1989, there was no Internet,” he said. “IBM was number one in the computer business. DEC and Ken Olsen were on the cover of BusinessWeek and the cover line was, ‘Can They Overtake IBM?’ If I said to you that DEC would go out of business, you’d think I was crazy.” Today, young associates tell him, “Old media is dead. Television and radio will become dinosaurs. Google is impregnable.” Schoendorf’s experience teaches him to be more cautious. He has witnessed the quick rise and fall of Lycos, Netscape, Excite. He has seen AOL go from Internet darling to a company few would buy. He respects Google’s prowess, but is wary of sweeping prognostications.

Robert Iger, the CEO of Disney, is equally humbled. When he was at ABC, he said, “I put America ’s Home Videos on the schedule. It was user-generated content. How come I didn’t envision YouTube?” In fairness to Iger, one could also ask: How come the New York Times or CBS didn’t invent CNN? How come Sports Illustrated didn’t start ESPN? How come AOL, which launched Instant Messenger, didn’t develop Facebook? How come IBM ceded software to Microsoft? No one knows with any certainty where the wave is headed. “Sometimes you have to guess,” said Bill Campbell, who recalled his experience at Intuit. “What you do-as happened at Intuit in 1998-is you say, ‘Let’s get five things and see what works.’ If two work, you have a home run. If three work, you double the stock.”

Was Barry Diller right when he said, “The world is moving towards direct selling-no middleman, no store”? Or is this the wishful thinking of an executive whose online enterprise would benefit if his prediction proved true? Or could one say that Google is itself a middleman because it brings together users and information, Web sites and advertisers? Was Irwin Gotlieb correct that consumers “will happily go along” with trading private information to advertisers in exchange for some free services or reduced charges? Will advertising succeed on social networks and YouTube? Will consumers opt to spend less on software by ceding storage (and control) of their data to Google’s cloud? Will younger generations raised in digital homes read books, and at what length? Is the Internet safe or is it vulnerable to hackers and viruses? Will the deep recession that commenced in 2008 prompt the Obama administration to become more of a digital cop, imposing new regulations, investing in broadband, strengthening or diluting antitrust oversight? And will this choke innovation, or enhance it?

Yossi Vardi, the Israeli entrepreneur whose company invented instant messaging, once spent three years trying to graph the future. The result was a presentation consisting of four hundred slides. He discarded the slides and substituted what he called Vardi’s Law: “If you need four hundred slides to explain it, it really means you don’t have a clue.” In fact, the questions are more apparent than the answers, and a central question that will profoundly shape the future of old and new media is this: Will users who have grown up with the Web pay for content they now get free?