Is Google as googly as they're cracked up to be?

Think Again: Google
By David A. Vise

In only eight years, the darling of the Internet world has rocketed to fame and fortune. Boasting users in every corner of the world, the popular search engine is the quintessential American success story. Yet it has begun to draw skepticism from Wall Street and the ire of human rights groups. Is Google really as kind, ubiquitous, and omnipotent as it seems?

“Google Is Truly Global”

Not really. Google is the gateway to the Internet for hundreds of millions of users worldwide. From Arabic to Zulu, the search engine can be used in more than 100 languages—even fake ones such as Esperanto and Klingon. In the United States, Google is the unquestionable market leader. It holds a commanding lead, with an estimated 48 percent of all Internet searches in early 2006, over rival Yahoo, which is used 22 percent of the time. Google is growing more rapidly than its major U.S. competitors, and it continues to develop new technologies to attract new users. In fact, you could even say that it’s on its way to becoming universal; Google Mars offers interactive maps of the Red Planet. As a brand whose name was officially listed as a verb in Webster’s Dictionary earlier this year, Google has entered Americans’ everyday lexicon.

But around the world, Google faces tough obstacles. In developing nations, the Web is inaccessible for all but a wealthy few. In technologically advanced countries, Google faces the emergence of government-backed rivals. The competition in Asia is especially fierce. In Japan, Yahoo leads the pack with its millions of registered e-mail users. The leading search engine in China is Baidu.com, which enjoys strong government support. And, though Google’s popularity in China is increasing, it can’t seem to gain any traction in nearby South Korea. There, the government has invested heavily in making high-speed Internet service widely available, as well as facilitated the creation of a number of domestic Web search firms that are the market leaders. Google has become so frustrated by its inability to crack the Korean consciousness that it has done the unthinkable—spent money to promote its brand name, something the online giant has rarely had to do anywhere else.

“Google Is the Next Microsoft”

Wrong. Talking heads like to say that Google is like Microsoft 20 years ago—a fledgling company led by young, iconoclastic engineers who aim to change the world with ubiquitous, innovative technologies. Critics of both companies think Google could eventually grow so large that, just like Microsoft, it will stomp on its competitors and strong-arm those that get in the way. As proof, they cite areas in which Mountain View has already managed to surpass Redmond. Google’s search engine leads both Microsoft’s and Yahoo’s in its number of users. In addition, Microsoft has lost more than a dozen of its best and brightest employees (including the former head of its China operations) to Google, which has set up its own outpost near Microsoft headquarters to attract defectors who don’t want to move from Seattle to Silicon Valley.

But those who fear that Google is aiming for world dominance forget one important fact: Though Google must compete against Microsoft, Microsoft never had a Microsoft to compete against. Microsoft’s deep pockets—more than $40 billion in cash—and its continued dominance of desktop computer operating systems have already forced Google to make a number of costly decisions that are hurting its bottom line. Google recently paid $1 billion to Time Warner for a 5 percent ownership stake in AOL. That defensive maneuver was driven entirely by Time Warner’s simultaneous negotiations with Microsoft, which was willing to pay big bucks to knock Google from its perch as AOL’s search engine of choice.

In addition, Google fears that Bill Gates will leverage the ubiquity of his operating system by embedding MSN Search in the next version of Windows for new computers. To keep Microsoft at bay, Google is paying millions of dollars to Dell, one of the largest PC manufacturers in the world, to make Google the default search engine on its new machines. Google may be a giant, but Microsoft is still many orders of magnitude bigger.

“Google Is the Most Inventive Force in the World”

Hardly. Google Desktop, Google Talk, Google Earth. These are just a few of the new, free products that Google has rolled out in the past couple years. There’s no question that the company has provided high-quality service and remained nimble and creative. But Google rarely comes up with new ideas; instead, it improves on the inventions of others. For starters, it was Yahoo that first rolled out a major directory of Internet sites in the 1990s. As the Web grew, AltaVista did the best job of any search engine by comprehensively crawling the entire Internet. Google did not invent the Internet search. Users flocked to Google because it did a superior job of ranking search results based on relevance, and returning those results in the blink of an eye.

Nor did Google create the pay-per-click advertising model that earned it more than $6 billion in Internet advertising revenue last year, roughly half of all the money spent by advertisers online in 2005. That pay-per-click model was created by a company called Overture, which was eventually acquired by Yahoo. Once again, Google improved upon what came before it. Whereas Overture sold premium placement of text ads alongside search results based on how much an advertiser was willing to pay, Google added an important twist: It ranked ads based on a combination of how much an advertiser would pay, plus the popularity of the ad as measured by the number of clicks it generated. Google is also widely credited with inventing the concept of 70-20-10 time, so energized engineers may devote 20 percent of their time to brainstorming company-related ideas, and 10 percent on anything else that interests them. But when Google founders Larry Page and Sergey Brin were mere schoolchildren, 3M was already giving its employees free time to work on outside passions, which led to the creation of Post-it Notes, among other things.

“Google Protects the Privacy of Its Users”

Yes, sort of. “In Google We Trust.” That is Google’s operating philosophy and culture; it must have the trust of millions of computer users and advertisers in order to thrive. Yet Google itself does not trust outsiders. Last year, a reporter for the online technology site CNET googled the company’s CEO, Eric Schmidt, and wrote a story that contained personal information about him and his wife. In retaliation, Google said it would not talk to CNET or the reporter again for a year. After much adverse publicity about the hypocrisy of penalizing a news organization for using Google technology to learn and share information, the company lifted its embargo.

Google self-righteously protects its crown jewel—its database of how Googlers search—by claiming that it’s in the best interest of its users. But in reality, Google operates in the best interest of Google. Recently, the U.S. Justice Department sought information from AOL, Microsoft, Yahoo, and Google for a child pornography investigation, asking for a week’s worth of searches. The others complied, but Google put up a legal fight for several months before the Justice Department agreed in March to reduce the scope of its request. Google’s motivation wasn’t protecting people’s privacy; it was a fear of losing its competitive edge. If Google were forced to disclose too much information about how its users search the Internet, then its competitors might be able to decipher secrets of its technology. Google will fight to protect its privacy at all costs.

“Google Is Unconventional”

Not anymore. The founders’ letter written by Page and Brin states, “Google is not a conventional company. We do not intend to become one.” On the surface, how could anyone conclude otherwise? After all, the Googleplex offers three free gourmet meals a day, free onsite medical care, beach volleyball, and all the toys a geek’s heart could desire. There are even futuristic Japanese toilets—replete with heated seats and push-button controls to wash and dry your backside—that would make any champion of artificial intelligence proud. It’s a graduate school campus on steroids that aims to stimulate creativity and teamwork by eliminating the distinction between work and play.

But don’t confuse these artifacts of the culture with the company itself. Google, as a business, turns out to be very traditional. Just like Hewlett-Packard and dozens of other Silicon Valley companies, it was born at Stanford University. It soon moved to a nearby garage off campus and received funding from mainstream Bay Area venture capital firms. Page and Brin are a formidable duo, but so were Microsoft’s Bill Gates and Paul Allen and Apple Computer’s Steve Jobs and Steve Wozniak. When Page and Brin decided in 2000 to search for an outsider to become CEO, they poached Schmidt, an experienced manager from Novell. He has assembled a traditional management team to operate the business, implemented traditional mechanisms to measure the company’s financial performance, and installed various safeguards against fraud and other activities. Google certainly tried to hang on to its idiosyncrasies by waiting longer than many other start-ups to offer shares to the public. But as soon as it announced its initial public offering, Google was beholden to the same rules as any other company. Like a rebellious teenager who learns to ditch her mohawk and piercings when she gets a job, Google has grown up.

“Google Is Morally Superior to Other Companies”

Perhaps. Page and Brin take Google’s motto, “Don’t Be Evil,” very seriously. Conveniently, it is a highly effective recruiting tool that attracts those who might otherwise work for competitors such as the Evil Empire up in Redmond. Engineers see the world of technology and business differently than the rest of us mere mortals. In their view, technology can be used for good or for evil. It can free information by making the content of millions of books available online, which is good, as Google is attempting to do. Or it can be used to limit consumer choice by forcing individuals to accept a preinstalled operating system, which techno-purists see as evil.

But the world can’t be so easily divided into good and evil, a lesson that Google has learned recently. When the company launched its Google.cn search engine earlier this year, hoping to tap into China’s vast market of 105 million Internet users, human rights watchers lambasted Google for acquiescing to Beijing’s demands to omit select results on searches for politically sensitive terms, such as “democracy” or “Tiananmen Square.” Google defended its decision, somewhat lamely, by saying that providing information in China—even censored information—could foster positive change. It’s only fair, though, to note that Google seeks to lessen the damage by posting an online disclaimer for Chinese users. On every Internet page that China censors, Google posts a notice indicating that the search results are incomplete.

Whether or not Google’s motivation is genuine altruism—or, more cynically, to create positive PR—is debatable. But, at the very least, Google is putting its money where its mouth is. Last year, the company announced a donation of 3 million shares (equal to roughly $1 billion in March 2006) to a new philanthropic arm, Google.org. In February, Page and Brin hired Larry Brilliant—a well-regarded physician who spent many years working with the World Health Organization and other public-health groups to eradicate smallpox in India, combat blindness in Africa, and fight other diseases—to be executive director of the charitable foundation. Page and Brin have said they hope that their global philanthropic work through Google.org will someday eclipse Google itself in importance.

“Google Can’t Be Toppled”

Yes, it can. Clearly, the honeymoon is over for Google. Not only has the darling of search been subject to close government scrutiny, its finances are taking a hit, too. Amid heightened competition, Google’s marketing costs are rising, its profit margins are shrinking, and its slowing rate of growth has disappointed Wall Street. The high-flying stock that once exceeded $475 per share has plunged to less than $350, a drop of more than 25 percent in less than three months. Google’s absolute refusal to provide Wall Street analysts with any forward-looking financial guidance only compounds the risk, uncertainty, and volatility involved in investing in the company.

Does Google have a second act that can match its early success? Or, will its rapid expansion lead to costly mistakes? Certainly, the company has managed to spew out new products at a feverish clip. But unlike its core search engine, none of them has become a blockbuster. Google Video, Google Talk, and Gmail may be good products, but they are not yet market leaders.

There is little question that Google, a quintessential American success story with a gilt-edged brand name, will have staying power in the United States for many years to come. But as the company’s tentacles extend across the world, its one-size-fits-all strategy simply won’t work where different customs and laws prevail. Last year, French President Jacques Chirac announced Franco-German support for the creation of an ambitious new European search engine, called Quaero (“I seek” in Latin). The French government, which is the main financier of the project, created the Agency for Industrial Innovation with $2 billion in seed money, most of which will go to Quaero. For Google’s global winning streak to continue, the search engine born and nurtured in Silicon Valley will have to do more than simply translate its whimsical home page from English into other languages. It remains to be seen how successfully Google can navigate the challenges posed by distinct cultures and foreign governments as it aggressively pursues global growth in the Internet Age.

(David A. Vise is a Pulitzer Prize-winning reporter for the Washington Post and coauthor of The Google Story: Inside the Hottest Business, Media and Technology Success of Our Time.)